UNIONBANCAL CORP, 10-K405, 1999-03-26

UNIONBANCAL CORP
10-K405, 1999-03-26
NATIONAL COMMERCIAL BANKS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1998
OR

/ / 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 0-28118

UNIONBANCAL CORPORATION

(Exact name of registrant as specified in its charter)

CALIFORNIA 94-1234979
(State of Incorporation) (I.R.S. Employer Identification
No.)

350 CALIFORNIA STREET
SAN FRANCISCO, CALIFORNIA 94104-1476
(Address of principal executive offices)

Registrant's telephone number (415) 765-2969

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock

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. _X_ Yes _ _ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/

As of February 26, 1999, the aggregate market value of voting and non-voting
common equity held by non-affiliates of the registrant was $1,017,181,376. The
aggregate market value was computed by reference to the last sales price of such
stock.

As of February 26, 1999, the number of shares outstanding of the
registrant's Common Stock was 175,281,286.

_______________________DOCUMENTS INCORPORATED BY REFERENCE______________________

<TABLE>
<CAPTION>
INCORPORATED DOCUMENT LOCATION IN FORM 10-K
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Portions of the Proxy Statement for the May 26, 1999 Annual Meeting of Shareholders Part III
</TABLE>

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INDEX
PART I

<TABLE>
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PAGE
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ITEM 1. BUSINESS 2
General 2
Banking 2
Subsidiaries 3
Employees 4
Competition 4
Monetary Policy 4
Supervision and Regulation 4

ITEM 2. PROPERTIES 5

ITEM 3. LEGAL PROCEEDINGS 6

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 6

EXECUTIVE OFFICERS OF THE REGISTRANT 7

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS 9

ITEM 6. SELECTED FINANCIAL DATA 10, F-1

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10, F-1

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 10, F-36

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 10, F-46

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 10

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 11

ITEM 11. EXECUTIVE COMPENSATION 11

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 11

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 11

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K 11

SIGNATURES II-1
</TABLE>
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PART I

ITEM 1. BUSINESS

GENERAL

UnionBanCal Corporation is a commercial bank holding company incorporated in
the State of California in 1952 and is among the oldest banks on the West Coast,
having roots as far back as 1864. We were formed as a result of the combination
of Union Bank with BanCal Tri-State Corporation on April 1, 1996. The
combination was effected by the issuance of 54.4 million shares of Union Bank
common stock in exchange for all of the outstanding shares of BanCal Tri-State
Corporation. At December 31, 1998, Union Bank of California, N.A. was the third
largest commercial bank in California, based on total assets and total deposits
in California, and one of the thirty largest commercial banks in the United
States.

On August 10, 1998, UnionBanCal Corporation exchanged 10.2 million shares of
its Common Stock for the 7.2 million shares of the Common Stock of Union Bank of
California, N.A. owned directly by The Bank of Tokyo-Mitsubishi, Ltd. This share
exchange provided us with a 100 percent ownership interest in Union Bank of
California, N.A. In addition, on that date, it increased The Bank of
Tokyo-Mitsubishi's ownership percentage of us to 82 percent from 81 percent.

The exchange of shares was accounted for as a reorganization of entities
under common control. Accordingly, amounts previously reported as Parent Direct
Interest in Bank Subsidiary, including the proportionate share of net income,
dividends, and other comprehensive income, have been reclassified to combine
them with the corresponding amounts attributable to our common shareholders for
all periods presented.

On November 18, 1998, our Board of Directors approved the declaration of a
3-for-1 common stock split effective for shareholders of record on December 7,
1998. Accordingly, all historical financial information has been restated as if
the stock split had been in effect for all periods presented.

Also on November 18, 1998, our Board of Directors approved a change in the
stated value of our Common Stock to no stated value from $1.67 per share
effective as of December 7, 1998. Accordingly, amounts previously reported as
Additional Paid-in Capital have been reclassified to combine them with Common
Stock.

On March 3, 1999, we completed a secondary offering of 28.75 million shares
of our Common Stock owned by The Bank of Tokyo-Mitsubishi, Ltd. We received no
proceeds from this transaction. Concurrent with the secondary offering, we
repurchased 8.6 million shares of our outstanding Common Stock from The Bank of
Tokyo-Mitsubishi, Ltd. and 2.1 million shares owned by Meiji Life Insurance
Company with $311 million of the net proceeds from the issuance of $350 million
of 7 3/8 percent capital securities that occurred on February 19, 1999. After
the secondary offering and the repurchase, The Bank of Tokyo-Mitsubishi, Ltd.
owns 64 percent of us, or 105.6 million shares, compared with 82 percent prior
to the transactions.

We provide a wide range of financial services to consumers, small
businesses, middle-market companies and major corporations, primarily in
California, Oregon, and Washington, but nationally and internationally as well.

BANKING

Our operations are divided into five primary segments:

THE COMMUNITY BANKING GROUP. This group offers its customers a full line of
checking and savings, investment, loan and fee-based banking products through
its 244 branches in California, as well as branches in Oregon, Washington, and
the Marianas Islands. In addition to traditional consumer and business loan
products, the group offers credit products to small and mid-size agricultural
enterprises,

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international trade and settlement services, and E-banking through our web site
and through personal financial management products.

THE COMMERCIAL FINANCIAL SERVICES GROUP. This group offers a variety of
commercial financial services, including commercial and project loans, real
estate financing, asset-based and leveraged commercial financing, trade finance
and letters of credit, lease financing, customized cash management services and
selected capital markets products. The group's customers include middle-market
companies, large corporations, real estate companies and other more specialized
industry customers. In addition, specialized depository services are offered to
title and escrow companies, retailers, bankruptcy trustees and other customers
with significant deposit volumes.

THE INTERNATIONAL BANKING GROUP. This group primarily provides
correspondent banking and trade finance-related products and services to
financial institutions worldwide, particularly in Brazil, Hong Kong, Japan,
Korea and Taiwan. The group also serves selected foreign firms and U.S.
corporate clients in selected countries worldwide, particularly in Asia. This
group has a long and stable history of providing correspondent and trade-related
services to international financial institutions.

THE TRUST AND PRIVATE FINANCIAL SERVICES GROUP. This group is comprised of
five business divisions which offer a wide variety of services. For individuals,
the group offers trust, brokerage and custody services as well as full service
banking for high net worth individuals. Except for full service banking,
institutional customers are offered similar services and also have access to
employee benefit and 401(k) plan administration, securities lending operations
and custody services at both global and domestic levels. Union Bank of
California, N.A.'s investment management division is operated within the Trust
Group and provides services and advice to internal bank divisions, individual
and institutional customers and Union Bank of California, N.A.'s proprietary
HighMark Mutual Fund family.

THE GLOBAL MARKETS GROUP. This group offers customers a broad range of risk
management products such as foreign exchange, interest rate swaps, caps, and
floors. This group also originates debt instruments for bank eligible issuers
and trades debt instruments in the secondary market. The group manages the
market-related risks for us as part of its responsibilities for asset/liability
management.

SUBSIDIARIES

UnionBanCal Corporation has twelve active nonbank subsidiaries that provide
various types of services to us and our customers.

- Bankers Commercial Corporation, UNBC Leasing, Inc. and UnionBanCal Leasing
Corporation engage in equipment leasing and other lease related financing.

- Cal First Properties, Inc. holds and manages various properties used by
us.

- UnionBanCal Venture Corporation is a small business investment company
licensed under the Small Business Investment Act of 1958.

- UnionBanCal Commercial Funding Corporation sells commercial paper and
invests the proceeds in Eurodollar placements with Union Bank of
California, N.A.

- UnionBanCal Equities, Inc. invests in equity securities of other
companies.

- Mills-Ralston, Inc. and SBS Realty Inc. were established to hold and
dispose of problem assets, including other real estate owned (OREO).

- Stanco Properties, Inc. engages in custodian activities in connection with
tax-deferred exchanges of real property under Section 1031 of the Internal
Revenue Code.

- UnionBanCal Mortgage Corporation acts as trustee under deeds of trust on
behalf of us.

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- HighMark Capital Management, Inc. provides investment management and
advice, mutual fund support services and sponsors and underwrites
closed-end funds.

Union Bank of California, N.A. has three active subsidiaries.

- UBOC Investment Services, Inc. (UBOCIS), a registered securities
broker-dealer and member of the National Association of Securities Dealers
(NASD), offers a wide range of investment products. These products include
a wide range of securities, including publicly traded stocks, treasury and
government agency issues, stock options, corporate and municipal bonds,
and mutual funds. In addition, it provides a wholesale investment program
to other financial institutions.

- Union Bank of California International is an Edge Act subsidiary
supporting Union Bank of California, N.A.'s international correspondent
banking business.

- DCI Chapter 7 Solutions, Inc. licenses and provides ongoing technical
support to Chapter 7 bankruptcy trustees for more than 20 banks
nationwide.

EMPLOYEES

At February 26, 1999, we had 9,752 full-time-equivalent employees.

COMPETITION

Banking is a highly competitive business. We compete actively for loan,
deposit, and other financial services business in California, Oregon, and
Washington, as well as nationally and internationally. Our competitors include a
large number of state and national banks and major foreign-affiliated or foreign
banks, as well as many financial and nonfinancial firms which offer services
similar to those offered by us or our subsidiaries.

We believe that continued emphasis on enhanced services and distribution
systems, an expanded customer base, increased productivity and strong credit
quality, together with an established capital base, will position us to meet the
challenges provided by this competition.

MONETARY POLICY

The operations of bank holding companies and their subsidiaries are affected
by the credit and monetary policies of the Federal Reserve Board (FRB). The FRB
influences financial performance through its management of the discount rate,
the money supply, and reserve requirements on bank deposits. Monetary policies
of the FRB have had, and will continue to have, a significant effect on the
operating results of financial institutions, including us.

SUPERVISION AND REGULATION

We are subject to regulation under the Bank Holding Company Act of 1956
(BHCA), as amended, which subjects us to requirements for filing reports with
the Board of Governors of the Federal Reserve System and for undergoing regular
inspections by the Federal Reserve Bank of San Francisco. Generally, the BHCA
restricts any investment that we may make to no more than 5 percent of the
voting shares of any non-banking entity, and we may not acquire more than 5
percent of the voting shares of any domestic bank without the prior approval of
the bank regulatory authorities. Our activities are limited, with some
exceptions, to banking, the business of managing or controlling banks, and
activities which the regulatory authorities deem to be so closely related to
banking as to be a "proper incident thereto".

Union Bank of California, N.A. and most of its subsidiaries are regulated by
the Office of the Comptroller of the Currency (OCC). Our subsidiaries are also
subject to extensive regulation, supervision, and examination by various other
federal and state regulatory agencies. In addition, Union Bank of California,
N.A. and its subsidiaries are subject to certain restrictions under the Federal
Reserve Act,

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including restrictions on affiliate transactions. Dividends payable by Union
Bank of California, N.A. to us are subject to a formula imposed by the OCC
unless express approval is given to deviate from the formula. For more
information regarding restrictions on loans and dividends by Union Bank of
California, N.A. to its affiliates and on transactions with affiliates, see
Notes 15 and 20 to our Consolidated Financial Statements included in this Form
10-K.

The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
imposed stricter capital requirements on banks. FDICIA requires federal bank
regulatory authorities to take "prompt corrective action" in dealing with
inadequately capitalized banks. FDICIA established five tiers of capital
measurement ranging from "well capitalized" to "critically undercapitalized". It
is our policy to maintain risk-based capital ratios at or above the required
minimum capital adequacy levels for both Union Bank of California, N.A. and us.
At December 31, 1998, management believed Union Bank of California, N.A. met the
requirements of a "well capitalized" institution.

Furthermore, the activities of HighMark Capital Management, Inc. and UBOCIS
are subject to the rules and regulations promulgated by the Securities and
Exchange Commission as well as other securities regulators at the state level.
UBOCIS is also subject to the rules and regulations promulgated by the NASD.

There are additional requirements and restrictions in the laws of the United
States and the states of California, Oregon, and Washington, as well as other
states in which Union Bank of California, N.A. and its subsidiaries may conduct
operations. These may include restrictions on the amount of loans and the nature
and amount of investments, as well as activities as an underwriter of
securities, the opening and closing of branches and the acquisition of other
financial institutions.

The activities of Union Bank of California, N.A. in the international arena
may be subject to the laws and regulations of the jurisdiction where business is
being conducted which may change from time to time and affect Union Bank of
California, N.A.'s business opportunities and competitiveness in these
jurisdictions. Furthermore, due to the controlling ownership of us by The Bank
of Tokyo-Mitsubishi, Ltd., regulatory requirements adopted or enforced by the
Government of Japan may have an effect on the activities and investments of
Union Bank of California, N.A. and us in the future.

The trend followed in recent years by the United States Congress has been to
make major legislative changes which, in turn, lead to major regulatory changes,
which affect us, Union Bank of California, N.A. and our subsidiaries, as well as
the financial services industry in general. Such changes can be expected to
occur in the future. Generally, the effect of such changes has been to increase
competition and narrow the functional distinctions among different types of
financial institutions. In some cases, these changes create opportunities for
Union Bank of California, N.A. and us, as well as the financial services
industry, to compete in financial markets on a more general basis with less
regulation. However, these changes also lead to new and major competitors in
geographic and product markets which have historically been limited by law and
regulation to depository institutions, such as Union Bank of California, N.A.

Changes in the laws, regulations, or policies that impact Union Bank of
California, N.A. and us cannot necessarily be predicted and may have a material
effect on the business and earnings thereof.

See Consolidated Financial Statements starting on page F-46 for specific
financial information on UnionBanCal Corporation.

ITEM 2. PROPERTIES

At December 31, 1998, we operated 244 full service branches in California, 6
full service branches in Oregon and Washington, and 18 overseas branches and
business offices. In addition, we have another 41 limited service branches, 15
Cash & Save facilities, and 15 Private Bank offices. We own the property
occupied by 86 of the domestic offices and lease the remaining properties for
periods of five to twenty years.

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We own 2 administrative facilities in San Francisco and 3 in San Diego.
Other administrative offices in San Francisco, Los Angeles, Portland, Seattle,
and New York operate under long-term leases expiring in three to fifteen years.

Rental expense for branches and administrative premises are included in Note
4 to our Consolidated Financial Statements.

ITEM 3. 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 the opinion of management, the
disposition of claims currently pending will not have a material adverse effect
on our financial position or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of 1998.

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EXECUTIVE OFFICERS OF THE REGISTRANT

<TABLE>
<CAPTION>
EXECUTIVE OFFICER AGE PRINCIPAL OCCUPATIONS FOR THE PAST FIVE YEARS
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<S> <C> <C>
Kaoru Hayama....................... 64 Mr. Hayama has served as Chairman of UnionBanCal Corporation and Union
Bank of California, N.A. since September 1998. He served as Deputy
President of The Bank of Tokyo-Mitsubishi, Ltd. from April 1996 to June
1998 and as Deputy President of the former Bank of Tokyo, Ltd. from
June 1994 to April 1996. He had previously served as a director of
former Union Bank during 1992-1994, while also serving as the former
Bank of Tokyo Ltd.'s Senior Managing Director of the Americas and
Chairman and Chief Executive Officer of The Bank of Tokyo Trust
Company. Mr. Hayama has served as a director of UnionBanCal Corporation
since September 1998.

Takahiro Moriguchi................. 54 Mr. Moriguchi has served as President and Chief Executive Officer of
UnionBanCal Corporation and Union Bank of California, N.A. since May
1997. He served as Vice Chairman and Chief Financial Officer of
UnionBanCal Corporation and Union Bank of California, N.A. from April
1996 to May 1997. He served as Vice Chairman and Chief Financial
Officer of the former Union Bank from June 1993 until March 1996. He
served as General Manager of the former Bank of Tokyo, Ltd.'s Capital
Markets Division 2 from May 1992 to May 1993. He has served as a
director of The Bank of Tokyo-Mitsubishi, Ltd. since April 1996 and as
a director of the former Bank of Tokyo, Ltd. prior thereto. Mr.
Moriguchi has served as a director of UnionBanCal Corporation since
June 1993.

Yoshihiko Someya................... 51 Mr. Someya has served as Deputy Chairman and head of Credit and
Administration and Trust and Private Financial Services Group for
UnionBanCal Corporation and Union Bank of California, N.A. since July
1998. He served as Executive Vice President and head of Credit
Management and Support Liaison for UnionBanCal Corporation and Union
Bank of California, N.A. from March 1998 to July 1998. He served as
Deputy General Manager of the Osaka Branch of The Bank of
Tokyo-Mitsubishi Ltd. from May 1996 to March 1998. He served as General
Manager, Financial Institutions Division of former Mitsubishi Bank,
Ltd. from May 1995 to May 1996. He served as Director and General
Manager of DC Card Company, Ltd., a subsidiary of former Mitsubishi
Bank, Ltd. from May 1993 to May 1995. Mr. Someya has served as a
director of UnionBanCal Corporation since July 1998.

Richard C. Hartnack................ 53 Mr. Hartnack has served as Vice Chairman and head of the Community
Banking Group for UnionBanCal Corporation and Union Bank of California,
N.A. since April 1996. He served as Vice Chairman of the former Union
Bank from June 1991 until March 1996. Mr. Hartnack has served as a
director of UnionBanCal Corporation since June 1991.
</TABLE>

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<TABLE>
<CAPTION>
EXECUTIVE OFFICER AGE PRINCIPAL OCCUPATIONS FOR THE PAST FIVE YEARS
- ----------------------------------- --- -----------------------------------------------------------------------
<S> <C> <C>
Robert M. Walker................... 57 Mr. Walker has served as Vice Chairman and head of the Commercial
Financial Services Group for UnionBanCal Corporation and Union Bank of
California, N.A. since April 1996. He served as Vice Chairman in the
same position with the former Union Bank from July 1992 until March
1996. Mr. Walker has served as a director of UnionBanCal Corporation
since July 1992.

Peter R. Butcher................... 58 Mr. Butcher has served as Executive Vice President and Chief Credit
Officer of UnionBanCal Corporation and Union Bank of California, N.A.
since July 1998 and as Executive Vice President, Credit Management and
Compliance Group, of UnionBanCal Corporation and Union Bank of
California, N.A. since April 1996. He served as Executive Vice
President and Chief Credit Officer of the former BanCal Tri-State
Corporation and former Bank of California, N.A. from July 1993 until
March 1996. He served as Executive Vice President of Society National
Bank from March 1992 to July 1993.

Katsuyoshi Hamahashi............... 49 Mr. Hamahashi has served as head of Global Markets Group for
UnionBanCal Corporation and Union Bank of California, N.A. since
October 1998 and as Executive Vice President and Treasurer of
UnionBanCal Corporation and Union Bank of California, N.A. since April
1996. He served as Executive Vice President and Treasurer of the former
Union Bank from February 1996 until March 1996 and Senior Vice
President and Treasurer of the former Union Bank from February 1993 to
February 1996.

David I. Matson.................... 54 Mr. Matson has served as Executive Vice President and Chief Financial
Officer of UnionBanCal Corporation and Union Bank of California, N.A.
since July 1998. He served as Executive Vice President and Director of
Finance of UnionBanCal Corporation and Union Bank of California, N.A.
from August 1997 to July 1998. He served as Executive Vice President
and head of the Institutional and Deposit Markets Division from April
1996 until July 1997. He served in the same capacity at the former
Union Bank from January 1994 until March 1996. He served as Senior Vice
President of the former Union Bank for more than five years prior
thereto.

Magan C. Patel..................... 61 Mr. Patel has served as Executive Vice President and head of the
International Banking Group for UnionBanCal Corporation and Union Bank
of California, N.A. since April 1996. He served as Executive Vice
President, International Banking Group, of the former BanCal Tri-State
Corporation and the former Bank of California, N.A. for more than five
years prior thereto.
</TABLE>

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<TABLE>
<CAPTION>
EXECUTIVE OFFICER AGE PRINCIPAL OCCUPATIONS FOR THE PAST FIVE YEARS
- ----------------------------------- --- -----------------------------------------------------------------------
<S> <C> <C>
Charles L. Pedersen................ 55 Mr. Pedersen has served as Executive Vice President and head of the
Systems, Technology and Item Processing Group for UnionBanCal
Corporation and Union Bank of California, N.A. since April 1996. He
served as Executive Vice President and head of the Bank Operations and
Automation Group for the former Union Bank from September 1992 until
March 1996.

Michael A.C. Spilsbury............. 49 Mr. Spilsbury has served as Executive Vice President and head of the
Operations and Services Group of UnionBanCal Corporation and Union Bank
of California, N.A. since April 1996. He served as Executive Vice
President, Resources and Services, with the former BanCal Tri-State
Corporation and the former Bank of California, N.A. from January 1992
through March 1996.

Ikuzo Sugiyama..................... 49 Mr. Sugiyama has served as Executive Vice President and head of the
Pacific Rim Corporate Group for UnionBanCal Corporation and Union Bank
of California, N.A., and General Manager of the Los Angeles Branch of
The Bank of Tokyo-Mitsubishi, Ltd. since July 1997. He served as Chief
Manager, Corporate Banking Division No. 3 under Corporate Banking Group
No. 1 of The Bank of Tokyo-Mitsubishi, Ltd. from April 1996 to July
1997. From April 1994 to April 1996, he served as Deputy General
Manager of the Marunonchi Office of the former Bank of Tokyo, Ltd. From
May 1991 to March 1994, he served as Deputy General Manager of the Los
Angeles Agency of the former Bank of Tokyo, Ltd. and as Senior Vice
President of the Japanese Corporate Department-LA of the former Union
Bank.

Philip M. Wexler................... 60 Mr. Wexler has served as Executive Vice President and head of the
Specialized Lending Group for UnionBanCal Corporation and Union Bank of
California, N.A. since April 1996. He served as Executive Vice
President and General Manager of the Specialized Lending Group of the
former Union Bank from October 1987 through March 1996.
</TABLE>

The term of office of the executive officer extends until the officer
resigns, is removed, retires, or is otherwise disqualified for service. There is
no family relationship among any such officers.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Our common stock is traded on the Nasdaq National Market under the symbol
UNBC. As of February 26, 1999, our common stock was held by approximately 2,260
registered shareholders. Subsequent to the secondary offering and the repurchase
on March 3, 1999 as described on page 2, The Bank of Tokyo-Mitsubishi, Ltd. held
64 percent of our common stock. During 1997 and 1998, the average daily trading
volume of our common stock was approximately 104,910 shares and 150,057 shares,
respectively. At December 31, 1996, 1997 and 1998, our common stock closed at
$17.67 per share, $35.83 per share, and

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$34.06 per share, respectively. The following table presents stock quotations
for each quarterly period for the two years ended December 31, 1998.

<TABLE>
<CAPTION>
1997 1998
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<S> <C> <C> <C> <C>
HIGH LOW HIGH LOW
--------- --------- --------- ---------
First quarter.......................................... $ 21.00 $ 17.58 $ 35.67 $ 27.83
Second quarter......................................... 25.96 16.92 38.33 29.83
Third quarter.......................................... 29.50 23.92 34.33 23.63
Fourth quarter......................................... 35.83 27.83 35.25 24.67
</TABLE>

The following table presents quarterly per share cash dividends declared for
1997 and 1998:

<TABLE>
<CAPTION>
1997 1998
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<S> <C> <C>
First quarter................................................................ $ 0.12 $ 0.14
Second quarter............................................................... 0.12 0.14
Third quarter................................................................ 0.14 0.14
Fourth quarter............................................................... 0.14 0.19
</TABLE>

On November 18, 1998, our Board of Directors approved a 36 percent increase
in our quarterly common stock dividend for the fourth quarter of 1998 from $0.14
per share to $0.19 per share. Future dividends will depend upon our earnings,
financial condition, capital requirements and other factors as our Board of
Directors may deem relevant.

We offer a dividend reinvestment plan that allows shareholders to reinvest
dividends in our common stock at 5 percent below the market price. The Bank of
Tokyo-Mitsubishi, Ltd. did not participate in the plan during 1998.

The availability of our retained earnings for the payment of dividends is
affected by certain legal restrictions. See Note 15 to our Consolidated
Financial Statements. In addition, we have a dividend reinvestment and stock
purchase plan. For further information about these plans, see Note 11 to our
Consolidated Financial Statements.

ITEM 6. SELECTED FINANCIAL DATA

See page F-1 of this Form 10-K.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

See pages F-1 through F-45 of this Form 10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See pages F-36 through F-40 of this Form 10-K.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See pages F-46 through F-94 of this Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Reference is made to our Proxy Statement for the May 26, 1999 Annual Meeting
of Shareholders for incorporation of information concerning directors and
persons nominated to become directors of UnionBanCal Corporation. Information
concerning our executive officers as of February 26, 1999 is included in Part I
above in accordance with Instruction 3 to Item 401(b) of Regulation S-K.

ITEM 11. EXECUTIVE COMPENSATION

Information concerning executive compensation is incorporated by reference
from the text under the caption "Compensation and Other Transactions with
Management and Others" in the Proxy Statement for the May 26, 1999 Annual
Meeting of Shareholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information concerning ownership of the equity stock of UnionBanCal
Corporation by certain beneficial owners and management is incorporated by
reference from page 1 and the text under the caption "Election of Directors" in
the Proxy Statement for the May 26, 1999 Annual Meeting of Shareholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information concerning certain relationships and related transactions with
officers, directors, and The Bank of Tokyo-Mitsubishi, Ltd. is incorporated by
reference from the text under the caption "Transactions with Management and
Others" in the Proxy Statement for the May 26, 1999 Annual Meeting of
Shareholders.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(A)(1) FINANCIAL STATEMENTS

Our Consolidated Financial Statements, the Management Statement, and the
independent auditors' report are set forth on pages F-47 through F-94. (See
index on page F-46).

(A)(2) FINANCIAL STATEMENT SCHEDULES

All schedules to our Consolidated Financial Statements are omitted because
of the absence of the conditions under which they are required or because the
required information is included in our Consolidated Financial Statements or
accompanying notes.

(A)(3) EXHIBITS

<TABLE>
<CAPTION>
NO. DESCRIPTION
- --------- ----------------------------------------------------------------------------------------------------------
<C> <S>
3.1 Restated Articles of Incorporation of the Registrant, as amended(1)
3.2 By-laws of the Registrant, as amended(2)
10.1 Management Stock Plan. (As restated effective June 1, 1997)*(3)
10.2 Union Bank of California Deferred Compensation Plan. (January 1, 1997, Restatement, as amended November
21, 1996)*(4)
10.3 Union Bank of California Senior Management Bonus Plan. (Effective January 1, 1997)*(3)
10.4 Richard C. Hartnack Employment Agreement. (Effective January 1, 1998)*(5)
10.5 Robert M. Walker Employment Agreement. (Effective January 1, 1998)*(5)
</TABLE>

11
<PAGE>
<TABLE>
<CAPTION>
NO. DESCRIPTION
- --------- ----------------------------------------------------------------------------------------------------------
<C> <S>
10.6 Union Bank of California Supplemental Executive Retirement Plan. (Effective January 1, 1988) (Amended and
restated as of January 1, 1997)*(3)
10.7 Union Bank Executive Wellness Plan. (Effective January 1, 1994)*(6)
10.8 Union Bank Financial Services Reimbursement Program. (Effective January 1, 1996)*(7)
10.9 Performance Share Plan. (Effective January 1, 1997)*(3)
10.10 Service Agreement Between Union Bank of California and The Bank of Tokyo-Mitsubishi Ltd. (Effective
October 1, 1997)*(3)
12.1 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements(1)
21.1 Subsidiaries of the Registrant(4)
23.1 Consent of Deloitte & Touche LLP(1)
27.1 Financial Data Schedule(1)
</TABLE>

- ------------------------

(1) Filed herewith.

(2) Incorporated by reference to Form 10-Q for the quarter ended June 30, 1998.

(3) Incorporated by reference to Form 10-K for the year ended December 31,
1997.

(4) Incorporated by reference to Form 10-K for the year ended December 31,
1996.

(5) Incorporated by reference to Form 10-Q for the quarter ended September 30,
1998.

(6) Incorporated by reference to Form 8-K dated April 1, 1996 (filed as exhibit
10.12).

(7) Incorporated by reference to Form 8-K dated April 1, 1996 (filed as exhibit
10.14).

* Management contract or compensatory plan, contract or arrangement.

(B) REPORTS ON FORM 8-K

We filed a report on Form 8-K on December 8, 1998 under Item 5, to amend 3
Registration Statements on Form S-8 and a Registration Statement on Form S-3 of
UnionBanCal Corporation to reflect an increase in the number of shares of our
common stock covered by such Registration Statements as a result of the 3-for-1
common stock split, payable on December 21, 1998 to shareholders of record on
December 7, 1998.

We filed a report on Form 8-K on January 11, 1999 under Item 5, to restate
the Consolidated Financial Statements for the years ended December 31, 1995,
1996 and 1997, and for the nine months ended September 30, 1997 (unaudited) and
1998 (unaudited), to give retroactive effect to the 3-for-1 common stock split.

We filed a report on Form 8-K on February 5, 1999 under Item 5 containing
the following items: audited September 30, 1998 Consolidated Financial
Statements, a press release of our financial results for the year and for the
quarter ended December 31, 1998, and an update of our progress with respect to
our year 2000 project since the quarter ended September 30, 1998.

We filed a report on Form 8-K on February 19, 1999 under Item 5, which
included the underwriting agreement that we entered into in connection with the
simultaneous offering of trust preferred securities by our subsidiary,
UnionBanCal Finance Trust I, and the purchase by the trust of 7 3/8 percent
junior subordinated debentures issued by us.

12
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1994 1995 1996 1997 1998
- ---------------------------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net interest income(1)............................ $ 1,007,789 $ 1,152,777 $ 1,175,302 $ 1,237,010 $ 1,322,655
Provision for credit losses....................... 73,000 53,250 40,000 -- 45,000
Noninterest income................................ 359,831 395,319 418,676 463,001 533,531
Noninterest expense............................... 1,036,349 978,101 1,134,904 1,044,665 1,135,218
----------- ----------- ----------- ----------- -----------
Income before income taxes(1)..................... 258,271 516,745 419,074 655,346 675,968
Taxable-equivalent adjustment..................... 12,566 10,444 6,724 5,328 4,432
Income tax expense................................ 120,356 193,359 162,892 238,722 205,075
----------- ----------- ----------- ----------- -----------
Net income........................................ $ 125,349 $ 312,942 $ 249,458 $ 411,296 $ 466,461
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
NET INCOME APPLICABLE TO COMMON STOCK............... $ 114,045 $ 301,637 $ 238,152 $ 403,696 $ 466,461
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
PER COMMON SHARE:
Net income--basic................................. $ 0.67 $ 1.74 $ 1.37 $ 2.31 $ 2.66
Net income--diluted............................... 0.67 1.73 1.36 2.30 2.65
Dividends(2)...................................... 0.47 0.47 0.47 0.51 0.61
Book value (end of period)........................ 11.88 13.49 13.53 15.32 17.45
Common shares outstanding (end of period)......... 172,043,617 174,180,493 174,457,603 174,917,674 175,259,919
Weighted average common shares
outstanding--basic.............................. 171,089,311 173,806,300 174,391,048 174,683,338 175,127,487
Weighted average common shares
outstanding--diluted............................ 171,149,731 174,099,241 174,783,565 175,189,078 175,737,303
BALANCE SHEET (END OF PERIOD):
Total assets...................................... $24,569,042 $27,546,859 $29,234,059 $30,585,265 $32,276,316
Total loans....................................... 18,065,650 20,431,683 21,049,787 22,741,408 24,296,111
Nonperforming assets.............................. 421,227 246,871 156,784 129,809 89,850
Total deposits.................................... 17,409,737 19,655,043 21,532,960 23,296,374 24,507,879
Subordinated capital notes........................ 655,859 501,369 382,000 348,000 298,000
Preferred stock................................... 135,000 135,000 135,000 -- --
Common equity..................................... 2,044,202 2,349,092 2,359,933 2,679,299 3,058,244
BALANCE SHEET (PERIOD AVERAGE):
Total assets...................................... $23,692,560 $25,564,843 $27,899,734 $29,692,992 $30,523,806
Total loans....................................... 17,616,002 18,974,540 20,727,577 21,855,911 23,215,504
Earning assets.................................... 21,046,600 22,849,129 24,717,326 26,291,822 27,487,390
Total deposits.................................... 16,826,443 17,969,972 20,101,544 22,067,155 22,654,714
Common equity..................................... 1,980,577 2,197,476 2,325,437 2,514,610 2,845,964
FINANCIAL RATIOS:
Return on average assets.......................... 0.53% 1.22% 0.89% 1.39% 1.53%
Return on average common equity................... 5.76 13.73 10.24 16.05 16.39
Efficiency ratio(3)............................... 70.39 63.39 71.02 61.53 61.31
Net interest margin(1)............................ 4.79 5.05 4.75 4.70 4.81
Dividend payout ratio............................. 70.15 27.01 34.31 22.08 22.93
Tangible equity ratio............................. 7.91 8.20 7.80 8.54 9.30
Tier 1 risk-based capital ratio................... 9.24 9.35 9.08 8.96 9.64
Total risk-based capital ratio.................... 12.03 11.70 11.17 11.05 11.61
Leverage ratio.................................... 8.67 8.70 8.41 8.53 9.38
Allowance for credit losses to total loans........ 3.12 2.72 2.49 1.99 1.89
Allowance for credit losses to nonaccrual loans... 161.08 266.56 408.48 413.12 585.50
Net loans charged off to average total loans...... 1.15 0.32 0.34 0.33 0.15
Nonperforming assets to total loans and foreclosed
assets.......................................... 2.32 1.21 0.74 0.57 0.37
Nonperforming assets to total assets.............. 1.71 0.90 0.54 0.42 0.28
</TABLE>

- ------------------------------

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

(2) Dividends per share reflect dividends declared on UnionBanCal Corporation's
common stock outstanding as of the declaration date. Amounts prior to the
merger are based on Union Bank only and do not include the dividend of $145
million paid to The Mitsubishi Bank, Limited in the first quarter of 1996 by
BanCal Tri-State Corporation and The Bank of California, N.A.

(3) The efficiency ratio is noninterest expense, excluding foreclosed asset
expense (income), as a percentage of net interest income
(taxable-equivalent) and noninterest income. Foreclosed asset expense
(income) was $73.7 million, $(3.2) million, $2.9 million, $(1.3) million,
and $(2.8) million for 1994 through 1998, respectively.

F-1
<PAGE>
THIS DOCUMENT MAY CONTAIN FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE INDICATED. FOR A DISCUSSION OF FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER, PLEASE SEE THE DISCUSSION CONTAINED HEREIN AND IN OUR
PUBLICLY AVAILABLE SECURITIES AND EXCHANGE COMMISSION FILINGS AND PRESS
RELEASES.

You should read the following discussion and analysis of our consolidated
financial position and the results of our operations for the years ended
December 31, 1996, 1997 and 1998 together with our Consolidated Financial
Statements and the Notes to Consolidated Financial Statements included in this
Form 10-K. Averages as presented in the following tables are substantially all
based upon daily average balances.

INTRODUCTION

We are a California-based, commercial bank holding company with consolidated
assets of $32.3 billion at December 31, 1998. Union Bank of California, N.A. was
the third largest commercial bank in California, based on total assets and total
deposits in California, and one of the thirty largest commercial banks in the
United States.

UnionBanCal Corporation and its banking subsidiary, Union Bank of
California, N.A., was created on April 1, 1996 by the combination of Union Bank
with BanCal Tri-State Corporation and its banking subsidiary, The Bank of
California, N.A. The combination was accounted for as a reorganization of
entities under common control, similar to a pooling of interests. Accordingly,
all historical financial information has been restated as if the combination had
been in effect for all periods presented.

F-2
<PAGE>
OVERVIEW

Net income in 1997 was $411 million, compared to $466 million in 1998. Net
income applicable to common stock was $404 million, or $2.30 per diluted common
share, in 1997, compared with $466 million, or $2.65 per diluted common share,
in 1998. This increase in diluted earnings per share of 15 percent over 1997 was
due to a 7 percent increase in net interest income, a 15 percent increase in
noninterest income, and a 6 percent decrease in the effective income tax rate,
partially offset by a $45 million increase in the provision for credit losses
and a 9 percent increase in noninterest expense. Excluding an after-tax refund
of $25 million from the California Franchise Tax Board (FTB) received in the
third quarter of 1997, net income applicable to common stock was $379 million,
or $2.16 per diluted common share, in 1997. Excluding a state tax reduction of
$60 million, net of federal tax, as described below, net income applicable to
common stock in 1998 was $406 million, or $2.31 per diluted common share. Other
highlights for 1998 include:

- Net interest income, on a taxable-equivalent basis, was $1.3 billion in
1998, an increase of $86 million, or 7 percent, over 1997. Net interest
margin in 1998 was 4.81 percent, an increase of 11 basis points over 1997.

- No provision for credit losses was recorded in 1997, compared with $45
million in 1998. This resulted from management's regular assessment of
overall credit quality, loan growth and economic conditions in relation to
the level of the allowance for credit losses. The allowance for credit
losses was $452 million, or 413% of total nonaccrual loans, at December
31, 1997, compared with $459 million, or 586% of total nonaccrual loans,
at December 31, 1998. Net loans charged off for 1998 were $36 million.

- Nonperforming assets declined $40 million, or 31 percent, from December
31, 1997 to $90 million at December 31, 1998. Nonperforming assets as a
percent of total assets declined to 0.28 percent at December 31, 1998,
compared with 0.42 percent a year earlier. Total nonaccrual loans were
$109 million at December 31, 1997, compared with $78 million at year-end
1998, resulting in a reduction in the ratio of nonaccrual and renegotiated
loans to total loans from 0.48 percent at December 31, 1997 to 0.32
percent at year-end 1998.

- Noninterest income was $534 million in 1998, an increase of $71 million,
or 15 percent, over 1997. This increase includes the $17 million gain from
the sale of the credit card portfolio in the second quarter of 1998.
Service charges on deposit accounts grew $24 million, or 21 percent; trust
and investment management fees increased $14 million, or 13 percent;
international commissions and fees increased $6 million, or 9 percent;
merchant banking fees increased $6 million, or 26 percent; and securities
gains, net, increased $3 million.

- Noninterest expense was $1.1 billion in 1998, an increase of $91 million,
or 9 percent, over 1997. Personnel-related expense increased $46 million,
or 8 percent; other noninterest expense increased $22 million, or 29
percent; and professional services increased $9 million, or 31 percent.

- The effective tax rate for 1997 was 37 percent, compared with 31 percent
for 1998. The effective tax rate for 1997 was favorably affected by an
after-tax refund of $25 million from the FTB for tax years 1975-1987. The
primary reason for the lower 1998 effective tax rate was the filing of our
1997, and our intention to file our 1998, California franchise tax returns
on a worldwide unitary basis, which incorporates the results of The Bank
of Tokyo-Mitsubishi, Ltd. and its worldwide affiliates. Excluding the FTB
refund in 1997 and the $60 million state tax reduction in 1998, the
effective tax rates would have been 41 percent and 40 percent,
respectively.

- The return on average assets for 1998 increased to 1.53 percent, compared
to 1.39 percent for 1997. The return on average common equity for 1998
increased to 16.39 percent, compared to 16.05 percent for 1997.

F-3
<PAGE>
- Total loans at December 31, 1998 were $24.3 billion, an increase of $1.6
billion, or 7 percent, over year-end 1997.

- At December 31, 1998, our Tier 1 risk-based capital ratio was 9.64 percent
and our total risk-based capital ratio was 11.61 percent, exceeding the
minimum regulatory guidelines for bank holding companies of 4 percent and
8 percent, respectively. The Tier 1 and total risk-based capital ratios
for Union Bank of California, N.A. at December 31, 1998 exceeded the
regulatory guidelines for "well-capitalized" banks. Our leverage ratio was
9.38 percent at December 31, 1998, exceeding the minimum regulatory
guideline for bank holding companies.

BUSINESS SEGMENTS

We segregate our operations into five primary business units for the purpose
of management reporting, as shown in the table on the following pages. The
results show the financial performance of our major business units.

The information reflects the condensed income statements, balance sheet
items and a selected financial ratio by business unit. The information presented
does not necessarily represent the business units' financial condition and
results of operations as if they were independent entities. Unlike financial
accounting, there is no authoritative body of guidance for management accounting
equivalent to generally accepted accounting principles. Consequently, reported
results are not necessarily comparable with those presented by other companies.

Business unit results are based on an internal management reporting system
used by management to measure the performance of the units and the company as a
whole. The management reporting system assigns balance sheet and income
statement items to 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 or a credit for funds to assets or
liabilities based on their type, maturity or repricing characteristics.
Noninterest income and expense directly attributable to a business unit are
assigned to that business. Indirect costs, such as overhead, operation, and
technology expense, are allocated to the business units based on studies of
billable unit costs for product or data processing. The provision for credit
losses is allocated based on the formula and specific reserves and the net
chargeoffs for each respective business unit. Equity is allocated based on a
combination of regulatory requirements and management's assessment of economic
risk factors, primarily credit, operating, foreign exchange and interest rate
risk.

The Company is in the process of developing a model for measuring
profitability on a risk adjusted return on equity basis. When fully implemented,
this methodology will be adopted and all prior periods will be restated.

F-4
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY COMMERCIAL FINANCIAL INTERNATIONAL
BANKING GROUP SERVICES GROUP BANKING GROUP
------------------------------- ------------------------------- ------------------------
YEARS ENDED DECEMBER 31, YEARS ENDED DECEMBER 31, YEARS ENDED DECEMBER 31,
------------------------------- ------------------------------- ------------------------
1996 1997 1998 1996 1997 1998 1996 1997
--------- --------- --------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS (DOLLARS
IN THOUSANDS):
Net interest income........... $ 658,144 $ 682,782 $ 673,463 $ 401,912 $ 440,804 $ 494,713 $ 48,175 $ 49,405
Noninterest income............ 133,559 142,944 178,208 78,238 100,316 109,520 62,373 62,238
--------- --------- --------- --------- --------- --------- ----------- -----------
Total revenue................. 791,703 825,726 851,671 480,150 541,120 604,233 110,548 111,643
Noninterest expense........... 577,655 568,031 596,714 201,870 231,906 257,124 72,719 64,874
Credit expense (income)....... 35,644 57,870 4,300 14,362 18,872 21,316 (4,361 ) 234
--------- --------- --------- --------- --------- --------- ----------- -----------
Income before income tax
expense and performance
center earnings
(expense)(1)................ 178,404 199,825 250,657 263,918 290,342 325,793 42,190 46,535
Performance center earnings
(expense)(1)................ 7,688 10,040 7,769 4,141 3,926 2,270 (6,917 ) (3,759)
--------- --------- --------- --------- --------- --------- ----------- -----------
Income (loss) before income
tax expense................. 186,092 209,865 258,426 268,059 294,268 328,063 35,273 42,776
Income tax expense
(benefit)................... 75,319 86,063 102,138 108,494 120,676 127,854 14,276 17,542
--------- --------- --------- --------- --------- --------- ----------- -----------
Net income (loss)............. $ 110,773 $ 123,802 $ 156,288 $ 159,565 $ 173,592 $ 200,209 $ 20,997 $ 25,234
--------- --------- --------- --------- --------- --------- ----------- -----------
--------- --------- --------- --------- --------- --------- ----------- -----------
AVERAGE BALANCES (DOLLARS IN
MILLIONS):
Total loans before performance
centers(2).................. $ 9,877 $ 9,672 $ 9,328 $ 8,292 $ 9,336 $ 11,164 $ 1,443 $ 1,631
Total assets.................. 10,911 10,626 10,270 9,287 10,513 12,414 2,210 2,631
Total deposits before
performance centers(2)...... 11,131 11,757 12,444 3,959 4,875 5,985 1,080 959

FINANCIAL RATIOS:
Return on average assets(3)... 1.02% 1.17% 1.52% 1.72% 1.65% 1.61% 0.95% 0.96%

1998
-----------
<S> <C>
RESULTS OF OPERATIONS (DOLLARS
IN THOUSANDS):
Net interest income........... $ 55,741
Noninterest income............ 65,834
-----------
Total revenue................. 121,575
Noninterest expense........... 66,967
Credit expense (income)....... 11,304
-----------
Income before income tax
expense and performance
center earnings
(expense)(1)................ 43,304
Performance center earnings
(expense)(1)................ (4,087 )
-----------
Income (loss) before income
tax expense................. 39,217
Income tax expense
(benefit)................... 14,773
-----------
Net income (loss)............. $ 24,444
-----------
-----------
AVERAGE BALANCES (DOLLARS IN
MILLIONS):
Total loans before performance
centers(2).................. $ 1,356
Total assets.................. 2,070
Total deposits before
performance centers(2)...... 851
FINANCIAL RATIOS:
Return on average assets(3)... 1.18%
</TABLE>

<TABLE>
<CAPTION>
TRUST AND PRIVATE FINANCIAL GLOBAL
SERVICES GROUP MARKETS GROUP
------------------------------- -------------------------------------
YEARS ENDED DECEMBER 31, YEARS ENDED DECEMBER 31,
------------------------------- -------------------------------------
1996 1997 1998 1996 1997 1998
--------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS):
Net interest income............................... $ 11,539 $ 20,995 $ 22,979 $ 13,342 $ 25,348 $ 35,472
Noninterest income................................ 110,182 128,100 145,593 22,101 21,189 29,854
--------- --------- --------- ----------- ----------- -----------
Total revenue..................................... 121,721 149,095 168,572 35,443 46,537 65,326
Noninterest expense............................... 108,495 123,102 134,977 20,535 22,574 26,718
Credit expense (income)........................... 927 155 345 -- -- --
--------- --------- --------- ----------- ----------- -----------
Income before income tax expense and
performance center earnings (expense)(1)........ 12,299 25,838 33,250 14,908 23,963 38,608
Performance center earnings (expense)(1).......... (674) (1,472) 122 (10,236 ) (10,194 ) (9,231 )
--------- --------- --------- ----------- ----------- -----------
Income (loss) before income tax expense........... 11,625 24,366 33,372 4,672 13,769 29,377
Income tax expense (benefit)...................... 4,705 9,992 13,133 1,891 5,647 11,608
--------- --------- --------- ----------- ----------- -----------
Net income (loss)................................. $ 6,920 $ 14,374 $ 20,239 $ 2,781 $ 8,122 $ 17,769
--------- --------- --------- ----------- ----------- -----------
--------- --------- --------- ----------- ----------- -----------
AVERAGE BALANCES (DOLLARS IN MILLIONS):
Total loans before performance centers(2)......... $ 62 $ 229 $ 258 $ 27 $ -- $ --
Total assets...................................... 94 303 315 4,370 4,078 4,090
Total deposits before performance centers(2)...... 425 708 675 3,811 3,783 2,662

FINANCIAL RATIOS:
Return on average assets.......................... 7.36% 4.74% 6.43% 0.06% 0.20% 0.43%
</TABLE>

- ------------------------------

(1) Performance center earnings (expense) represent the allocation of net
interest income, noninterest income and noninterest expense between the
business segments for products and services originated in one segment but
managed by another.

(2) Represents loans and deposits for each business segment before allocation
between the segments of loans and deposits originated in one segment but
managed by another.

(3) The increase in 1998 over the prior year for the Community Banking Group
was due to the sale of the credit card portfolio as discussed on page F-19.

F-5
<PAGE>

<TABLE>
<CAPTION>
UNIONBANCAL
OTHER CORPORATION
------------------------------- -------------------------------------
YEARS ENDED DECEMBER 31, YEARS ENDED DECEMBER 31,
------------------------------- -------------------------------------
1996 1997 1998 1996 1997 1998
--------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS):
Net interest income............................... $ 35,466 $ 12,348 $ 35,855 $ 1,168,578 $ 1,231,682 $ 1,318,223
Noninterest income................................ 12,223 8,214 4,522 418,676 463,001 533,531
--------- --------- --------- ----------- ----------- -----------
Total revenue..................................... 47,689 20,562 40,377 1,587,254 1,694,683 1,851,754
Noninterest expense............................... 153,630 34,178 52,718 1,134,904 1,044,665 1,135,218
Credit expense (income)........................... (6,572) (77,131 ) 7,735 40,000 -- 45,000
--------- --------- --------- ----------- ----------- -----------
Income before income tax expense and
performance center earnings (expense)(1)........ (99,369) 63,515 (20,076 ) 412,350 650,018 671,536
Performance center earnings (expense)(1).......... 5,998 1,459 3,157 -- -- --
--------- --------- --------- ----------- ----------- -----------
Income (loss) before income tax expense........... (93,371) 64,974 (16,919 ) 412,350 650,018 671,536
Income tax expense (benefit)...................... (41,793) (1,198 ) (64,431 ) 162,892 238,722 205,075
--------- --------- --------- ----------- ----------- -----------
Net income (loss)................................. $ (51,578) $ 66,172 $ 47,512 $ 249,458 $ 411,296 $ 466,461
--------- --------- --------- ----------- ----------- -----------
--------- --------- --------- ----------- ----------- -----------
AVERAGE BALANCES (DOLLARS IN MILLIONS):
Total loans before performance centers(2)......... $ 1,027 $ 988 $ 1,110 $ 20,728 $ 21,856 $ 23,216
Total assets...................................... 1,028 1,542 1,365 27,900 29,693 30,524
Total deposits before performance centers(2)...... (304) (15 ) 38 20,102 22,067 22,655

FINANCIAL RATIOS:
Return on average assets.......................... na na na 0.89% 1.39% 1.53%
</TABLE>

- ------------------------------

(2) Represents loans and deposits for each business segment before allocation
between the segments of loans and deposits originated in one segment but
managed by another.

COMMUNITY BANKING GROUP

The Community Banking Group provides its customers with a full line of
checking and savings, investment, loan and fee-based banking products. In 1998,
average assets in this group were $10.3 billion, and average deposits were $12.4
billion. The increase in the group's net income over 1997 was primarily
attributable to the decline in the provision for credit losses, resulting from
the sale of the credit card portfolio that is discussed on page F-19.

The group focuses on four major markets:

- consumers,

- businesses with sales under $3 million,

- businesses with sales between $3 million and $20 million, and

- middle market companies, including agricultural firms, in central
California and in selected parts of Oregon and Washington.

The group serves over one million consumer households and businesses through
its 244 branches in California, six branches in Oregon and Washington and its
network of over 380 proprietary ATMs. Customers may also access our services 24
hours a day by telephone or personal computer. In addition, the group offers
automated teller and point-of-sale debit services through our founding
membership in the Star System, the largest shared ATM network in the Western
United States.

The group is organized by service delivery method, by markets and by
geography. The primary sub-units of the group are:

- community banking branches, which serve consumers, businesses and, in
certain locations, affluent individuals,

F-6
<PAGE>
- business banking centers, which serve businesses with sales between $3
million and $20 million,

- in-store branches, which also serve consumers and businesses,

- middle market and agricultural lending offices, and

- the Consumer Asset Management division, which is responsible for indirect
auto finance, auto leasing, and residential real estate lending.

Through alliances with other financial institutions, the group offers
additional products and services, such as credit cards, leasing, and asset-based
and leveraged financing.

The group competes with larger banks by providing service quality superior
to that of its major competitors. We are recognized as among the highest rated
banks in California for customer service quality and satisfaction.

The group's primary means of competing with community banks include its
large and convenient branch network and its reputation for innovative use of
technology to deliver banking services. We have the fifth largest branch network
among depository institutions in California. We also offer convenient banking
hours to consumers through our drive-through banking locations and selected
branches that are open seven days a week.

The group's strategies include continuing to build upon the more than one
million households and businesses it serves and broadening the range of
financial products and services it provides to existing customers. The group
uses direct mail marketing methods targeted at specific consumers to supplement
its traditional mass media advertising. We are also introducing a new
computer-driven sales system designed to foster cross-selling of our products.
The new system uses improved software to prompt sales staff to offer customers
additional products and services, based on a customer profile. We have installed
the new system in 40 of our branches, and we anticipate full implementation
within 18 months.

The group will continue to use varied pricing strategies to encourage
customers to use lower-cost methods of delivery to receive our products and
services. The group is emphasizing further development of existing lower-cost
product and service delivery methods, such as the Internet, video kiosks and
loans-by-phone, and is expanding its Direct Banking Center, which offers
products, services, and technical support for home banking via the telephone and
computer.

The group competes with a number of commercial 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. The group's primary competitors are other major depository
institutions such as Bank of America, California Federal, Washington Mutual and
Wells Fargo, as well as smaller community banks in the markets in which we
operate.

COMMERCIAL FINANCIAL SERVICES GROUP

The Commercial Financial Services Group offers a variety of commercial
financial services, including:

- commercial and project loans,

- real estate financing,

- commercial financing based on accounts receivable, inventory, or other
short term assets,

- trade financing, which is the short-term extension of credit to support
export/import transactions, including letters of credit,

- lease financing,

- customized cash management services, and

F-7
<PAGE>
- selected capital markets products.

The group's customers provide a significant source of opportunities for us
to sell products and services of other units of the bank, including treasury,
trust, and retail banking services. In 1998, average assets in this group were
$12.4 billion, and average deposits were $6.0 billion. The increase in the
group's net income over 1997 was primarily due to the growth in commercial,
financial and industrial loans as further discussed on page F-18.

The group is divided into the following business units, which serve specific
markets and industries:

- the Commercial Banking Group, which serves California middle-market
companies and larger companies most often headquartered in the Western
United States,

- the Real Estate Industries Group, which serves real estate developers and
real estate investment trusts,

- the Specialized Lending Group, which serves companies operating in various
industries, including oil and gas, utilities, media, communications,
healthcare, finance, and retailing, and

- the Institutional and Deposit Markets Group, which serves title and escrow
companies, financial institutions, retailers, bankruptcy trustees, and
other customers with large pools of deposits.

The Commercial Customer Service Unit supports these business units by
providing centralized customer service support.

The group competes with other banks primarily on the basis of its reputation
as a "business bank," the quality of its relationship managers, and the delivery
of superior customer service. We are recognized in California as having a
superior "business banking" reputation relative to other large banks. We are
also highly rated among financial institutions for our cash management services
and systems.

The group's main strategy is to target industries and companies for which
the group can reasonably expect to be one of a customer's primary banks.
Consistent with its strategy, the group attempts to serve a large part of its
targeted customers' credit and depository needs.

The group competes with a variety of other financial services 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.

INTERNATIONAL BANKING GROUP

The International Banking Group primarily provides correspondent banking and
trade finance-related products and services to financial institutions worldwide,
particularly in Brazil, Hong Kong, Japan, Korea, and Taiwan. This includes the
provision of products and services that facilitate trade finance transactions,
including payments, collection and the extension of short-term credit. The group
also serves selected foreign firms and U.S. corporate clients in selected
countries worldwide, particularly in Asia. In the U.S., the group serves
subsidiaries and affiliates of non-Japanese Asian companies and U.S. branches
and agencies of foreign banks. The group also provides international services to
domestic corporate clients along the West Coast. The group's revenue
predominately relates to foreign customers. In 1998, average assets in this
group were $2.1 billion and average deposits were $851 million.

The group has a long and stable history of providing correspondent and
trade-related services to international financial institutions. We believe that
we have achieved a leading market position and strong customer loyalty in the
Asia/Pacific correspondent banking market because we provide high quality,
customized products, and services at competitive prices. The group maintains
branches in Tokyo, Taipei, Seoul, Manila and Hong Kong, representative offices
in other parts of Asia and Latin America, and an international banking
subsidiary in New York.

F-8
<PAGE>
One of the group's primary services is international trade finance. Trade
finance is typically short term, which means it generally has a lower credit
risk. Despite this relatively lower credit risk compared to some other forms of
commercial credit, we have reduced the amount of credit we have extended to our
customers and the average maturity of this portfolio in response to recent
instability in global markets.

The group's strategy is to improve its global operations by reducing costs
and improving productivity. It competes with both U.S. and foreign banks.
Approximately 25 U.S. banks compete with the group to provide correspondent
banking and trade-related services to Asian banks. The group's primary
competitors include First Union, Bank of New York, Chase Manhattan, Citibank,
Bank of America, and Bank of Hawaii.

TRUST AND PRIVATE FINANCIAL SERVICES GROUP

The Trust and Private Financial Services Group offers investment management
and administration services for a broad range of individuals and institutions.
The group:

- services individual client needs through its trust and private banking,
investment management and brokerage products and services,

- services institutional client needs through traditional employee benefit
and 401(k) programs, global and domestic securities custody programs,
securities lending programs and corporate trust products, and

- provides investment management services for both individual and
institutional clients through HighMark Capital Management, Inc. and its
family of proprietary HighMark mutual funds.

As of December 31, 1998, the group had over $97.4 billion in assets under
administration.

The group is organized into five business divisions:

- The Private Bank division focuses primarily on delivering integrated and
customized financial services to high net worth individuals with
sophisticated financial needs. Specific products and services include
trust and estate services, investment account management services,
offshore trust services and customized deposit and credit products. The
Private Bank's strategy is to expand its business by increasing its
geographic market coverage and the breadth of its products and services.
To support that strategy, The Private Bank expanded from 9 offices to 15
offices during 1998. In addition, it has shifted sales staff training
efforts toward increased cross-selling of all of the bank's available
products and services.

- HighMark Capital Management, Inc., a registered investment advisor,
manages our proprietary HighMark family of mutual funds. It also provides
investment management services to institutions, pension plans and
individuals, including to clients of other divisions. HighMark Capital
Management's strategy is to expand distribution of its mutual funds by
targeting its marketing efforts at registered investment advisors and
regional broker/dealers. In addition, HighMark is working with The Bank of
Tokyo-Mitsubishi, Ltd. and other third parties to establish mutual funds
offshore that HighMark will advise and which will be offered to non-U.S.
investors. HighMark also serves as a sub-advisor for funds managed by
Tokyo-Mitsubishi Asset Management, Ltd. in Japan.

- The Business Trust division provides businesses, government agencies,
unions and non-profit organizations with trustee services, investment
management and 401(k) valuation and record keeping services. Business
Trust's strategy is to expand its third-party distribution network to
include insurance companies, investment managers, brokers and mutual
funds.

- The Investment Services division consists of Union Bank of California,
N.A. Insurance Services and Union Bank of California, N.A. Investment
Services, Inc., a registered broker/dealer offering a full line of
investment products to individuals and institutional clients. The
division's primary strategy is to further penetrate our existing client
base.

F-9
<PAGE>
- The Securities Services division is engaged in domestic and global
securities custody, safekeeping, mutual fund accounting, securities
lending, and corporate trust services. Its client base includes financial
institutions, businesses, government agencies, unions, investment managers
and non-profit organizations. Securities Services is the only West Coast
based provider of a full range of institutional financial services.

GLOBAL MARKETS GROUP

The Global Markets Group conducts business activities primarily to support
the previously described business groups and their customers. This group offers
a broad range of risk management products, such as foreign exchange and interest
rate swaps, caps and floors. Additionally, it originates debt instruments for
bank eligible issuers, places debt securities, including Union Bank of
California, N.A.'s own liabilities, with institutional investors and trades debt
instruments in the secondary market. This group also manages our market-related
risks as part of its responsibilities for asset/liability management. The group
is also responsible for maintaining Union Bank of California, N.A.'s investment
securities portfolio. In 1998, average assets in this group were $4.1 billion
and average deposits were $2.7 billion.

The group manages our securities portfolio, trading operations, wholesale
funding needs, and interest rate and liquidity risk. The group includes products
that support corporate lending, customer interest rate risk management needs and
foreign exchange.

OTHER

"Other" includes the following items, none of which, on an individual basis,
are significant to our business:

- Corporate activities that are not directly attributable to one of the five
major business units. Included in this category are goodwill, merger and
integration expense, certain parent company non-bank subsidiaries, and the
elimination of the fully taxable-equivalent amounts.

- The unallocated allowance and related provision for credit losses, the net
impact of transfer pricing, and earnings associated with unallocated
equity capital.

- The Credit and Compliance Group, which includes $193 million of average
nonperforming assets.

- 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 outside the U.S., mostly
in Japan.

- The residual costs of support groups.

STRATEGIC INITIATIVES

In connection with our strategic repositioning, we have developed long-term
financial performance goals. These goals will serve as a tool for measuring the
long-term success of our operating strategies, based on normal business
operations, without including nonrecurring events that may occur from time to
time. Our long-term financial performance goals include:

<TABLE>
<CAPTION>
PERFORMANCE RATIO GOAL
- ----------------------------------------------------------------------------- ---------------
<S> <C>
- - Return on average common equity............................................ 15% to 17%
- - Earnings per share growth.................................................. 10% to 12%
- - Efficiency ratio........................................................... 54% to 56%
- - Tangible common equity to assets........................................... 7.5% to 8.5%
</TABLE>

Although we believe these goals are realizable given our proposed operating
strategies and our current asset quality, we cannot assure you that we will
attain these long-term financial performance goals at any particular time. See
paragraph on forward-looking statements on page F-2.

F-10
<PAGE>
NET INTEREST INCOME

The table below shows the major components of net interest income and net
interest margin.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1996 1997
-------------------------------- --------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
(DOLLARS IN THOUSANDS) BALANCE EXPENSE(1) RATE(1) BALANCE EXPENSE(1) RATE(1)
- ---------------------------------------------------- ----------- ---------- ------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans:(2)
Domestic.......................................... $19,328,752 $1,604,799 8.30% $20,332,494 $1,672,006 8.22%
Foreign(3)........................................ 1,398,825 84,693 6.05 1,523,417 92,420 6.07
Securities--taxable(4).............................. 2,138,282 133,170 6.23 2,521,339 158,950 6.30
Securities--tax-exempt(4)........................... 151,970 15,451 10.17 124,174 12,669 10.20
Interest bearing deposits in banks.................. 911,575 52,709 5.78 968,966 56,748 5.86
Federal funds sold and securities purchased under
resale agreements................................. 547,547 30,246 5.52 466,321 26,079 5.59
Trading account assets.............................. 240,375 12,960 5.39 355,111 19,917 5.61
----------- ---------- ----------- ----------
Total earning assets............................ 24,717,326 1,934,028 7.82 26,291,822 2,038,789 7.75
---------- ----------
Allowance for credit losses......................... (544,806) (503,126)
Cash and due from banks............................. 1,926,050 2,006,038
Premises and equipment, net......................... 425,943 411,302
Other assets........................................ 1,375,221 1,486,956
----------- -----------
Total assets.................................... $27,899,734 $29,692,992
----------- -----------
----------- -----------
LIABILITIES
Domestic deposits:
Interest bearing.................................. $ 5,001,060 135,821 2.72 $ 5,340,661 151,768 2.84
Savings and consumer time......................... 2,837,198 105,350 3.71 2,970,370 112,808 3.80
Large time........................................ 4,095,222 218,959 5.35 4,652,293 256,007 5.50
Foreign deposits(3)................................. 1,504,067 71,437 4.75 1,589,303 75,398 4.74
----------- ---------- ----------- ----------
Total interest bearing deposits................. 13,437,547 531,567 3.96 14,552,627 595,981 4.10
----------- ---------- ----------- ----------
Federal funds purchased and securities sold under
repurchase agreements............................. 933,433 47,095 5.05 1,097,707 58,544 5.33
Subordinated capital notes.......................... 458,966 30,104 6.56 354,575 22,850 6.44
Commercial paper.................................... 1,620,087 87,411 5.40 1,637,070 89,912 5.49
Other borrowed funds................................ 1,119,051 62,549 5.59 635,900 34,492 5.42
----------- ---------- ----------- ----------
Total borrowed funds............................ 4,131,537 227,159 5.50 3,725,252 205,798 5.52
----------- ---------- ----------- ----------
Total interest bearing liabilities.............. 17,569,084 758,726 4.32 18,277,879 801,779 4.39
---------- ----------
Noninterest bearing deposits........................ 6,663,997 7,514,528
Other liabilities................................... 1,206,216 1,295,728
----------- -----------
Total liabilities............................... 25,439,297 27,088,135
SHAREHOLDERS' EQUITY
Preferred stock..................................... 135,000 90,247
Common equity....................................... 2,325,437 2,514,610
----------- -----------
Total shareholders' equity...................... 2,460,437 2,604,857
----------- -----------
Total liabilities and shareholders' equity...... $27,899,734 $29,692,992
----------- -----------
----------- -----------
Net interest income/margin (taxable-equivalent
basis)............................................ 1,175,302 4.75% 1,237,010 4.70%
Less: taxable-equivalent adjustment................. 6,724 5,328
---------- ----------
Net interest income............................. $1,168,578 $1,231,682
---------- ----------
---------- ----------

1998
--------------------------------
INTEREST AVERAGE
AVERAGE INCOME/ YIELD/
(DOLLARS IN THOUSANDS) BALANCE EXPENSE(1) RATE(1)
- ---------------------------------------------------- ----------- ---------- -------
<S> <C> <C> <C>
ASSETS
Loans:(2)
Domestic.......................................... $21,890,350 $1,736,847 7.93%
Foreign(3)........................................ 1,325,154 90,011 6.79
Securities--taxable(4).............................. 3,056,152 192,404 6.30
Securities--tax-exempt(4)........................... 103,097 11,384 11.04
Interest bearing deposits in banks.................. 260,720 17,080 6.55
Federal funds sold and securities purchased under
resale agreements................................. 296,285 16,056 5.42
Trading account assets.............................. 555,632 25,829 4.65
----------- ----------
Total earning assets............................ 27,487,390 2,089,611 7.60
----------
Allowance for credit losses......................... (471,113)
Cash and due from banks............................. 1,919,714
Premises and equipment, net......................... 405,562
Other assets........................................ 1,182,253
-----------
Total assets.................................... $30,523,806
-----------
-----------
LIABILITIES
Domestic deposits:
Interest bearing.................................. $ 5,482,257 $ 153,805 2.81
Savings and consumer time......................... 3,205,823 120,778 3.77
Large time........................................ 3,644,732 194,324 5.33
Foreign deposits(3)................................. 1,704,027 86,221 5.06
----------- ----------
Total interest bearing deposits................. 14,036,839 555,128 3.95
----------- ----------
Federal funds purchased and securities sold under
repurchase agreements............................. 1,604,675 84,440 5.26
Subordinated capital notes.......................... 325,808 20,347 6.24
Commercial paper.................................... 1,631,216 88,358 5.42
Other borrowed funds................................ 328,872 18,683 5.68
----------- ----------
Total borrowed funds............................ 3,890,571 211,828 5.44
----------- ----------
Total interest bearing liabilities.............. 17,927,410 766,956 4.28
----------
Noninterest bearing deposits........................ 8,617,875
Other liabilities................................... 1,132,557
-----------
Total liabilities............................... 27,677,842
SHAREHOLDERS' EQUITY
Preferred stock..................................... --
Common equity....................................... 2,845,964
-----------
Total shareholders' equity...................... 2,845,964
-----------
Total liabilities and shareholders' equity...... $30,523,806
-----------
-----------
Net interest income/margin (taxable-equivalent
basis)............................................ 1,322,655 4.81%
Less: taxable-equivalent adjustment................. 4,432
----------
Net interest income............................. $1,318,223
----------
----------
</TABLE>

- ----------------------------------------

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

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

(3) Foreign loans and deposits are those loans and deposits originated in
foreign branches.

(4) Yields on securities available for sale are based on fair value. The
difference between these yields and those based on amortized cost was not
significant.

F-11
<PAGE>
Net interest income is interest earned on loans and investments less
interest expense on deposit accounts and borrowings. Primary factors affecting
the level of net interest income include the margin between the yield earned on
interest earning assets and the rate paid on interest bearing liabilities, as
well as the volume and composition of average interest earning assets and
average interest bearing liabilities.

Net interest income, on a taxable-equivalent basis, was $1.2 billion in
1997, compared with $1.3 billion in 1998. The increase of $86 million, or 7
percent, was primarily attributable to a $1.2 billion, or 5 percent, increase in
average earning assets largely funded by a $1.1 billion, or 15 percent, increase
in average noninterest bearing deposits. In addition, net interest margin
increased 11 basis points to 4.81 percent. Although the differential between the
decrease in the yield on average earning assets and the decrease in the rate on
average interest bearing liabilities was a negative 4 basis points, resulting
from a 75 basis point decrease in the Federal Funds rate in the fourth quarter
of 1998, the negative impact on the net interest margin of these two factors was
more than offset by the increase in the proportion of funding provided by
average noninterest bearing deposits, thereby lowering the overall cost of
funds.

Average earning assets were $26.3 billion in 1997, compared with $27.5
billion in 1998. This growth was primarily attributable to a $1.4 billion, or 6
percent, increase in average loans and a $514 million, or 19 percent, increase
in average securities, partially offset by a $708 million decrease in average
interest bearing deposits in banks. The growth in average loans was attributable
to the increase in average commercial, financial and industrial loans of $1.8
billion, partially offset by the decrease in average consumer loans of $389
million, primarily related to the sale of the credit card portfolio. See "Loans"
on page F-18 for additional commentary on growth in the loan portfolio. The
increase in primarily fixed rate securities reflected interest rate risk
management actions to reduce our exposure to declines in interest rates.

The $1.2 billion, or 5 percent, growth in average earning assets over 1997
was primarily funded by a $1.1 billion increase in average noninterest bearing
deposits. The increase in average noninterest bearing deposits in 1998 was
partially due to an influx of new customer relationships, arising from the
merger and acquisition activities of other financial institutions in the
California market during the past year.

F-12
<PAGE>
ANALYSIS OF CHANGES IN NET INTEREST INCOME

The following table shows the changes in the components of net interest
income on a taxable-equivalent basis. The changes in net interest income between
periods have been reflected as attributable either to volume or to rate changes.
For purposes of this table, changes that are not solely due to volume or rate
changes are allocated to rate.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
1997 VERSUS 1996 1998 VERSUS 1997
---------------------------------- ----------------------------------
INCREASE (DECREASE) DUE TO CHANGE INCREASE (DECREASE) DUE TO CHANGE
IN IN
---------------------------------- ----------------------------------
AVERAGE AVERAGE NET AVERAGE AVERAGE NET
(DOLLARS IN THOUSANDS) VOLUME RATE CHANGE VOLUME RATE CHANGE
- --------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
CHANGES IN INTEREST INCOME
Loans:
Domestic................................... $ 83,311 $ (16,104) $ 67,207 $ 128,056 $ (63,215) $ 64,841
Foreign(1)................................. 7,538 189 7,727 (12,035) 9,626 (2,409)
Securities--taxable.......................... 23,856 1,924 25,780 33,693 (239) 33,454
Securities--tax-exempt....................... (2,826) 44 (2,782) (2,150) 865 (1,285)
Interest bearing deposits in banks........... 3,317 722 4,039 (41,503) 1,835 (39,668)
Federal funds sold and securities purchased
under resale agreements.................... (4,484) 317 (4,167) (9,505) (518) (10,023)
Trading account assets....................... 6,184 773 6,957 11,249 (5,337) 5,912
---------- ---------- ---------- ---------- ---------- ----------
Total earning assets..................... 116,896 (12,135) 104,761 107,805 (56,983) 50,822
---------- ---------- ---------- ---------- ---------- ----------
CHANGES IN INTEREST EXPENSE
Domestic deposits:
Interest bearing........................... $ 9,237 $ 6,710 15,947 $ 4,021 $ (1,984) 2,037
Savings and consumer time.................. 4,941 2,517 7,458 8,947 (977) 7,970
Large time................................. 29,803 7,245 37,048 (55,416) (6,267) (61,683)
Foreign deposits(1).......................... 4,049 (88) 3,961 5,438 5,385 10,823
---------- ---------- ---------- ---------- ---------- ----------
Total interest bearing deposits.......... 48,030 16,384 64,414 (37,010) (3,843) (40,853)
---------- ---------- ---------- ---------- ---------- ----------
Federal funds purchased and securities sold
under repurchase agreements................ 8,296 3,153 11,449 27,021 (1,125) 25,896
Subordinated capital notes................... (6,848) (406) (7,254) (1,853) (650) (2,503)
Commercial paper............................. 916 1,585 2,501 (321) (1,233) (1,554)
Other borrowed funds......................... (27,006) (1,051) (28,057) (16,641) 832 (15,809)
---------- ---------- ---------- ---------- ---------- ----------
Total borrowed funds..................... (24,642) 3,281 (21,361) 8,206 (2,176) 6,030
---------- ---------- ---------- ---------- ---------- ----------
Total interest bearing liabilities....... 23,388 19,665 43,053 (28,804) (6,019) (34,823)
---------- ---------- ---------- ---------- ---------- ----------
Changes in net interest income........... $ 93,508 $ (31,800) $ 61,708 $ 136,609 $ (50,964) $ 85,645
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>

- ------------------------

(1) Foreign loans and deposits are those loans and deposits originated in
foreign branches.

Interest income on a taxable-equivalent basis increased $51 million in 1998,
primarily due to growth in interest income from average domestic loans and
average taxable securities of $65 million and $33 million, respectively,
partially offset by lower interest income from average interest bearing deposits
in banks of $40 million. These changes reflected higher average balances
outstanding on average domestic loans and average taxable securities, partially
offset by a lower average yield on average domestic loans and a lower average
balance outstanding on average interest bearing deposits in banks.

F-13
<PAGE>
Interest expense decreased $35 million in 1998 due to lower interest expense
on average interest bearing deposits, primarily reflecting lower average deposit
balances and lower average rates. Interest expense on borrowed funds increased
$6 million in 1998, reflecting higher volumes, offset by an 8 basis point
decrease in the average rate paid.

NONINTEREST INCOME

<TABLE>
<CAPTION>
INCREASE (DECREASE)
----------------------------------------------
YEARS ENDED DECEMBER 31,
----------------------------------------------
YEARS ENDED DECEMBER 31, 1997 VERSUS 1996 1998 VERSUS 1997
---------------------------------- ---------------------- ----------------------
(DOLLARS IN THOUSANDS) 1996 1997 1998 AMOUNT PERCENT AMOUNT PERCENT
- --------------------------------------------- ---------- ---------- ---------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts.......... $ 101,975 $ 114,647 $ 138,847 $ 12,672 12% $ 24,200 21%
Trust and investment management fees......... 93,479 107,527 121,226 14,048 15 13,699 13
International commissions and fees........... 66,108 66,122 72,036 14 -- 5,914 9
Merchant transaction processing fees......... 49,778 57,128 56,929 7,350 15 (199) --
Merchant banking fees........................ 23,929 24,924 31,402 995 4 6,478 26
Foreign exchange trading gains, net.......... 13,255 16,268 19,527 3,013 23 3,259 20
Brokerage commissions and fees............... 12,932 15,569 19,085 2,637 20 3,516 23
Gain on sale of credit card portfolio........ -- -- 17,056 -- -- 17,056 nm
Securities gains, net........................ 4,502 2,711 5,686 (1,791) (40) 2,975 110
Other........................................ 52,718 58,105 51,737 5,387 10 (6,368) (11)
---------- ---------- ---------- --------- ---------
Total noninterest income..................... $ 418,676 $ 463,001 $ 533,531 $ 44,325 11% $ 70,530 15%
---------- ---------- ---------- --------- ---------
---------- ---------- ---------- --------- ---------
</TABLE>

- ------------------------

nm = not meaningful

Noninterest income in 1998 was $534 million, an increase of $71 million, or
15 percent, over 1997. This included a $24 million increase in service charges
on deposit accounts, a $14 million increase in trust and investment management
fees, a $6 million increase in both international commissions and fees and
merchant banking fees, a $3 million increase in net foreign exchange trading
gains, a $4 million increase in brokerage commissions and fees, a $17 million
gain from the sale of the credit card portfolio in the second quarter of 1998
(see "Consumer Loans" at F-19), and a $3 million increase in net securities
gains, partially offset by a $6 million decrease in other noninterest income.

Revenue from service charges on deposit accounts was $139 million, an
increase of 21 percent over 1997. The increase was primarily attributable to a 3
percent increase in average deposits coupled with the expansion of several
products and services.

Trust and investment management fees were $121 million, an increase of 13
percent over 1997. The increase was due to strong growth in trust accounts and
assets under management, which resulted in higher mutual fund management fees.

International commissions and fees were $72 million, an increase of 9
percent over 1997. The increase was due to increases in export and import
related short-term trade transactions.

Merchant banking fees were $31 million, an increase of 26 percent over 1997.
The increase was due to the expansion of loan syndication activities by the
Commercial Financial Services Group.

Net foreign exchange trading gains, were $20 million, an increase of 20
percent over 1997, primarily due to more volatility in the foreign exchange
markets in 1998.

Brokerage commissions and fees were $19 million, an increase of 23 percent
over 1997. The increase was primarily attributable to brokerage commissions on
non-proprietary mutual fund sales.

F-14
<PAGE>
Net securities gains, were $6 million, an increase of 110 percent over 1997,
primarily due to sales of securities available for sale.

Other noninterest income was $52 million, a decrease of 11 percent from
1997. The decrease was due to a $8 million nonrecurring gain recognized in 1997
related to a real estate joint venture and a $3 million trading loss recognized
in the third quarter of 1998, arising from the decline in interest rates,
partially offset by a $5 million gain recognized in the second quarter of 1998
from the sale of commercial real estate loans.

NONINTEREST EXPENSE

<TABLE>
<CAPTION>
INCREASE (DECREASE)
------------------------------------------------
YEARS ENDED DECEMBER 31,
------------------------------------------------
YEARS ENDED DECEMBER 31, 1997 VERSUS 1996 1998 VERSUS 1997
---------------------------------------- ------------------------ ----------------------
(DOLLARS IN THOUSANDS) 1996 1997 1998 AMOUNT PERCENT AMOUNT PERCENT
- ------------------------------------- ------------ ------------ ------------ ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and other compensation...... $ 448,793 $ 461,915 $ 501,220 $ 13,122 3% $ 39,305 9%
Employee benefits.................... 108,454 109,729 116,344 1,275 1 6,615 6
------------ ------------ ------------ ----------- ---------
Personnel-related expense.......... 557,247 571,644 617,564 14,397 3 45,920 8
Net occupancy........................ 103,335 85,630 90,917 (17,705) (17) 5,287 6
Equipment............................ 55,942 56,137 56,252 195 -- 115 --
Merchant transaction processing...... 37,091 42,274 43,926 5,183 14 1,652 4
Communications....................... 40,133 42,372 41,710 2,239 6 (662) (2)
Professional services................ 24,342 28,075 36,748 3,733 15 8,673 31
Advertising and public relations..... 28,788 28,664 31,897 (124) -- 3,233 11
Data processing...................... 22,140 25,973 28,091 3,833 17 2,118 8
Printing and office supplies......... 27,085 24,098 26,716 (2,987) (11) 2,618 11
Software............................. 15,895 16,562 20,969 667 4 4,407 27
Travel............................... 14,936 15,763 18,080 827 6 2,317 15
Intangible asset amortization........ 13,335 13,352 13,581 17 -- 229 2
Armored car.......................... 13,296 12,209 12,231 (1,087) (8) 22 --
Foreclosed asset expense (income).... 2,889 (1,268) (2,821) (4,157) nm (1,553) nm
Merger and integration expense....... 117,464 6,037 -- (111,427) (95) (6,037) nm
Other................................ 60,986 77,143 99,357 16,157 26 22,214 29
------------ ------------ ------------ ----------- ---------
Total noninterest expense.......... $ 1,134,904 $ 1,044,665 $ 1,135,218 $ (90,239) (8)% $ 90,553 9%
------------ ------------ ------------ ----------- ---------
------------ ------------ ------------ ----------- ---------
</TABLE>

- ------------------------

nm = not meaningful

Noninterest expense in 1998 was $1.1 billion, an increase of $91 million, or
9 percent, over 1997. The increase was mostly due to a $46 million increase in
personnel-related expense, a $5 million increase in net occupancy expense, a $9
million increase in professional services expense, a $4 million increase in
software expense, and a $22 million increase in other noninterest expense,
partially offset by a $6 million decrease in merger and integration expense.

Personnel-related expense was $618 million, an increase of 8 percent over
1997. This increase was due to a $22 million increase in performance-based
incentive compensation and a $22 million increase in exempt base pay, due to
regular merit increases and a 3 percent increase in workforce to support
increased revenue growth.

Net occupancy expense was $91 million, an increase of 6 percent over 1997,
primarily due to expenses related to lease terminations on several properties.

F-15
<PAGE>
Professional services expense was $37 million, an increase of 31 percent
over 1997, primarily due to consultant fees related to the year 2000 effort.

Software expense was $21 million, an increase of 27 percent over 1997,
primarily due to increased software maintenance contracts and increased
purchases of computer software products related to system upgrades at Union Bank
of California, N.A.

Other noninterest expense was $99 million, an increase of 29 percent from
1997, primarily attributable to an increase of $8.3 million in expenses incurred
to support higher deposit volumes and an increase of $8.2 million in other
outside service expenses.

Merger and integration expense of $6 million was recorded in 1997, compared
to no merger and integration expense in 1998. The merger resulted in the
recording of $124 million in total merger and integration expense. The remaining
liability balance at December 31, 1997 was $23 million, compared to $11 million
at December 31, 1998. The remaining liability balance included amounts primarily
for operating lease payments related to redundant banking facilities that are
continuing over the expected term of the leases. See Note 7 to our Consolidated
Financial Statements for further information.

We continue to make preparations for the year 2000. (See "Year 2000" on page
F-41 for a detailed discussion of the year 2000 program). We estimate that the
total cost of our year 2000 project will be approximately $50 million, of which
$10 million relates to capital expenditures which we will capitalize and
depreciate over their useful lives. We will include the remaining $40 million in
noninterest expense in the period incurred. As of December 31, 1998, we have
spent $24 million on our year 2000 project, $2 million in 1997 and $22 million
in 1998. Of the $24 million spent as of December 31, 1998, $6 million related to
capital expenditures, $1 million in 1997 and $5 million in 1998. Of the
estimated $26 million remaining to be spent, an estimated $4 million is expected
to be for capital expenditures and $22 million is expected to be included in
noninterest expense over the next two years. Of the $22 million to be included
in noninterest expense, we have assumed that approximately $14 million will be
spent on salaries and contract labor. This assumes that the current mix of
internal staff and contract labor remains the same, the hours and the
person-days needed to complete the projects are not materially exceeded, and
that preparations for the year 2000 remain on schedule. The remaining $8 million
is expected to relate to other operating expenses. We are funding the cost of
our year 2000 project with normal operating cash and are staffing it with
external resources as well as internal staff re-deployed from less
time-sensitive assignments. Estimated total cost could change further as
analysis continues.

EURO CONVERSION

On January 1, 1999, 11 European countries who joined the Economic and
Monetary Union transitioned into a single currency (the Euro) and a single
central bank, the European Central Bank. Beginning on that date, the exchange
rates of the national currencies of the 11 countries became fixed and all
financial transactions can now be settled in Euros.

We have completed our analysis of the bank-wide impact and have implemented
a project plan that addresses the Euro conversion. We are now fully operational
to settle transactions in the Euro.

INCOME TAX EXPENSE

F-16
<PAGE>
Our effective tax rate in 1997 was 37 percent compared with 31 percent in
1998. The lower 1998 effective tax rate was due to our ability to file our 1997
and 1998 California franchise tax returns on a worldwide unitary basis,
incorporating the financial results of The Bank of Tokyo-Mitsubishi, Ltd. and
its worldwide affiliates. As a result, we reduced our state income tax
liabilities by $29 million, net of federal tax, for previously accrued 1997
state tax liabilities, and lowered our 1998 state tax provision by $31 million,
net of federal tax. In 1997, we received an after-tax refund from the FTB of $25
million to settle litigation, administration, and audit disputes covering the
years 1975-1987. In 1996, we recognized a $5 million after-tax benefit from a
settlement with the FTB for 1985 and 1986. Excluding the income tax reductions
and FTB refunds, the effective tax rates were 41 percent in 1996 and 1997, and
40 percent in 1998.

CREDIT RISK MANAGEMENT

Our principal business activity is the extension of credit in the form of
loans or other credit substitutes to individuals and businesses. Our policies
and applicable laws and regulations, governing the extension of credit, require
risk analysis as well as ongoing portfolio and credit management through loan
product diversification, lending limit constraints, credit review and approval
policies, and extensive internal monitoring.

We manage and control credit risk through diversification of the portfolio
by type of loan, industry concentration, dollar limits on multiple loans to the
same borrower, geographic distribution and type of borrower. Geographic
diversification of loans originated through our branch network is generally
within California, Oregon and Washington, which we consider to be our principal
markets. In addition, we will continue to originate and participate in lending
activities outside these states, as well as internationally.

In analyzing our existing loan portfolios, we apply specific monitoring
policies and procedures that vary according to the relative risk profile and
other characteristics of the loans within the various portfolios. Our
residential and consumer loans are relatively homogeneous and no single loan is
individually significant in terms of its size or potential risk of loss.
Therefore, we review our residential and consumer portfolios by analyzing their
performance as a pool of loans. In contrast, our monitoring process for the
commercial, financial and industrial, construction, commercial mortgage, and
foreign loan portfolios includes a periodic review of individual loans. Loans
that are performing but have shown some signs of weakness are subjected to more
stringent reporting and oversight. We review these loans to assess the ability
of the borrowing entity to continue to service all of its interest and principal
obligations and as a result may adjust the risk grade accordingly. In the event
that we believe that full collection of principal and interest is not reasonably
assured, the loan will be appropriately downgraded and, if warranted, placed on
nonaccrual status, even though the loan may be current as to principal and
interest payments.

We have a Credit Policy Forum, composed of the Chief Credit Officer, senior
credit officers, and appropriate line officers, that establishes policy, credit
quality criteria, portfolio guidelines and other controls. Credit
Administration, together with a series of loan committees, have the
responsibility for administering the credit approval process, as well as the
implementation and administration of our credit policies and lending practices
and procedures. These policies require an extensive evaluation of credit
requests and continuing review of existing credits in order to promptly
identify, monitor, and quantify evidence of deterioration of asset credit
quality or potential loss.

As another part of the control process, an independent internal credit
review and examination function provides quality assurance that loans and
commitments are made and maintained as prescribed by our credit policies and
that the assets are appropriately and timely risk graded. This includes a review
of compliance with our underwriting policies when the loan is initially extended
and subsequent on-site examinations to ensure continued compliance.

F-17
<PAGE>
LOANS

The following table shows loans outstanding by loan type and as a percentage
of total loans for 1994 through 1998.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
(DOLLARS IN MILLIONS) 1994 1995 1996
- ------------------------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Domestic:
Commercial, financial and industrial................. $ 8,547 47% $ 9,684 47% $ 9,496 45%
Construction......................................... 464 3 370 2 358 2
Mortgage:
Residential........................................ 2,253 12 2,642 13 2,961 14
Commercial......................................... 1,778 10 2,143 10 2,598 12
------- ------- -------
Total mortgage................................... 4,031 22 4,785 23 5,559 26
Consumer:
Installment........................................ 1,644 9 1,812 9 2,063 10
Home equity........................................ 1,222 7 1,222 6 1,113 5
Credit card and other lines of credit.............. 219 1 309 2 303 1
------- ------- -------
Total consumer................................... 3,085 17 3,343 17 3,479 16
Lease financing...................................... 829 5 845 4 800 4
------- ------- -------
Total loans in domestic offices.................. 16,956 94 19,027 93 19,692 93
Loans originated in foreign branches................... 1,110 6 1,405 7 1,358 7
------- ------- -------
Total loans...................................... $18,066 100% $20,432 100% $21,050 100%
------- ------- -------
------- ------- -------

(DOLLARS IN MILLIONS) 1997 1998
- ------------------------------------------------------- ------------ ------------
<S> <C> <C> <C> <C>
Domestic:
Commercial, financial and industrial................. $10,747 47% $13,120 54%
Construction......................................... 293 1 440 2
Mortgage:
Residential........................................ 2,961 13 2,628 11
Commercial......................................... 2,952 13 2,975 12
------- -------
Total mortgage................................... 5,913 26 5,603 23
Consumer:
Installment........................................ 2,091 9 1,985 8
Home equity........................................ 993 5 818 4
Credit card and other lines of credit.............. 270 1 -- --
------- -------
Total consumer................................... 3,354 15 2,803 12
Lease financing...................................... 875 4 1,032 4
------- -------
Total loans in domestic offices.................. 21,182 93 22,998 95
Loans originated in foreign branches................... 1,559 7 1,298 5
------- -------
Total loans...................................... $22,741 100% $24,296 100%
------- -------
------- -------
</TABLE>

Our lending activities are predominantly domestic, with such loans
comprising approximately 95 percent of the total loan portfolio at December 31,
1998. Total loans at December 31, 1998 were $24.3 billion, an increase of $1.6
billion, or 7 percent, from one year earlier. The increase from 1997 was
primarily attributable to growth in the commercial, financial and industrial
loan portfolio, which increased $2.4 billion, partially offset by the
residential mortgage loan portfolio, which decreased $333 million, and by the
consumer loan portfolio, which decreased $551 million.

COMMERCIAL, FINANCIAL AND INDUSTRIAL LOANS

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

Our commercial market lending originates primarily through our banking
office network. These offices, which rely extensively on relationship-oriented
banking, provide many 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. Presently, we are
active in the communications, media and entertainment, energy capital services,
technology, healthcare, agribusiness, retailing and financial services
industries.

At December 31, 1998, the commercial, financial and industrial loan
portfolio was $13.1 billion, or 54 percent of the total loan portfolio. The
increase of $2.4 billion, or 22 percent, from the previous year-end was
primarily attributable to loans extended to businesses with revenues exceeding
$20 million. The growth continued to reflect the results of initiatives to
increase participation in larger syndicated loan positions as lead manager and
as agent, especially in the communications, media, and entertainment and energy
capital services industries in which we have developed specialized lending
expertise. The increase in the communications, media, and entertainment business
units over 1997 was $469 million, or 30 percent, and the increase over 1997 in
the energy capital services units was $312 million, or 24 percent.

F-18
<PAGE>
CONSTRUCTION AND COMMERCIAL MORTGAGE LOANS

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

At December 31, 1998, the commercial real estate mortgage loan portfolio was
$3.0 billion, or 12 percent of the total loan portfolio. Despite the sale of
$123 million in commercial real estate mortgages during the second quarter of
1998, commercial mortgage loans slightly increased by $23 million, or 1 percent,
from December 31, 1997, reflecting both the favorable California real estate
market and the continued improvement in the West Coast economy.

At December 31, 1998, construction loans were $440 million, or 2 percent of
the total loan portfolio. The increase of $147 million, or 50 percent, from the
previous year-end was primarily attributable to the favorable California real
estate market coupled with the continuing improvement in the West Coast economy.

RESIDENTIAL MORTGAGE LOANS

We originate residential loans, secured by one-to-four family residential
properties, through our branch network in California, Oregon and Washington, and
periodically purchase loans in our market area.

At December 31, 1998, residential mortgage loans were $2.6 billion, or 11
percent of the total loan portfolio. The decrease of $333 million, or 11
percent, from December 31, 1997 was principally due to prepayments arising from
the lower interest rate environment.

CONSUMER LOANS

Through our auto dealer relationships and our branch network, we originate
consumer loans, such as indirect and direct vehicle-secured installment loans,
and home equity lines where advances are generally secured by second deeds of
trust on residential real estate. In the second quarter of 1998, we sold our
$253 million credit card portfolio to First National Bank of Omaha located in
Nebraska.

At December 31, 1998, consumer loans were $2.8 billion, or 12 percent of the
total loan portfolio. The decrease of $551 million, or 16 percent, from the
previous year-end was attributable to the sale of the credit card portfolio and
to a reduction in home equity loans as customers refinanced to take advantage of
favorable long-term, fixed mortgage rates.

LEASE FINANCING

We enter into direct financing and leveraged leases through an agreement
with a subsidiary of The Bank of Tokyo-Mitsubishi, Ltd. In addition, we
originate auto leases through our Consumer Asset Management division, a part of
the Community Banking Group.

At December 31, 1998, lease financing outstandings were $1.0 billion, or 4
percent of the total loan portfolio. During 1998, management created new
initiatives for lending, especially in the lease financing segment. This refocus
on leasing resulted in a $157 million, or 18 percent, increase in lease
financing over the prior year.

LOANS ORIGINATED IN FOREIGN BRANCHES

Our loans originated in foreign branches consist primarily of short-term
extensions of credit to financial institutions located primarily in Asia and to
corporations in Japan, Korea and Taiwan.

At December 31, 1998, loans originated in foreign branches totaled $1.3
billion, or 5 percent of the total loan portfolio. The decrease of $261 million,
or 17 percent, is attributable to the contraction of our exposure to key Asian
markets, primarily Japan, Korea, Indonesia and Thailand, in response to the
Asian economic crisis.

F-19
<PAGE>
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 December 31, 1996, 1997 and 1998 for each country where such outstandings
exceeded 1 percent of total assets. The cross-border outstandings were compiled
based upon category and domicile of ultimate risk and are comprised of balances
with banks, trading account assets, securities available for sale, securities
purchased under resale agreements, loans, accrued interest receivable,
acceptances outstanding and investments with foreign entities. The amounts
outstanding for each country exclude local currency outstandings. For those
individual countries shown in the table below, we do not have significant local
currency outstandings that are not hedged or are not funded by local currency
borrowings.

<TABLE>
<CAPTION>
PUBLIC CORPORATIONS
FINANCIAL SECTOR AND OTHER TOTAL
(DOLLARS IN MILLIONS) INSTITUTIONS ENTITIES BORROWERS OUTSTANDINGS
- -------------------------------------------------------------- ----------- ----------- --------------- -------------
<S> <C> <C> <C> <C>
December 31, 1996
Japan......................................................... $ 1,373 $ -- $ 452 $ 1,825
Korea......................................................... 574 8 330 912

December 31, 1997
Japan......................................................... 401 -- 438 839
Korea......................................................... 561 10 257 828
Thailand...................................................... 320 -- -- 320

December 31, 1998
Japan......................................................... 173 -- 464 637
Korea......................................................... 448 1 117 566
</TABLE>

The economic condition and the ability of some countries, to which we have
cross-border exposure, to manage their external debt obligations have been
impacted by the Asian economic crisis that began in the second half of 1997. The
Asian economic crisis appears to have stabilized somewhat, though the impact of
the crisis on other global markets is still uncertain. Our exposure in all
affected countries continues to be primarily short-term in nature and
substantially related to the finance of trade. For further discussion on the
actions taken by management to reduce our credit exposure in Asia and Latin
America, see "Allowance for Credit Losses" on the following page.

PROVISION FOR CREDIT LOSSES

We recorded a $40 million provision for credit losses in 1996, compared with
no provision for credit losses in 1997 and a $45 million provision for credit
losses in 1998. Provisions for credit losses are charged to income to bring our
allowance for credit losses to a level deemed appropriate by management based on
the factors discussed under "Allowance for Credit Losses" on the following page.
No provision for credit losses was recorded in 1997 because, based on our review
of such factors, management believed that the allowance for credit losses was
adequate to cover probable losses inherent in the loan portfolio and firm
commitments at each quarter end, including December 31, 1997. We resumed
recording provisions in 1998 in order to bring our allowance for credit losses
to a level deemed appropriate by management based upon management's application
of the allowance methodology.

F-20
<PAGE>
ALLOWANCE FOR CREDIT LOSSES

The following table reflects the allowance allocated to each respective loan
category at period end and as a percentage of the total period end balance of
that loan category, as set forth in the "Loans" table on page F-18.

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1994 1995 1996
- --------------------------------------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Domestic:
Commercial, financial, and industrial............ $ 146,784 1.72% $ 174,146 1.80% $ 166,100 1.75%
Construction..................................... 69,787 15.04 24,752 6.69 5,700 1.59
Mortgage:
Residential.................................... 23,581 1.05 5,466 0.21 4,000 0.14
Commercial..................................... 70,130 3.94 59,931 2.80 39,000 1.50
---------- ---------- ----------
Total mortgage............................... 93,711 2.32 65,397 1.37 43,000 0.77
Consumer:
Installment.................................... 12,500 0.76 13,200 0.73 10,400 0.50
Home equity.................................... 7,143 0.58 5,532 0.45 4,900 0.44
Credit card and other lines of credit.......... 17,101 7.81 32,799 10.61 34,000 11.22
---------- ---------- ----------
Total consumer............................... 36,744 1.19 51,531 1.54 49,300 1.42
Lease financing.................................. 10,000 1.21 1,300 0.15 5,300 0.66
---------- ---------- ----------
Total domestic allowance..................... 357,026 2.11 317,126 1.67 269,400 1.37
Foreign allowance.................................. 15,330 1.38 13,968 0.99 9,394 0.69
Unallocated........................................ 190,786 224,055 245,152
---------- ---------- ----------
Total allowance for credit losses.......... $ 563,142 3.12% $ 555,149 2.72% $ 523,946 2.49%
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
(DOLLARS IN THOUSANDS) 1997 1998
- ------------------------------------------------------------------------ --------------------- ---------------------
<S> <C> <C> <C> <C>
Domestic:
Commercial, financial, and industrial................................. $ 123,610 1.15% $ 145,100 1.11%
Construction.......................................................... 3,221 1.10 5,500 1.25
Mortgage:
Residential......................................................... 2,700 0.09 1,100 0.04
Commercial.......................................................... 60,680 2.06 17,500 0.59
---------- ----------
Total mortgage.................................................... 63,380 1.07 18,600 0.33
Consumer:
Installment......................................................... 11,400 0.55 20,900 1.05
Home equity......................................................... 3,600 0.36 3,800 0.46
Credit card and other lines of credit............................... 30,500 11.30 -- --
---------- ----------
Total consumer.................................................... 45,500 1.36 24,700 0.88
Lease financing....................................................... 4,862 0.56 3,800 0.37
---------- ----------
Total domestic allowance.......................................... 240,573 1.14 197,700 0.86
Foreign allowance....................................................... 39,313 2.52 47,000 3.62
Unallocated............................................................. 171,806 214,628
---------- ----------
Total allowance for credit losses............................... $ 451,692 1.99% $ 459,328 1.89%
---------- ----------
---------- ----------
</TABLE>

F-21
<PAGE>
RESERVE POLICY AND METHODOLOGY

We maintain an allowance for credit losses to absorb losses inherent in the
loan portfolio. The allowance is based on ongoing, quarterly assessments of the
probable estimated losses inherent in the loan portfolio, and to a lesser
extent, unused commitments to provide financing. Our methodology for assessing
the appropriateness of the allowance consists of several key elements, which
include the formula allowance, specific allowances for identified problem loans
and portfolio segments and the unallocated allowance.

The formula allowance is calculated by applying loss factors to outstanding
loans and certain unused commitments, in each case based on the internal risk
grade of such loans, pools of loans, leases or commitments. Changes in risk
grades of both performing and nonperforming loans affect the amount of the
formula allowance. Loss factors are based on our historical loss experience and
may be adjusted for significant factors that, in management's judgment, affect
the collectibility of the portfolio as of the evaluation date. Loss factors are
described as follows:

- Problem graded loan loss factors are derived from a migration model that
tracks four years of historical loss experience. We are exploring changes
to the migration model to track historical loss experience over an
eight-year period, which management believes approximates a business
cycle.

- Pass graded loan loss factors are based on the average annual net
chargeoff rate over an eight-year period.

- Pooled loan loss factors (not individually graded loans) are based on
expected net chargeoffs for one year. Pooled loans are loans that are
homogeneous in nature, such as consumer installment and residential
mortgage loans and automobile leases.

Specific allowances are established in cases where management has identified
significant conditions or circumstances related to a credit that management
believes indicate the probability that a loss has been incurred in excess of the
amount determined by the application of the formula allowance.

The unallocated allowance is composed of two elements. The first element,
which is based on our credit policy, consists of an amount that is at least 20
percent to 25 percent of the formula allowance and the specific allowance. This
element recognizes the model and estimation risk associated with the formula and
specific allowances. The second element is based upon management's evaluation of
various conditions, the effects of which are not directly measured in the
determination of the formula and specific allowances. The evaluation of the
inherent loss with respect to these conditions is subject to a higher degree of
uncertainty because they are not identified with specific problem credits or
portfolio segments. The conditions evaluated in connection with the unallocated
allowance include the following conditions that existed as of the balance sheet
date:

- general economic and business conditions affecting our key lending areas,

- credit quality trends (including trends in nonperforming loans expected to
result from existing conditions),

- collateral values,

- loan volumes and concentrations,

- seasoning of the loan portfolio,

- specific industry conditions within portfolio segments,

- recent loss experience in particular segments of the portfolio,

- duration of the current business cycle,

- bank regulatory examination results, and

F-22
<PAGE>
- findings of our internal credit examiners.

Executive management reviews these conditions quarterly in discussion with
our senior credit officers. To the extent that any of these conditions is
evidenced by a specifically identifiable problem credit or portfolio segment as
of the evaluation date, management's estimate of the effect of such condition
may be reflected as a specific allowance applicable to such credit or portfolio
segment. Where any of these conditions is not evidenced by a specifically
identifiable problem credit or portfolio segment as of the evaluation date,
management's evaluation of the probable loss related to such condition is
reflected in the unallocated allowance.

The allowance for credit losses is based upon estimates of probable losses
inherent in the loan portfolio. The amount actually observed in respect of these
losses can vary significantly from the estimated amounts. Our methodology
includes several features that are intended to reduce the differences between
estimated and actual losses. The loss migration model that is used to establish
the loan loss factors for problem graded loans is designed to be self-correcting
by taking into account our recent loss experience. Similarly, by basing the pass
graded loan loss factors on loss experience over the last eight years, the
methodology is designed to take our recent loss experience into account. Pooled
loan loss factors are adjusted quarterly based upon the level of net chargeoffs
expected by management in the next twelve months. Furthermore, our methodology
permits adjustments to any loss factor used in the computation of the formula
allowance in the event that, in management's judgment, significant factors which
affect the collectibility of the portfolio as of the evaluation date are not
reflected in the loss factors. By assessing the probable estimated losses
inherent in the loan portfolio on a quarterly basis, we are able to adjust
specific and inherent loss estimates based upon any more recent information that
has become available.

COMPARISON OF THE TOTAL ALLOWANCE AND RELATED PROVISON FOR CREDIT LOSSES

At December 31, 1996, our allowance for credit losses was $524 million, or
2.49 percent of the total loan portfolio, and 408 percent of total nonaccrual
loans. This compares with an allowance for credit losses of $452 million, or
1.99 percent of the total loan portfolio, and 413 percent of total nonaccrual
loans at December 31, 1997, and an allowance for credit losses of $459 million,
or 1.89 percent of the total loan portfolio, and 586 percent of total nonaccrual
loans at December 31, 1998.

In 1998, we reclassified a $1.9 million previously established allowance for
credit losses related to interest rate derivatives and foreign exchange
contracts from the unallocated portion of the allowance for credit losses. The
reserve for derivative and foreign exchange contracts is presented as an offset
to trading account assets. Future changes in that reserve as a result of changes
in the positive replacement cost of those contracts will be provided as an
offset to trading gains and losses.

In addition, the allowance incorporates the results of measuring impaired
loans as provided in Statement of Financial Accounting Standards (SFAS) No. 114,
"Accounting by Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting
by Creditors for Impairment of a Loan--Income Recognition and Disclosures".
These accounting standards prescribe the measurement methods, income recognition
and disclosures related to impaired loans. At December 31, 1996, total impaired
loans were $114 million and the associated impairment allowance was $21 million,
compared with $108 million and $9 million, respectively, at December 31, 1997,
and $78 million and $11 million, respectively, at December 31, 1998.

During 1997 and 1998, there were no changes in estimation methods or
assumptions that affected our methodology for assessing the appropriateness of
the allowance for credit losses, except that we extended the average annual net
chargeoff rate for pass graded loans from 4.75 years in 1996 to 6 years in 1997
and to 8 years in 1998. The impact of these changes resulted in an increase of
approximately $13 million and $19 million in the formula allowance in 1997 and
1998, respectively. We extended the average annual net chargeoff rate to better
reflect the business cycle. Changes in assumptions regarding the effects of
economic and business conditions on borrowers and other factors, which are
described in the following pages, affected the assessment of the unallocated
allowance. In addition, as described below, we allocated

F-23
<PAGE>
a portion of the unallocated allowance to foreign loans amid concerns that the
Asian financial turmoil had adversely impacted companies and financial
institutions in Asian markets in which we operate.

We did not record a provision for credit losses during 1997. The decision
not to record a provision was based upon management's application of the
allowance methodology as previously described and other factors, particularly
the level of net chargeoffs and the decline in the level of nonperforming loans.
Although management determined that no provision for credit losses was necessary
in 1997, it noted that certain factors could necessitate the resumption of
provisioning in the future. In particular, management noted that although net
chargeoffs were relatively stable from 1996 to 1997, net chargeoffs steadily
increased in each of the last three quarters of 1997. Furthermore, management
noted that although the level of net chargeoffs and the decline in nonperforming
loans favorably impacted our asset quality ratios, the total portfolio of
commercial, financial and industrial loans and commercial mortgage loans was
increasing. Losses inherent in both of these types of credits are more difficult
to assess because historically they have been more volatile than losses from
other credits.

Management also considered the effect on global economic conditions of the
Asian financial crisis. At December 31, 1997, cross-border loans and acceptances
to Japan, Korea, Malaysia, Thailand, Vietnam, Singapore, Indonesia, the
Philippines, China, Taiwan and Hong Kong totaled $2.1 billion. Although at
December 31, 1997, we had not identified any specific losses related to our
Asia/Pacific exposures, management believed that it was probable that the Asian
financial turmoil had adversely impacted companies and financial institutions in
Asia/Pacific markets in which we operate. In light of this concern, we allocated
$29 million from the unallocated portion of the allowance at December 31, 1997
to foreign loans. The allocated amount was based upon the total amount of
foreign loans to corporate borrowers in Asian countries, and management's
assessment of the quantified losses inherent in the Asia/Pacific portfolio
segment. In addition, we believed that the historical loss factors for the
Asia/Pacific exposures failed to estimate the total probable inherent losses
because we had not suffered any credit losses in the foreign loan portfolio
during the four-year historical loss cycle used to establish the problem loan
loss factors. Based upon this concern, as well as the magnitude of our exposure
to the Asia/Pacific segment, management did not believe that the $29 million
allocated to foreign loans was sufficient to cover all of the losses inherent in
the foreign loan portfolio and, accordingly, these factors were considered by
management in its overall assessment of the unallocated allowance at December
31, 1997. During the first quarter of 1998, we changed the method of determining
the quantified losses on Asia/Pacific loans from one based on total corporate
exposure in the segment to one based on total country exposure to countries
receiving assistance from the International Monetary Fund. This change resulted
in a $9 million decrease in the allowance allocated to foreign loans.

In addition to the impact of the Asian financial turmoil on companies and
financial institutions in Asian markets in which we operate, management
considered the effects of the Asian turmoil on companies and financial
institutions in the domestic (primarily California) and foreign (other than
Asia/Pacific) markets in which we operate. As of December 31, 1997, management
believed that the impact of the Asian financial turmoil on the collectibility of
loans to domestic and foreign (non-Asia/Pacific) borrowers was not generally
reflected in the level of nonperforming loans or in the internal risk grading
process with respect to such loans. Accordingly, our evaluation of these
probable losses was reflected in the unallocated allowance at December 31, 1997.
The evaluations of these inherent losses were subject to higher degrees of
uncertainty because they were not identified with specific problem credits.

In our assessment as of December 31, 1998, management focused, in
particular, on factors affecting elements of the oil and gas, agriculture and
technology industries, as well as the continued effects of the global financial
turmoil on companies and financial institutions in domestic and foreign markets
in which we operate and the growth in, and changes in the composition of, the
loan portfolio.

F-24
<PAGE>
- With respect to the oil and gas industry, where we had $719 million of
loans outstanding at December 31, 1998, management considered the effects
of the decline in oil prices on the cash flows of borrowers in the oil and
gas industry.

- With respect to the agriculture industry, where we had $541 million of
loans outstanding at December 31, 1998, management considered the effects
of abnormal weather conditions (commonly referred to as "El Nino") and
export market conditions on agricultural borrowers.

- With respect to the technology industry, where we had $913 million of
loans outstanding at December 31, 1998, management considered the effects
of export market conditions and cyclical over-capacity on borrowers in the
chip and semiconductor industries.

- With respect to cross-border loans and acceptances to Japan, Korea,
Malaysia, Thailand, Singapore, Indonesia, the Philippines, China, Taiwan
and Hong Kong, where we had outstandings of $1.7 billion at December 31,
1998, management considered the continued effects of the global financial
turmoil.

- With respect to cross-border loans and acceptances to Latin American
countries, where we had outstandings of $255 million at December 31, 1998,
management considered the continued effects of the global financial
turmoil.

Although in certain instances the downgrading of a loan resulting from these
effects was reflected in the formula allowance, management believed that in most
instances the impact of these events on the collectibility of the applicable
loans was not reflected in the level of nonperforming loans or in the internal
risk grading process with respect to such loans. Accordingly, our evaluation of
the probable losses related to these factors was reflected in the unallocated
allowance. The evaluations of the inherent losses with respect to these factors
were subject to higher degrees of uncertainty because they were not identified
with specific problem credits.

CHANGES IN THE FORMULA, SPECIFIC AND UNALLOCATED ALLOWANCES

The following table sets forth the composition of the allowance for credit
losses.

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
(DOLLARS IN MILLIONS) 1996 1997 1998
- ------------------------------------------------------------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
Allocated allowance:
Formula................................................................................. $ 237 $ 212 $ 206
Specific................................................................................ 42 68 38
--------- --------- ---------
Total allocated allowance............................................................. 279 280 244
Unallocated allowance..................................................................... 245 172 215
--------- --------- ---------
Total allowance..................................................................... $ 524 $ 452 $ 459
--------- --------- ---------
--------- --------- ---------
</TABLE>

At December 31, 1997, the formula allowance decreased by $25 million from
the prior year, primarily due to a reduction in the level of criticized loans
and the reflection of lower historical losses in the loss factors, partially
offset by loan growth, by changes to conform the various risk grade definitions
after the combination of Bank of California and Union Bank, and by the extension
of the average annual net chargeoff rate for pass graded loans as previously
described. At December 31, 1998, the formula allowance decreased by $6 million
from the prior year, primarily due to a decline in criticized credits, offset by
the extension of the average annual net chargeoff rate for pass graded loans as
previously described.

At December 31, 1997, the specific allowance increased by $26 million over
the prior year, primarily due to the reallocation for the Asian exposure as
previously described. At December 31, 1998, the specific

F-25
<PAGE>
allowance decreased by $30 million from the prior year due to the sale of real
estate notes and the change related to foreign loans as previously described.

At December 31, 1996, the allocated portion of the allowance for credit
losses included $134 million related to special mention and classified credits,
compared to $108 million at December 31, 1997 and $76 million at December 31,
1998. Special mention and classified credits are those that are internally risk
graded as "special mention", "substandard" or "doubtful". Special mention
credits are potentially weak, as the borrower has begun to exhibit deteriorating
trends which, if not corrected, could jeopardize repayment of the loan and
result in further downgrade. Substandard credits have well-defined weaknesses
which, if not corrected, could jeopardize the full satisfaction of the debt. A
credit classified as "doubtful" has critical weaknesses that make full
collection improbable.

At December 31, 1997, the unallocated allowance decreased by $73 million
from the previous year-end because management believed that the inherent losses
related to certain conditions considered in its evaluation of the unallocated
allowance at December 31, 1996 had been recognized through chargeoffs, had been
reflected in the formula or specific allowance or had declined. From December
31, 1996 to December 31, 1997, there was no change in the component of the
unallocated allowance related to the 20 percent to 25 percent margin for model
and estimation risk prescribed by our credit policy. Included among those
conditions that management believed gave rise to lower inherent losses at
December 31, 1997 compared to December 31, 1996 were:

- reduced concerns regarding the lingering effects of the California
recession on, and the sustainability of the recovery in, the California
commercial real estate and construction market,

- reduced concerns regarding consumer debt burdens and rising levels of
consumer bankruptcies,

- resolution of uncertainties related to assimilating data for the formula
allowance that resulted from combining the loan portfolios of Bank of
California and Union Bank and inconsistencies in the risk grading systems
of our predecessor banks,

- reduced concerns related to consolidation and restructuring in the retail
industry, and

- reduced concerns regarding the sustainability of perceived improvements in
economic conditions.

We do not weight the unallocated allowance among segments of the portfolio.
At December 31, 1996, we had a $245 million unallocated allowance in our
allowance for credit losses. In evaluating the appropriateness of the
unallocated allowance, we considered the following factors:

- the approximately $56 million to $70 million margin for model and
estimation risk prescribed by our credit policy,

- the lingering effects of the California recession on, and the
sustainability of the recovery in, the California commercial real estate
and construction market, which could be in the range of $45 million to $70
million,

- the effects of consumer debt burdens and rising levels of consumer
bankruptcies, which could be in the range of $25 million to $40 million,

- the effects of uncertainties related to assimilating data for the formula
allowance that resulted from combining the loan portfolios of Bank of
California and Union Bank and inconsistencies in the risk grading systems
of our predecessor banks, which could be in the range of $15 million to
$30 million,

- the effects of consolidation and restructuring in the retail industry,
which could be in the range of $5 million to $10 million, and

- the effects of adverse economic and business conditions in Japan, which
could be in the range of $5 million to $10 million.

F-26
<PAGE>
At December 31, 1997, we had a $172 million unallocated allowance in our
allowance for credit losses. The following factors were reflected in
management's estimate of the unallocated allowance:

- the approximately $56 million to $70 million margin for model and
estimation risk prescribed by our credit policy and

- our estimate that the adverse impact of the Asian financial turmoil on us
could be in the range of $100 million to $105 million.

At December 31, 1998, we had a $215 million unallocated allowance in our
allowance for credit losses. The following factors were reflected in
management's estimate of the unallocated allowance:

- the approximately $49 million to $61 million margin for model and
estimation risk prescribed by our credit policy,

- the effects of the decline in oil prices on borrowers in the oil and gas
industry, which could be in the range of $14 million to $22 million,

- the effects of abnormal weather conditions and export market conditions on
agricultural borrowers, which could be in the range of $11 million to $16
million,

- the effects of export market conditions and cyclical overcapacity on
borrowers in the technology industry, which could be in the range of $18
million to $27 million,

- the continued effects of the global financial turmoil on borrowers in
Asia/Pacific countries, which could be in the range of $55 million to $80
million, and

- the continued effects of the global financial turmoil on borrowers in
Latin American countries, which could be in the range of $10 million to
$15 million.

There can be no assurance that the adverse impact of any of these conditions
on us will not be in excess of the range set forth above. See paragraph on
forward-looking statements on page F-2.

Despite the foregoing factors, management reduced the size of the provision
in each of the quarters of 1998 based upon certain mitigating factors, including
the continued decline in the level of nonperforming loans, the lower levels of
net chargeoffs, the sale of the credit card portfolio in the second quarter of
1998, the real estate note sales and the results of our efforts to limit our
exposure and counterparty risk in Asia.

F-27
<PAGE>
CHANGE IN THE TOTAL ALLOWANCE FOR CREDIT LOSSES

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

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
(DOLLARS IN THOUSANDS) 1994 1995 1996 1997 1998
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, beginning of period................................ $ 692,584 $ 563,142 $ 555,149 $ 523,946 $ 451,692
Loans charged off:
Commercial, financial and industrial...................... 105,774 47,524 42,134 58,664 38,219
Construction.............................................. 32,151 9,401 3,249 120 3
Mortgage.................................................. 100,613 29,330 13,483 5,058 6,547
Consumer.................................................. 31,806 44,627 56,361 55,336 29,312
Lease financing........................................... 2,940 2,422 2,623 3,601 2,709
Foreign(1)................................................ 533 295 1,250 -- --
---------- ---------- ---------- ---------- ----------
Total loans charged off................................. 273,817 133,599 119,100 122,779 76,790
Recoveries of loans previously charged off:
Commercial, financial and industrial...................... 39,177 39,178 22,341 23,371 23,762
Construction.............................................. 5,868 3,195 132 9,054 3
Mortgage.................................................. 16,228 18,500 12,277 3,292 2,857
Consumer.................................................. 8,915 10,924 12,906 14,946 14,021
Lease financing........................................... 435 311 368 351 501
Foreign(1)................................................ 627 295 -- -- --
---------- ---------- ---------- ---------- ----------
Total recoveries of loans previously charged off........ 71,250 72,403 48,024 51,014 41,144
---------- ---------- ---------- ---------- ----------
Net loans charged off................................. 202,567 61,196 71,076 71,765 35,646
Provision for credit losses................................. 73,000 53,250 40,000 -- 45,000
Transfer of reserve for trading account assets.............. -- -- -- -- (1,911)
Foreign translation adjustment and other net additions
(deductions).............................................. 125 (47) (127) (489) 193
---------- ---------- ---------- ---------- ----------
Balance, end of period...................................... $ 563,142 $ 555,149 $ 523,946 $ 451,692 $ 459,328
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Allowance for credit losses to total loans.................. 3.12% 2.72% 2.49% 1.99% 1.89%
Provision for credit losses to net loans charged off........ 36.04 87.02 56.28 nm 126.24
Recoveries of loans to loans charged off in the previous
year...................................................... 22.05 26.44 35.95 42.83 33.51
Net loans charged off to average loans outstanding.......... 1.15 0.32 0.34 0.33 0.15
</TABLE>

- ------------------------

(1) Foreign loans are those loans originated in foreign branches.

nm = not meaningful

Loans charged off in 1997 increased by $4 million over 1996, primarily due
to a $17 million increase in commercial, financial and industrial loans charged
off, partially offset by an $8 million decrease in mortgage loans charged off.
Loans charged off in 1998 decreased by $46 million, primarily due to a $20
million decrease in commercial, financial and industrial loans charged off as
portfolio quality improved, and a $26 million decrease in consumer loans charged
off, primarily due to the sale of the credit card portfolio in the second
quarter of 1998. Chargeoffs reflect the realization of losses in the portfolio
that were recognized previously through provisions for credit losses. Recoveries
of loans previously charged off in 1997 increased by $3 million over 1996, and
the percentage of current year recoveries to loans charged off in the previous
year increased from 35.95 percent in 1996 to 42.83 percent in 1997. Recoveries
of loans previously charged off in 1998 decreased by $10 million from 1997, and
the percentage of current year recoveries to loans charged off in the previous
year decreased from 42.83 percent in 1997 to 33.51 percent in 1998. At December
31, 1998, the allowance for credit losses exceeded the net loans

F-28
<PAGE>
charged off during 1998, reflecting management's belief, based on the foregoing
analysis, that there were additional losses inherent in the portfolio.

At December 31, 1996, our average annual net chargeoffs for the past five
years were $166 million, compared with $131 million at December 31, 1997 and $88
million at December 31, 1998. These net chargeoffs represent 3.1 years, 3.4
years and 5.2 years of losses based on the level of the allowance for credit
losses at December 31, 1996, 1997 and 1998, respectively. Historical net
chargeoffs are not necessarily indicative of the amount of net chargeoffs that
we will realize in the future.

NONPERFORMING ASSETS

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

Renegotiated loans are those accruing loans for which, for reasons related
to the borrower's financial difficulties, we have amended the terms of the
original loan agreement and the borrower is performing according to the
renegotiated terms.

Foreclosed assets include property where we acquired title through
foreclosure or "deed in lieu" of foreclosure. On an ongoing basis, foreclosed
asset values are reviewed and any decline in value is recognized as noninterest
expense in the current period.

The following table sets forth an analysis of nonperforming assets.

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
(DOLLARS IN THOUSANDS) 1994 1995 1996 1997 1998
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Commercial, financial and industrial........................ $ 106,447 $ 84,336 $ 56,864 $ 46,392 $ 60,703
Construction................................................ 73,643 40,026 7,349 4,071 4,359
Mortgage:
Residential............................................... 17,020 19,220 11,214 954 --
Commercial................................................ 145,207 63,836 52,593 57,921 8,254
---------- ---------- ---------- ---------- ----------
Total mortgage.......................................... 162,227 83,056 63,807 58,875 8,254
Other....................................................... 7,285 849 247 -- 5,134
---------- ---------- ---------- ---------- ----------
Total nonaccrual loans.................................. 349,602 208,267 128,267 109,338 78,450
Renegotiated loans.......................................... 14,843 1,612 -- -- --
Foreclosed assets........................................... 56,782 36,992 28,517 20,471 11,400
---------- ---------- ---------- ---------- ----------
Total nonperforming assets.............................. 421,227 246,871 156,784 129,809 89,850
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Allowance for credit losses................................. $ 563,142 $ 555,149 $ 523,946 $ 451,692 $ 459,328
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Nonaccrual and renegotiated loans to total loans............ 2.02% 1.03% 0.61% 0.48% 0.32%
Allowance for credit losses to nonaccrual loans............. 161.08 266.56 408.48 413.12 585.50
Nonperforming assets to total loans and foreclosed assets... 2.32 1.21 0.74 0.57 0.37
Nonperforming assets to total assets........................ 1.71 0.90 0.54 0.42 0.28
</TABLE>

F-29
<PAGE>
The following table sets forth an analysis of loans contractually past due
90 days or more as to interest or principal, but not included in nonaccrual
loans above.

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
(DOLLARS IN THOUSANDS) 1994 1995 1996 1997 1998
- ----------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Commercial, financial and industrial....................... $ 3,690 $ 3,752 $ 4,527 $ 450 $ 913
Construction............................................... 5,735 1,063 -- -- --
Mortgage:
Residential.............................................. 2,123 8,479 8,969 10,170 9,338
Commercial............................................... -- 3,592 168 1,660 13,955
--------- --------- --------- --------- ---------
Total mortgage......................................... 2,123 12,071 9,137 11,830 23,293
Consumer and other......................................... 8,573 8,854 10,028 7,712 7,292
--------- --------- --------- --------- ---------
Total loans 90 days or more past due and still
accruing............................................... $ 20,121 $ 25,740 $ 23,692 $ 19,992 $ 31,498
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

At December 31, 1998, nonperforming loans totaled $90 million, a decrease of
$40 million, or 31 percent, from year-end 1997. The decrease was primarily the
result of reductions of $50 million in nonaccrual commercial mortgage loans, due
to third quarter 1998 note sales totaling $30 million, repayments and
restorations to accrual status, and $9 million in foreclosed assets, due to
sales of individual assets, partially offset by a $14 million increase in
nonaccrual commercial, financial and industrial loans, due to the placement on
nonaccrual status of a few large loans made to upper-middle market and large
businesses. The decline in nonaccrual loans was reflected in an improvement in
the overall risk grades of the portfolio, which contributed to a reduction in
the formula allowance.

Nonaccrual and renegotiated loans as a percentage of total loans were 0.48
percent at December 31, 1997 compared with 0.32 percent at December 31, 1998.
Nonperforming assets as a percentage of total loans and foreclosed assets
improved to 0.37 percent at year-end 1998 from 0.57 percent at December 31,
1997. At December 31, 1998, approximately 77 percent of nonaccrual loans were
related to commercial, financial and industrial.

Total loans 90 days or more past due and still accruing were $20 million at
December 31, 1997 compared with $31 million at December 31, 1998.

INTEREST FOREGONE

Interest foregone during 1997 and 1998 for loans that were on nonaccrual
status at December 31, 1997 and 1998 was $6 million and $4 million,
respectively. We recognized interest income of $3 million during 1997 for loans
that were on nonaccrual status at December 31, 1997. We recognized no interest
income during 1998 for loans that were on nonaccrual status at December 31,
1998.

F-30
<PAGE>
SECURITIES

The following tables summarize the composition of the securities portfolio
and the gross unrealized gains and losses within the portfolio.

SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------
1997
1996 --------------------------------------------------
----------- GROSS GROSS
FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
(DOLLARS IN THOUSANDS) VALUE COST GAINS LOSSES VALUE
- ------------------------------ ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
U.S. Treasury..................................... $ 1,141,052 $ 987,374 $10,793 $ 170 $ 997,997
Other U.S. government............................. 691,931 709,536 6,005 67 715,474
Mortgage-backed securities........................ 193,657 679,692 3,331 265 682,758
State and municipal............................... 114,755 90,937 13,236 -- 104,173
Corporate debt securities......................... -- 2,698 311 1 3,008
Equity securities................................. 21,594 28,881 1,596 672 29,805
Foreign securities................................ 1,208 5,132 39 -- 5,171
----------- ----------- ---------- ---------- -----------
Total securities available for sale............. $ 2,164,197 $ 2,504,250 $35,311 $1,175 $ 2,538,386
----------- ----------- ---------- ---------- -----------
----------- ----------- ---------- ---------- -----------

1998
--------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
(DOLLARS IN THOUSANDS) COST GAINS LOSSES VALUE
- ------------------------------ ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury..................................... $ 753,991 $16,341 $-- $ 770,332
Other U.S. government............................. 856,463 12,364 -- 868,827
Mortgage-backed securities........................ 1,875,141 9,271 2,634 1,881,778
State and municipal............................... 72,777 11,469 -- 84,246
Corporate debt securities......................... 8,069 -- -- 8,069
Equity securities................................. 18,149 252 -- 18,401
Foreign securities................................ 6,799 121 41 6,879
----------- ---------- ---------- -----------
Total securities available for sale............. $ 3,591,389 $49,818 $2,675 $ 3,638,532
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
</TABLE>

SECURITIES HELD TO MATURITY
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
1997
1996 ----------------------------------------------
--------- GROSS GROSS
AMORTIZED AMORTIZED UNREALIZED UNREALIZED FAIR
(DOLLARS IN THOUSANDS) COST COST GAINS LOSSES VALUE
- -------------------------------------------------- --------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
U.S. Treasury..................................... $ 50,109 $ 40,092 $1,333 $-- $ 41,425
Other U.S. government............................. 139,188 99,520 2,568 -- 102,088
Mortgage-backed securities........................ 41,985 24,477 1,745 14 26,208
State and municipal............................... 36,914 24,686 75 1,367 23,394
--------- --------- ---------- ---------- --------
Total securities held to maturity............... $268,196 $188,775 $5,721 $1,381 $193,115
--------- --------- ---------- ---------- --------
--------- --------- ---------- ---------- --------

1998
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
(DOLLARS IN THOUSANDS) COST GAINS LOSSES VALUE
- -------------------------------------------------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury..................................... $ 40,047 $1,050 -$- $ 41,097
Other U.S. government............................. 89,783 1,392 -- 91,175
Mortgage-backed securities........................ 15,247 1,178 -- 16,425
State and municipal............................... 15,436 4 893 14,547
--------- ---------- ----- --------
Total securities held to maturity............... $160,513 $3,624 $893 $163,244
--------- ---------- ----- --------
--------- ---------- ----- --------
</TABLE>

Management of the securities portfolio involves the maximization of return
while maintaining prudent levels of quality and liquidity. At December 31, 1998,
approximately 99 percent of total securities were investment grade.

F-31
<PAGE>
ANALYSIS OF SECURITIES PORTFOLIO

The following tables show the remaining contractual maturities and expected
yields of the securities portfolio at December 31, 1998.

SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
MATURITY
---------------------------------------------------------------------------------------
OVER ONE YEAR OVER FIVE YEARS
ONE YEAR THROUGH THROUGH OVER
OR LESS FIVE YEARS TEN YEARS TEN YEARS
------------------ --------------------- ------------------ ---------------------
(DOLLARS IN THOUSANDS) AMOUNT YIELD(4) AMOUNT YIELD(4) AMOUNT YIELD(4) AMOUNT YIELD(4)
- ----------------------------------- -------- -------- ----------- -------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury...................... $328,946 6.24% $ 425,045 6.47% $ -- -- % $ -- -- %
Other U.S. government.............. 315,010 6.25 491,453 6.19 50,000 5.50 -- --
Mortgage-backed securities(1)...... 1,287 6.23 99,193 6.36 269,879 6.24 1,504,782 6.05
State and municipal(2)............. 12,085 9.10 15,209 10.13 15,052 10.86 30,431 11.40
Corporate debt securities.......... -- -- 1,189 17.37 6,880 15.32 -- --
Equity securities(3)............... -- -- -- -- -- -- -- --
Foreign securities................. -- -- 5,106 0.21 1,693 6.04 -- --
-------- ----------- -------- -----------
Total securities available for
sale........................... $657,328 6.30% $ 1,037,195 6.36% $343,504 6.52% $ 1,535,213 6.16%
-------- ----------- -------- -----------
-------- ----------- -------- -----------

TOTAL
AMORTIZED COST
---------------------
(DOLLARS IN THOUSANDS) AMOUNT YIELD(4)
- ----------------------------------- ----------- --------
<S> <C> <C>
U.S. Treasury...................... $ 753,991 6.37%
Other U.S. government.............. 856,463 6.17
Mortgage-backed securities(1)...... 1,875,141 6.09
State and municipal(2)............. 72,777 10.64
Corporate debt securities.......... 8,069 15.62
Equity securities(3)............... 18,149 --
Foreign securities................. 6,799 1.66
-----------
Total securities available for
sale........................... $ 3,591,389 6.28%
-----------
-----------
</TABLE>

SECURITIES HELD TO MATURITY
<TABLE>
<CAPTION>
MATURITY
-----------------------------------------------------------------------------
OVER ONE YEAR OVER FIVE YEARS
ONE YEAR THROUGH THROUGH OVER
OR LESS FIVE YEARS TEN YEARS TEN YEARS
------------------ ----------------- ---------------- -----------------
(DOLLARS IN THOUSANDS) AMOUNT YIELD(4) AMOUNT YIELD(4) AMOUNT YIELD(4) AMOUNT YIELD(4)
- ----------------------------------- -------- -------- ------- -------- ------ -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury...................... $ 40,047 7.56% $ -- -- % $-- -- % $ -- -- %
Other U.S. government.............. 69,782 7.74 20,001 7.68 -- -- -- --
Mortgage-backed securities(1)...... -- -- 1,162 9.08 5,759 9.00 8,326 9.05
State and municipal(2)............. -- -- 930 7.31 2,990 5.71 11,516 5.76
-------- ------- ------ -------
Total securities held to
maturity....................... $109,829 7.67% $22,093 7.74% $8,749 7.88% $19,842 7.14%
-------- ------- ------ -------
-------- ------- ------ -------

TOTAL
AMORTIZED COST
------------------
(DOLLARS IN THOUSANDS) AMOUNT YIELD(4)
- ----------------------------------- -------- --------
<S> <C> <C>
U.S. Treasury...................... $ 40,047 7.56%
Other U.S. government.............. 89,783 7.73
Mortgage-backed securities(1)...... 15,247 9.03
State and municipal(2)............. 15,436 5.84
--------
Total securities held to
maturity....................... $160,513 7.63%
--------
--------
</TABLE>

- ------------------------------

(1) The remaining contractual maturities of mortgage-backed securities were
allocated assuming no prepayments. The contractual maturity of these
securities is not a reliable indicator of their expected life because
borrowers have the right to repay their obligations at any time.

(2) Yields on tax-exempt municipal securities are presented on a
taxable-equivalent basis using the current federal statutory rate of 35
percent.

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

(4) Yields are based on amortized cost.

F-32
<PAGE>
LOAN MATURITIES

The following table presents our loans by maturity.

<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------------------
OVER
ONE YEAR
ONE YEAR THROUGH OVER
(DOLLARS IN THOUSANDS) OR LESS FIVE YEARS FIVE YEARS TOTAL
- ------------------------------------------------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Domestic:
Commercial, financial and industrial................. $ 5,924,641 $ 5,790,572 $ 1,404,321 $ 13,119,534
Construction......................................... 255,840 178,424 5,542 439,806
Mortgage:
Residential........................................ 60,126 261,155 2,306,387 2,627,668
Commercial......................................... 644,536 1,395,649 935,299 2,975,484
------------- ------------ ------------ -------------
Total mortgage................................... 704,662 1,656,804 3,241,686 5,603,152
Consumer:
Installment........................................ 509,602 1,040,794 434,545 1,984,941
Home equity........................................ 106,964 415,048 296,187 818,199
------------- ------------ ------------ -------------
Total consumer................................... 616,566 1,455,842 730,732 2,803,140
Lease financing...................................... 383,105 649,043 -- 1,032,148
------------- ------------ ------------ -------------
Total loans in domestic offices.................. 7,884,814 9,730,685 5,382,281 22,997,780
Loans originated in foreign branches................... 1,229,554 67,264 1,513 1,298,331
------------- ------------ ------------ -------------
Total loans...................................... $ 9,114,368 $ 9,797,949 $ 5,383,794 $ 24,296,111
------------- ------------ ------------
------------- ------------ ------------
Allowance for credit losses.................... 459,328
-------------
Loans, net....................................... $ 23,836,783
-------------
-------------
Total fixed rate loans due after one year.............. $ 5,060,580
Total variable rate loans due after one year........... 10,121,163
-------------
Total loans due after one year................... $ 15,181,743
-------------
-------------
</TABLE>

CERTIFICATES OF DEPOSIT OF $100,000 AND OVER

The following table presents domestic certificates of deposit of $100,000
and over by maturity.

<TABLE>
<CAPTION>
DECEMBER 31,
(DOLLARS IN THOUSANDS) 1998
- ---------------------------------------------------------------------------------------------------- ------------
<S> <C>
Three months or less................................................................................ $2,543,176
Over three months through six months................................................................ 961,179
Over six months through twelve months............................................................... 211,750
Over twelve months.................................................................................. 109,603
------------
Total domestic certificates of deposit of $100,000 and over....................................... $3,825,708
------------
------------
</TABLE>

We offer certificates of deposit of $100,000 and over at market rates of
interest. Many of these certificates are issued to customers, both public and
private, who have done business with us for an extended period. We expect that
as these deposits come due, the majority will continue to be renewed at market
rates of interest.

Substantially all of our deposits in foreign branches are certificates of
deposit of $100,000 and over and mature in less than one year.

F-33
<PAGE>
BORROWED FUNDS

The following table presents information on our borrowed funds.

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
(DOLLARS IN THOUSANDS) 1996 1997 1998
- ------------------------------------------------------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
Federal funds purchased and securities sold under repurchase agreements
with weighted average interest rates of 5.09%, 5.38% and 4.88% at
December 31, 1996, 1997 and 1998, respectively........................ $ 1,322,654 $ 1,335,884 $ 1,307,744
Commercial paper, with weighted average interest rates of 5.34%, 5.64%
and 5.01% at December 31, 1996, 1997 and 1998, respectively........... 1,495,463 966,575 1,444,745
Other borrowed funds, with weighted average interest rates of 5.66%,
6.23% and 5.35% at December 31, 1996, 1997 and 1998, respectively 749,422 476,010 331,165
------------ ------------ ------------
Total borrowed funds.................................................. $ 3,567,539 $ 2,778,469 $ 3,083,654
------------ ------------ ------------
------------ ------------ ------------
Federal funds purchased and securities sold under repurchase agreements:
Maximum outstanding at any month end.................................. $ 1,322,654 $ 1,575,930 $ 2,058,610
Average balance during the year....................................... 933,433 1,097,707 1,604,675
Weighted average interest rate during the year........................ 5.05% 5.33% 5.26%

Commercial paper:
Maximum outstanding at any month end.................................. $ 1,854,576 $ 1,876,135 $ 1,918,700
Average balance during the year....................................... 1,620,087 1,637,070 1,631,216
Weighted average interest rate during the year........................ 5.40% 5.49% 5.42%

Other borrowed funds:
Maximum outstanding at any month end.................................. $ 1,697,236 $ 851,694 $ 438,151
Average balance during the year....................................... 1,119,051 635,900 328,872
Weighted average interest rate during the year........................ 5.59% 5.42% 5.68%
</TABLE>

CAPITAL ADEQUACY AND DIVIDENDS

Our principal capital objectives are to support future growth, to protect
depositors, to absorb any unanticipated losses and to comply with various
regulatory requirements. Management believes that we have retained our capital
at a level that supports our risk structure, as well as providing for
anticipated growth of current business activities and strategic expansion.

Total shareholders' equity was $3.1 billion at December 31, 1998, an
increase of $379 million from year-end 1997. This change was primarily a result
of $466 million of net income for 1998, offset by dividends on common stock of
$107 million.

We offer a dividend reinvestment plan that allows shareholders to reinvest
dividends in our common stock at 5 percent below the market price. During 1998,
The Bank of Tokyo-Mitsubishi, Ltd. did not participate in the plan.

Capital adequacy depends on a variety of factors including asset quality and
risk profile, liquidity, earnings stability, competitive and economic
conditions, and management. We believe that the current level of profitability,
coupled with a prudent dividend policy, is adequate to support normal growth in
operations while meeting regulatory capital guidelines.

F-34
<PAGE>
The following table summarizes our risk-based capital, risk-weighted assets,
and risk-based capital ratios.

<TABLE>
<CAPTION>
DECEMBER 31, MINIMUM
------------------------------------------------------------------------- REGULATORY
(DOLLARS IN THOUSANDS) 1994 1995 1996 1997 1998 REQUIREMENT
- ----------------------------------- ------------- ------------- ------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL COMPONENTS
Tier 1 capital..................... $ 2,070,554 $ 2,355,057 $ 2,395,580 $ 2,587,071 $ 2,965,865
Tier 2 capital..................... 626,903 591,266 551,074 601,102 604,938
------------- ------------- ------------- ------------- -------------
Total risk-based capital........... $ 2,697,457 $ 2,946,323 $ 2,946,654 $ 3,188,173 $ 3,570,803
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Risk-weighted assets............... $ 22,419,516 $ 25,179,489 $ 26,390,288 $ 28,862,340 $ 30,753,030
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Quarterly average assets........... $ 23,868,729 $ 27,073,158 $ 28,496,355 $ 30,334,507 $ 31,627,022
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
CAPITAL RATIOS
Total risk-based capital........... 12.03% 11.70% 11.17% 11.05% 11.61% 8.0%
Tier 1 risk-based capital.......... 9.24 9.35 9.08 8.96 9.64 4.0
Leverage ratio(1).................. 8.67 8.70 8.41 8.53 9.38 4.0
</TABLE>

- ------------------------------

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

We and Union Bank of California, N.A. are subject to various regulations
issued by federal banking agencies, including minimum capital requirements. We
and Union Bank of California, N.A. 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).

Compared with December 31, 1997, our Tier 1 risk-based capital ratio at
December 31, 1998 increased 68 basis points to 9.64 percent, our total
risk-based capital ratio increased 56 basis points to 11.61 percent, and our
leverage ratio increased 85 basis points to 9.38 percent. The increase in our
capital ratios was primarily attributable to retained earnings growing faster
than both risk-weighted assets and average assets, partly offset by the
reduction of $50 million in subordinated capital notes.

As of December 31, 1998, management believed the capital ratios of Union
Bank of California, N.A. met all regulatory minimums of a "well-capitalized"
institution.

COMPARISON OF 1996 TO 1997

Net income in 1996 was $249 million, compared to $411 million in 1997. Net
income applicable to common stock was $238 million, or $1.36 per diluted common
share, in 1996, compared with $404 million, or $2.30 per diluted common share,
in 1997. This increase in diluted earnings per share of 69 percent over 1996 was
due to a 5 percent increase in net interest income, an 11 percent increase in
noninterest income, a 8 percent decrease in noninterest expense, a decrease in
the effective income tax rate, and a $40 million reduction in the provision for
credit losses. Other highlights for 1997 include:

- Net interest income, on a taxable-equivalent basis, was $1.2 billion in
1997, an increase of $62 million, or 5 percent, over 1996 primarily due to
a $1.6 billion, or 6 percent, increase in average earning assets,
resulting primarily from a $1.1 billion, or 5 percent, increase in average
loans and largely funded by an $851 million, or 13 percent, increase in
average demand deposits. Partially offsetting the positive impact of the
growth in earning assets and demand deposits on net interest income was a
5 basis point decline in the net interest margin to 4.70 percent. The
decline in net interest margin was primarily due to a 14 basis point
decrease in the spread between the average yield on average earning assets
and the average rate paid on average interest bearing liabilities.

- A $40 million provision for credit losses was recorded in 1996, compared
with no provision for credit losses in 1997, reflecting improvement in the
quality of our loan portfolio and a reduction in

F-35
<PAGE>
nonaccrual loans. Nonperforming assets declined $27 million, or 17
percent, from December 31, 1996 to $130 million at December 31, 1997.
Nonperforming assets as a percent of total assets declined from 0.54
percent at December 31, 1996 to 0.42 percent at December 31, 1997. Total
nonaccrual loans were $128 million at December 31, 1996, compared with
$109 million at year-end 1997, resulting in a reduction in the ratio of
nonaccrual and renegotiated loans to total loans from 0.61 percent at
December 31, 1996 to 0.48 percent at year-end 1997. The allowance for
credit losses was $524 million, or 408 percent of total nonaccrual loans,
at December 31, 1996, compared with $452 million, or 413 percent of total
nonaccrual loans, at December 31, 1997.

- Noninterest income was $463 million in 1997, an increase of $44 million,
or 11 percent, over 1996. Service charges on deposit accounts grew $13
million, or 12 percent, reflecting growth in deposit balances while trust
and investment management fees increased $14 million, or 15 percent, on
growth in trust accounts and assets under management.

- Noninterest expense was $1.0 billion in 1997, a decrease of $90 million,
or 8 percent, from 1996. This decrease was primarily attributable to a
decrease of $111 million in merger and integration expense and a decrease
of $18 million in net occupancy expense, reflecting a $12 million charge
recorded in 1996 related to former banking facilities, as well as merger
efficiencies realized in 1997. These decreases were partially offset by an
increase of $14 million, or 3 percent, in personnel-related expense, a
significant portion of which was due to severance payments related to
realignment of departments and to higher performance-related incentive
compensation, and an increase of $16 million, or 26 percent, in other
expenses. Excluding the $12 million charge in 1996 and merger and
integration expense, noninterest expense increased $33 million over 1996.

- The effective tax rate for 1996 was 40 percent, compared with 37 percent
for 1997. Excluding a $5 million after-tax benefit from the settlement of
a unitary tax issue with the FTB, the effective tax rate in 1996 was 41
percent. Excluding the $25 million after-tax refund from the FTB, the
effective tax rate in 1997 was 41 percent.

- The return on average assets for 1997 increased to 1.39 percent, compared
to 0.89 percent for 1996. The return on average common equity for 1997
increased to 16.05 percent, compared to 10.24 percent for 1996.

- Total loans at December 31, 1997 were $22.7 billion, an increase of $1.7
billion, or 8 percent, over year-end 1996, primarily from growth in the
commercial, financial and industrial loan portfolio.

- At December 31, 1997, our Tier 1 risk-based capital ratio was 8.96 percent
and our total risk-based capital ratio was 11.05 percent, exceeding the
minimum regulatory guidelines for bank holding companies of 4 percent and
8 percent, respectively. The Tier 1 and total risk-based capital ratios
for Union Bank of California, N.A. at December 31, 1997 exceeded the
regulatory guidelines for "well-capitalized" banks. Our leverage ratio was
8.53 percent at December 31, 1997, exceeding the minimum regulatory
guideline for bank holding companies.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

GENERAL

Market risk is the risk of loss to future earnings, to fair values, or to
future cash flows that may result from changes in the price of a financial
instrument. The value of a financial instrument may change as a result of
changes in interest rates, foreign currency exchange rates, commodity prices,
equity prices, and other market changes that affect market risk sensitive
instruments. Market risk is attributed to all market risk sensitive financial
instruments, including securities, loans, deposits, borrowings, as well as
derivative instruments. Our exposure to market risk is a function of our asset
and liability management activities, our trading activities for our own account,
and our role as a financial intermediary in customer-related

F-36
<PAGE>
transactions. The objective of market risk management is to avoid excessive
exposure of our earnings and equity to loss and to reduce the volatility
inherent in certain financial instruments.

The management of market risk is governed by policies reviewed and approved
annually by our Board of Directors (Board). The Board delegates responsibility
for market risk management to the Asset & Liability Management Committee (ALCO),
which reports quarterly to the Finance and Capital Committee of the Board on
activities related to the management of market risk. As part of the management
of our market risk, ALCO may direct changes in the mix of assets and liabilities
and the use of derivative instruments such as interest rate swaps, caps and
floors. ALCO also reviews and approves market risk-management programs and
market risk limits. The ALCO Chairman is responsible for the company-wide
management of market risk. The Treasurer is responsible for implementing
funding, investment, and hedging strategies designed to manage this risk. On a
day-to-day basis, the oversight of market risk management takes place at a
centralized level within the Risk Monitoring Unit (RMU). The RMU is responsible
for measuring risks to ensure compliance with all market risk limits and
guidelines incorporated within the policies and procedures established by ALCO.
The RMU reports monthly to ALCO on the effectiveness of our hedging activities,
on trading risk exposures, and on compliance with policy limits. In addition,
periodic reviews by internal audit, regulators and independent accountants
provide further evaluation of controls over the risk management process.

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

INTEREST RATE RISK MANAGEMENT (OTHER THAN TRADING)

We engage in asset and liability management activities with the objective of
reducing adverse changes in earnings as a result of changes in interest rates.
The management of interest rate risk relates to the timing and magnitude of the
repricing of assets compared to liabilities and has, as its objective, the
control of risks associated with movements in interest rates.

The Asset & Liability Management (ALM) Policy approved by the Board requires
monthly monitoring of interest rate risk by ALCO. As part of the management of
our interest rate risk, ALCO may direct changes in the composition of the
balance sheet and the extent to which we utilize off-balance sheet derivative
instruments such as interest rate swaps, floors, and caps.

Our unhedged balance sheet is inherently "asset-sensitive", which means that
assets generally reprice more often than liabilities. Since an asset-sensitive
balance sheet tends to reduce net interest income when interest rates decline
and to increase net interest income when interest rates rise, off-balance sheet
hedges and the securities portfolio are used to manage this interest rate risk.

One method of measuring interest rate risk is by measuring the interest rate
sensitivity gap, which is the difference between earning assets and liabilities
maturing or repricing within specified periods. The table on page F-40 presents
such an analysis, which reflects certain assumptions as to the rate sensitivity
of deposits without contractual maturities or repricing dates. These include
demand deposits, money market demand accounts, and savings deposits. Additional
assumptions such as prepayment estimates for residential mortgages and
mortgage-backed securities are made to reflect the probable behavior of those
assets. The section of the table on page F-40 entitled "Interest Rate Risk
Management Positions" presents the effects of the securities portfolio and of
derivatives used for hedging, such as interest rate swaps and floors, in
reducing the interest rate sensitivity gap primarily for LIBOR-based loans.

The table on page F-40 shows that assets that are rate sensitive within one
year exceeded liabilities within that same period by $5.0 billion at December
31, 1998. Adjusted for the effects of the securities portfolio and derivatives
used for hedging, this cumulative gap was reduced to $3.7 billion. At December
31, 1997, our assets that were rate sensitive within one year exceeded
liabilities within that same period

F-37
<PAGE>
by $4.9 billion. Adjusted for the effects of the securities portfolio and
derivatives used for hedging, this cumulative gap was reduced to $2.5 billion.

Gap analysis has significant limitations as a method for measuring interest
rate risk since changes in interest rates do not affect all categories of assets
and liabilities in the same way. To address these limitations, we use a
simulation model to quantify the impact of changing interest rates on net
interest income (NII). A frequency distribution of simulated 12-month NII
outcomes based on rate scenarios produced through a Monte Carlo rate generation
process is prepared monthly to determine statistically the mean NII. The amount
of Earnings at Risk (EaR), defined as the potential negative change in NII, is
measured at a 97.5 percent confidence level and is managed within the limit
established in the Board's ALM Policy at 5 percent of mean NII. The following
table summarizes our EaR and EaR as a percentage of NII.

An additional limit established by the Board's ALM Policy is that under
single interest rate shock scenarios, up or down 200 basis points, the
difference between the lower simulated NII and the mean NII must be no more than
8 percent of the mean NII. The following table sets forth the change in
simulated NII for both an upward and downward shock scenario of 200 basis
points.

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
(DOLLARS IN MILLIONS) 1997 1998
- ----------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
+200 basis points.............................................................................. $ 63.9 $ 23.4
as a percentage of mean NII.................................................................... 5.00% 1.81%
- -200 basis points.............................................................................. $ (51.8) $ (52.2)
as a percentage of mean NII.................................................................... 4.05% 4.03%
</TABLE>

TRADING ACTIVITIES

We enter into trading account activities primarily as a financial
intermediary for customers, and, to a lesser extent, for our own account. By
acting as a financial intermediary, we are able to provide our customers with
access to a wide range of products from the securities, foreign exchange, and
derivatives markets. In acting for our own account, we may take positions in
some of these instruments with the objective of generating trading profits.
These activities expose us to two primary types of market risk: interest rate
and foreign currency exchange risk.

In order to manage interest rate and foreign currency exchange risk
associated with our trading activities, we utilize a variety of non-statistical
methods including: position limits for each trading activity, daily marking of
all positions to market, daily profit and loss statements, position reports, and
independent verification of all inventory pricing. Additionally, the RMU reports
positions and profits and losses daily to the Treasurer and trading managers and
weekly to the ALCO Chairman. ALCO is provided reports on a monthly basis. We
believe that these procedures, which stress timely communication between the RMU
and senior management, are the most important elements of the risk management
process.

We use a form of Value at Risk (VaR) methodology to measure the overall
market risk inherent in our trading account activities. Under this methodology,
management statistically calculates, with 97.5 percent confidence, the potential
loss in fair value that we might experience if an adverse shift in market prices
were to occur within a period of 5 business days. The amount of VaR is managed
within limits well below the maximum limit established by Board policy at 0.5
percent of shareholders' equity. The VaR model incorporates a number of key
assumptions, including assumed holding period and historical volatility based

F-38
<PAGE>
on 3 years of historical market data updated quarterly. The following table sets
forth the average, high and low VaR during the year for our trading activities.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
1997 1998
--------------------------------- ----------------------
AVERAGE HIGH LOW AVERAGE HIGH
(DOLLARS IN THOUSANDS) VAR VAR VAR VAR VAR
- ------------------------------------------------------------------------ ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Foreign exchange........................................................ $ 73 $ 147 $ 32 $ 103 $ 389
Securities.............................................................. 558 717 439 410 873

LOW
(DOLLARS IN THOUSANDS) VAR
- ------------------------------------------------------------------------ ---------
<S> <C>
Foreign exchange........................................................ $ 20
Securities.............................................................. 222
</TABLE>

Our interest rate derivative contracts include $2.3 billion of derivative
contracts entered into as an accommodation for customers. We act as an
intermediary and match these contracts at a profit with contracts with The Bank
of Tokyo-Mitsubishi, Ltd. or other dealers, thus neutralizing the related market
risk. We maintain responsibility for the credit risk associated with these
contracts.

LIQUIDITY RISK

Liquidity risk represents the potential for loss as a result of limitations
on our ability to adjust our future cash flows to meet the needs of depositors
and borrowers and to fund operations on a timely and cost-effective basis. The
ALM Policy approved by the Board requires quarterly reviews of our liquidity by
the ALCO, which is composed of bank senior executives. Our liquidity management
draws upon the strengths of our extensive retail and commercial market business
franchise, coupled with the ability to obtain funds for various terms in a
variety of domestic and international money markets. Liquidity is managed
through the funding and investment functions of the Global Markets Group.

Core deposits provide us with a sizable source of relatively stable and
low-cost funds. Our average core deposits, which include demand deposits, money
market demand accounts, and savings and consumer time deposits, combined with
average common shareholders' equity, funded 66 percent of average total assets
of $30.5 billion for the year ended December 31, 1998. Most of the remaining
funding was provided by short-term borrowings in the form of negotiable
certificates of deposit, foreign deposits, federal funds purchased and
securities sold under repurchase agreements, commercial paper and other
borrowings. In 1998, we increased our Commercial Paper program by $100 million.

Liquidity may also be provided by the sale or maturity of assets. Such
assets include interest bearing deposits in banks, federal funds sold and
securities purchased under resale agreements, and trading account securities.
The aggregate of these assets averaged $1.1 billion during 1998. Additional
liquidity may be provided by investment securities available for sale that
amounted to $3.6 billion at December 31, 1998, and by loan maturities. At
December 31, 1998, $9.1 billion of loans were scheduled to mature within one
year.

F-39
<PAGE>
The following table summarizes our interest rate sensitivity based on
expected repricings in the time frames indicated for the balance sheet and
interest rate derivatives as of December 31, 1998.

<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------------------------------
AMOUNTS MATURING OR REPRICING IN
----------------------------------------------------------
0-12 >1-5 AFTER 5
(DOLLARS IN THOUSANDS) MONTHS YEARS YEARS TOTAL
- ----------------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Federal funds sold and securities purchased under
resale agreements.................................. $ 333,530 $ -- $ -- $ 333,530
Interest bearing deposits in banks................... 209,568 -- -- 209,568
Trading account assets............................... 267,718 -- -- 267,718
Loans................................................ 18,917,483 3,825,925 1,552,703 24,296,111
Other assets(1)(2)................................... 571,793 1,492,820 1,305,731 3,370,344
------------- ------------- ------------- -------------
Total assets (except securities)................. $ 20,300,092 $ 5,318,745 $ 2,858,434 $ 28,477,271
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing deposits:
Interest bearing checking(1)(3).................... $ 192,599 $ 1,348,190 $ -- $ 1,540,789
Money market demand accounts(1)(3)................. 1,331,227 2,674,582 -- 4,005,809
Savings(1)(3)...................................... 189,998 1,329,985 -- 1,519,983
Other time deposits(1)............................... 6,889,618 365,434 6,841 7,261,893
Federal funds purchased and securities sold under
repurchase agreements.............................. 1,307,744 -- -- 1,307,744
Other borrowed funds(1).............................. 1,771,306 4,027 577 1,775,910
Subordinated capital notes........................... 298,000 -- -- 298,000
Noninterest bearing deposit accounts(4).............. 3,053,825 7,125,580 -- 10,179,405
Other liabilities(1)(2).............................. 288,500 -- 1,040,039 1,328,539
Shareholders' equity(2).............................. -- -- 3,058,244 3,058,244
------------- ------------- ------------- -------------
Total liabilities and shareholders' equity........... $ 15,322,817 $ 12,847,798 $ 4,105,701 $ 32,276,316
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Gap before risk management positions................. $ 4,977,275 $ (7,529,053) $ (1,247,267) $ (3,799,045)
Cumulative gap before risk management positions...... $ 4,977,275 $ (2,551,778) $ (3,799,045)
INTEREST RATE RISK MANAGEMENT POSITIONS
Securities(1)...................................... 1,244,866 2,239,073 315,106 3,799,045
Interest rate swaps................................ (500,000) 500,000 -- --
Interest rate floors(5)............................ (2,000,000) 2,000,000 -- --
------------- ------------- ------------- -------------
Gap adjusted for risk management positions........... $ 3,722,141 $ (2,789,980) $ (932,161) $ --
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Cumulative gap adjusted for risk management
positions.......................................... $ 3,722,141 $ 932,161 $ -- $ --
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>

- ------------------------------

(1) Certain balance sheet classifications used for interest rate sensitivity
analysis do not conform to the Consolidated Balance Sheets on F-48.

(2) Items that neither reprice nor mature are included in the "After 5 years"
column.

(3) Interest rate sensitivity of non-maturity deposit accounts are based on
assumptions for a declining interest rate scenario since the Company's
balance sheet is asset-sensitive.

(4) 70 percent of the demand deposit account balance is assumed to be "core"
deposits, which are not sensitive to interest rate changes.

(5) Floors purchased affect interest rate sensitivity in a declining interest
rate scenario.

F-40
<PAGE>
YEAR 2000

The year 2000 problem exists because many computer programs use only the
last two digits to refer to a year. This convention could affect date-sensitive
calculations that treat "00" as the year 1900, rather than as the year 2000.
Another issue is that the year 2000 is a leap year and some programs may not
properly provide for February 29, 2000.

This discussion of the implications of the year 2000 problem for us contains
numerous forward-looking statements based on inherently uncertain information.
The cost of the project and the date on which we plan to complete the internal
year 2000 modifications are based on management's best estimates of future
events. See details with respect to costs for year 2000 on page F-16. The
material assumptions underlying the estimated cost are:

- the continued availability of internal and external resources,

- the cost of these resources,

- the time required to accomplish the tasks, and

- the cost of needed equipment.

We cannot guarantee, however, these estimates, and actual results could
differ. Moreover, although management believes it will be able to make the
necessary modifications in advance, failure to modify the systems may have a
material adverse effect on us.

In addition, we place a high degree of reliance on computer systems of third
parties, such as customers, vendors, and other financial and governmental
institutions. Although we are assessing the readiness of these third parties and
preparing contingency plans, the failure of these third parties to modify their
systems in advance of December 31, 1999, may have a material adverse effect on
us.

READINESS PREPARATION

Resolution of the year 2000 problem is among our highest priorities, and we
are preparing for the century change with a comprehensive enterprise-wide year
2000 program. We have identified all of the major systems and have sought
external and internal resources to renovate and test the systems. We are testing
purchased software, internally developed systems and systems supported by
external parties as part of the program. We are evaluating customers and vendors
that have significant relationships with us to determine whether they are
adequately preparing for the year 2000. In addition, we are developing
contingency plans to reduce the impact of some potential events that may occur.
We cannot guarantee, however, that the systems of vendors or customers with whom
we do business will be completed on a timely basis, or that contingency plans
will shield operations from failures that may occur.

Our year 2000 program is comprised of numerous individual projects that
address the following broad areas:

- data processing systems,

- telecommunications and data networks,

- building facilities and security systems,

- vendor risk,

- customer risk,

- contingency planning, and

- communications.

F-41
<PAGE>
We have identified over 2,000 individual projects. The projects vary in
size, importance and materiality, from large undertakings, such as remediating
complicated data systems, to smaller, but still important, projects such as
installing compliant computer utility systems or assuring that building
equipment will perform properly. The program continues to evolve as we identify
new projects to keep up with increased understanding of year 2000 implications
and evolving external requirements. Virtually all of the projects currently
identified have begun, and approximately two-thirds have been completed.

We assign projects a priority, indicating the importance of the function to
our continuing operation. This prioritization facilitates reporting on projects
based on their relative importance. We have prioritized projects as "Critical"
and "Non-Critical". Critical projects are further prioritized as "Mission
Critical" and "Other Critical".

"Mission Critical" projects are defined as:

- systems vital to the continuance of a broad core business activity;

- functions, the interruption of which for longer than 3 days would threaten
our viability; or

- functions that provide the environment and infrastructure necessary to
continue the broad core business activities.

"Other Critical" projects are defined as:

- other customer and accounting systems;

- functions supporting delivery of information and service to customers;

- administrative systems, the interruption of which for longer than 2 weeks
would cause severe business impact; or

- functions that provide the environment and infrastructure necessary for
delivery of the above systems and functions.

We plan to complete all projects currently identified prior to the year
2000, with special emphasis placed on those prioritized as "Mission Critical" or
"Other Critical". Failure to complete an "Other Critical" project would not
necessarily have a material adverse effect on us.

The most important projects are the "Mission Critical" application systems
upon which we rely for our principal business functions. We have renovated and
tested all of these systems. However, outside servicers operate three of them.
The outside servicers have renovated and tested each of these systems, but we
still need to validate them.

The following table presents actual and estimated progress with "Mission
Critical" projects.

MISSION CRITICAL APPLICATION COMPLETION

<TABLE>
<CAPTION>
% COMPLETED
---------------
<S> <C>
Actual:
June 1998......................................................................................... 10%
September 1998.................................................................................... 38
December 1998..................................................................................... 90

Estimated:
March 1999........................................................................................ 100%
</TABLE>

We have also achieved substantial progress with systems prioritized as
"Other Critical". As of December 31, 1998, 63 percent of these systems were
complete. Substantially all are expected to be complete by March 31, 1999.

F-42
<PAGE>
In addition to testing individual systems, we have begun integrated
contingency testing of our "Mission Critical" and many other systems in a
separate computer environment where dates are set forward in order to identify
and correct problems that might not otherwise become evident until the actual
end of the century.

We do not significantly rely on "embedded technology" in our critical
processes. "Embedded technology", which means microprocessor-controlled devices
as opposed to multi-purpose computers, does control some building security and
operations, such as power management, ventilation, and building access. All
building facilities are presently being evaluated, and we expect all systems
using embedded technology to be confirmed as year 2000 ready by June 1999.

We rely on vendors and customers, and we are addressing year 2000 issues
with both groups. We have identified over 300 vendors and have made inquiries
about their year 2000 readiness plans and status. Approximately 35 percent of
these vendors are rated as critical. We have completed risk assessments on the
critical and non-critical vendors, and we are undertaking appropriate measures
to minimize risk as much as possible for those vendors that we have assigned a
risk rating of medium or high. Among the critical vendors, presently 72 percent
are rated as low risk, 19 percent as medium risk, and 9 percent as high risk.

We plan to have the medium and high risk vendor situations resolved in June
1999. We have, however, no viable alternatives for some suppliers, such as power
distribution and local telephone companies. We are still evaluating these
companies, and we will use the results as information for system-wide
contingency planning. As with all financial institutions, we place a high degree
of reliance on the systems of other institutions, including governmental
agencies, to settle transactions. We will test principal settlement methods
associated with major payment systems as part of their associated system
projects.

We also rely on our customers to make necessary preparations for the year
2000 so that their business operations will not be interrupted, thus threatening
their ability to honor their financial commitments. We have identified over
2,500 borrowers, capital market counterparties, funding sources, and large
depositors that constitute our customers as having financial volumes
sufficiently large to warrant our inquiry and assessment of their year 2000
preparation. The financial volumes included loans and unused commitments,
collected deposit balances, automated clearing house transactions, foreign
exchange, and derivatives. We have completed inquiries and initial written
assessments for 97 percent of the identified financial volumes.

Our borrowers, the population of customers with loans and unused commitments
outstanding, pose the highest level of concern. As of December 31, 1998, our
assessment of these borrowers resulted in the following assignments of risk: 79
percent low risk, 18 percent medium risk and 3 percent high risk. We have
established individual risk mitigation plans for substantially all of the
customers rated as high risk. The risk mitigation plans evaluate whether year
2000 issues will materially affect the customer's cash flow, asset values, and
collateral pledged to us. The risk mitigation plans use the normal credit
process that we employ to manage credit risk and require the concurrence of a
credit administrator.

We will make ongoing assessments of customers at all levels of risk. Those
with low risk will be reassessed semi-annually, while customers with medium and
high risk will be reassessed quarterly.

RISKS

The principal risks associated with the year 2000 problem can be grouped
into three categories:

- we do not successfully ready our operations for the next century,

- disruption of our operations due to operational failures of third parties,
and

- business interruption among fund providers and obligors such that expected
funding and repayment does not take place.

F-43
<PAGE>
The only risk largely under our control is preparing our internal operations
for the year 2000. We, like other financial institutions, are heavily dependent
on our computer systems. The complexity of these systems and their
interdependence make it impractical to convert to alternative systems without
interruptions if necessary modifications are not completed on schedule.
Management believes we will be able to make the necessary modifications on
schedule.

Failure of third parties may jeopardize our operations, but the seriousness
of this risk depends on the nature and duration of the failures. The most
serious impact on our operations from vendors would result if basic services
such as telecommunications, electric power, and services provided by other
financial institutions and governmental agencies were disrupted. Some public
disclosure about readiness preparation among basic infrastructure and other
suppliers is now available. We are unable, however, to estimate the likelihood
of significant disruptions among our basic infrastructure suppliers. In view of
the unknown probability of occurrence and impact on operations, we consider the
loss of basic infrastructure services to be the most reasonably likely worst
case year 2000 scenario.

Operational failures among our customers could affect their ability to
continue to provide funding or meet obligations when due. The information we
develop in the customer assessments described earlier allows us to identify
those customers that exhibit a risk of not making adequate preparations for the
century change. We are taking appropriate actions to manage these risks.

PROGRAM ASSESSMENT

The year 2000 program office reports on progress monthly to our Executive
Management Committee and quarterly to the Audit and Examination Committee of the
Board. The Internal Audit Division and the National Bank Examiners regularly
assess our year 2000 preparations and report quarterly to the Audit and
Examination Committee.

CONTINGENCY PLANS

We are developing year 2000 remediation contingency plans and business
resumption contingency plans specific to the year 2000. Remediation contingency
plans address the actions we would take if the current approach to remediating a
system is falling behind schedule or otherwise appears in jeopardy of failing to
deliver a year 2000-ready system when needed. Business resumption contingency
plans address the actions that we would take if critical business functions
cannot be carried out in the normal manner upon entering the next century due to
system or supplier failure.

Our business resumption contingency planning is following a four-phase
process:

- Organizational Planning Guidelines,

- Business Impact Analysis,

- Plan Development, and

- Validation of Plans

During the first two phases, which have been completed, we assigned
responsibilities, specified scenarios and determined which scenarios were
significant for each critical business unit. The second two phases call for the
development of plans to meet the significant scenarios and testing the
effectiveness of the plans.

We are developing plans for system-wide or regional failures and for
individual critical operating units where necessary. We expect to complete
development of plans for the operating units and their validation in June 1999.
We expect to complete development of plans to address system-wide or regional
failures, and their validation, in September 1999.

F-44
<PAGE>
To determine where plans are necessary for individual operating units, we
identified the following areas of concern, assigned to each a level of potential
risk and a probability of occurrence. The areas of concern are:

- telecommunications or data network outage,

- enterprise information systems failure,

- operational disruptions,

- vendor or service provider failure,

- staff unavailability,

- utility or facility failure, and

- personal computer or local area network failure.

We rated the level of potential risk as high, moderate or low, and we rated
the probability of occurrence as high, moderate or low. Critical operating units
with a low or moderate level of potential risk and a low probability of
occurrence do not require a contingency plan for the area of concern. For any
other combination, the development of a contingency plan is required.

OTHER RELATED DISCLOSURES

HighMark Capital Management, Inc. is a registered investment advisor and
Union Bank of California Investment Services, Inc. is a broker-dealer. Each of
these subsidiaries makes publicly available separate year 2000 reports. You can
find additional year 2000 information in those reports.

F-45
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Consolidated Statements of Income for the Years Ended December 31, 1996, 1997 and 1998..................... F-47

Consolidated Balance Sheets as of December 31, 1997 and 1998............................................... F-48

Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 1996, 1997 and
1998..................................................................................................... F-49

Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998................. F-50

Notes to Consolidated Financial Statements................................................................. F-51

Management Statement....................................................................................... F-93

Independent Auditors' Report............................................................................... F-94
</TABLE>

F-46
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARES

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1997 1998
- -------------------------------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME
Loans........................................................................... $1,687,977 $1,763,277 $1,826,096
Securities...................................................................... 143,412 167,440 200,337
Interest bearing deposits in banks.............................................. 52,709 56,748 17,080
Federal funds sold and securities purchased under resale agreements............. 30,246 26,079 16,056
Trading account assets.......................................................... 12,960 19,917 25,610
---------- ---------- ----------
Total interest income......................................................... 1,927,304 2,033,461 2,085,179
---------- ---------- ----------
INTEREST EXPENSE
Domestic deposits............................................................... 460,130 520,583 468,907
Foreign deposits................................................................ 71,437 75,398 86,221
Federal funds purchased and securities sold under repurchase agreements......... 47,095 58,544 84,440
Commercial paper................................................................ 87,411 89,912 88,358
Subordinated capital notes...................................................... 30,104 22,850 20,347
Other borrowed funds............................................................ 62,549 34,492 18,683
---------- ---------- ----------
Total interest expense........................................................ 758,726 801,779 766,956
---------- ---------- ----------
NET INTEREST INCOME............................................................. 1,168,578 1,231,682 1,318,223
Provision for credit losses..................................................... 40,000 -- 45,000
---------- ---------- ----------
Net interest income after provision for credit losses......................... 1,128,578 1,231,682 1,273,223
---------- ---------- ----------
NONINTEREST INCOME
Service charges on deposit accounts............................................. 101,975 114,647 138,847
Trust and investment management fees............................................ 93,479 107,527 121,226
International commissions and fees.............................................. 66,108 66,122 72,036
Merchant transaction processing fees............................................ 49,778 57,128 56,929
Merchant banking fees........................................................... 23,929 24,924 31,402
Securities gains, net........................................................... 4,502 2,711 5,686
Other........................................................................... 78,905 89,942 107,405
---------- ---------- ----------
Total noninterest income...................................................... 418,676 463,001 533,531
---------- ---------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits.................................................. 557,247 571,644 617,564
Net occupancy................................................................... 103,335 85,630 90,917
Equipment....................................................................... 55,942 56,137 56,252
Foreclosed asset expense (income)............................................... 2,889 (1,268) (2,821)
Merger and integration.......................................................... 117,464 6,037 --
Other........................................................................... 298,027 326,485 373,306
---------- ---------- ----------
Total noninterest expense..................................................... 1,134,904 1,044,665 1,135,218
---------- ---------- ----------
Income before income taxes...................................................... 412,350 650,018 671,536
Income tax expense.............................................................. 162,892 238,722 205,075
---------- ---------- ----------
NET INCOME...................................................................... $ 249,458 $ 411,296 $ 466,461
---------- ---------- ----------
---------- ---------- ----------
NET INCOME APPLICABLE TO COMMON STOCK........................................... $ 238,152 $ 403,696 $ 466,461
---------- ---------- ----------
---------- ---------- ----------
NET INCOME PER COMMON SHARE--BASIC.............................................. $ 1.37 $ 2.31 $ 2.66
---------- ---------- ----------
---------- ---------- ----------
NET INCOME PER COMMON SHARE--DILUTED............................................ $ 1.36 $ 2.30 $ 2.65
---------- ---------- ----------
---------- ---------- ----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING--BASIC............................... 174,391 174,683 175,127
---------- ---------- ----------
---------- ---------- ----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING--DILUTED............................. 174,784 175,189 175,737
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-47
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 1997 1998
- ----------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks............................................................ $ 2,541,699 $ 2,135,380
Interest bearing deposits in banks................................................. 633,421 209,568
Federal funds sold and securities purchased under resale agreements................ 24,335 333,530
------------- -------------
Total cash and cash equivalents................................................ 3,199,455 2,678,478
Trading account assets............................................................. 394,313 267,718
Securities available for sale...................................................... 2,538,386 3,638,532
Securities held to maturity (market value: 1997, $193,115; 1998, $163,244)......... 188,775 160,513
Loans (net of allowance for credit losses: 1997, $451,692; 1998, $459,328)......... 22,289,716 23,836,783
Due from customers on acceptances.................................................. 773,339 489,480
Premises and equipment, net........................................................ 406,299 421,091
Other assets....................................................................... 794,982 783,721
------------- -------------
Total assets................................................................... $ 30,585,265 $ 32,276,316
------------- -------------
------------- -------------
LIABILITIES
Domestic deposits:
Noninterest bearing.............................................................. $ 8,574,515 $ 9,919,316
Interest bearing................................................................. 12,666,458 12,609,565
Foreign deposits:
Noninterest bearing.............................................................. 275,029 260,089
Interest bearing................................................................. 1,780,372 1,718,909
------------- -------------
Total deposits................................................................. 23,296,374 24,507,879
Federal funds purchased and securities sold under repurchase agreements............ 1,335,884 1,307,744
Commercial paper................................................................... 966,575 1,444,745
Other borrowed funds............................................................... 476,010 331,165
Acceptances outstanding............................................................ 773,339 489,480
Other liabilities.................................................................. 709,784 839,059
Subordinated capital notes......................................................... 348,000 298,000
------------- -------------
Total liabilities.............................................................. 27,905,966 29,218,072
------------- -------------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock:
Authorized 5,000,000 shares, no shares issued or outstanding at December 31, 1997
or 1998........................................................................ -- --
Common stock--no stated value:
Authorized 300,000,000 shares, issued 174,917,674 shares in 1997 and 175,259,919
shares in 1998................................................................. 1,714,209 1,725,619
Retained earnings.................................................................. 957,662 1,314,915
Accumulated other comprehensive income............................................. 7,428 17,710
------------- -------------
Total shareholders' equity..................................................... 2,679,299 3,058,244
------------- -------------
Total liabilities and shareholders' equity..................................... $ 30,585,265 $ 32,276,316
------------- -------------
------------- -------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-48
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1996 1997 1998
- ------------------------------------------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
PREFERRED STOCK
Balance, beginning of year............................. $ 135,000 $ 135,000 $ --
Redemption of preferred stock.......................... -- (135,000) --
---------- ---------- ----------
Balance, end of year................................. $ 135,000 $ -- $ --
---------- ---------- ----------
COMMON STOCK
Balance, beginning of year............................. $1,699,260 $1,703,838 $1,714,209
Dividend reinvestment plan............................. 1,162 (37) 28
Deferred compensation--restricted stock awards......... 2,355 3,757 5,744
Stock options exercised................................ 1,061 6,651 5,638
---------- ---------- ----------
Balance, end of year................................. $1,703,838 $1,714,209 $1,725,619
---------- ---------- ----------
RETAINED EARNINGS
Balance, beginning of year............................. $ 626,172 $ 645,214 $ 957,662
Net income(1).......................................... 249,458 $249,458 411,296 $411,296 466,461 $466,461
Dividends on common stock(2)(3)........................ (73,932) (89,848) (106,932)
Dividends on preferred stock........................... (11,306) (7,600) --
Dividend to The Mitsubishi Bank, Ltd................... (144,890) -- --
Deferred compensation--restricted stock awards......... (288) (1,400) (2,276)
---------- ---------- ----------
Balance, end of year................................. $ 645,214 $ 957,662 $1,314,915
---------- ---------- ----------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, beginning of year............................. $ 23,660 $ 10,881 $ 7,428
Unrealized holding gains (losses) arising during the
year on securities available for sale, net of tax
expense (benefit) of $(5,297) in 1996, $4,370 in
1997, and $6,672 in 1998............................. (8,112) 7,538 12,734
Less: reclassification adjustment for gains on
securities available for sale included in net income,
net of tax expense of $1,778 in 1996, $995 in 1997,
and $2,175 in 1998................................... (2,724) (1,716) (3,511)
-------- -------- --------
Net unrealized gains (losses) on securities available
for sale............................................. (10,836) 5,822 9,223
Foreign currency translation adjustment, net of tax
expense (benefit) of $(1,269) in 1996, $(5,377) in
1997, and $1,739 in 1998............................. (1,943) (9,275) 2,807
Minimum pension liability adjustment, net of tax
benefit of $1,083 in 1998............................ -- -- (1,748)
-------- -------- --------
Other comprehensive income............................. (12,779) (12,779) (3,453) (3,453) 10,282 10,282
---------- -------- ---------- -------- ---------- --------
Total comprehensive income............................. $236,679 $407,843 $476,743
-------- -------- --------
-------- -------- --------
Balance, end of year................................. $ 10,881 $ 7,428 $ 17,710
---------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY......................... $2,494,933 $2,679,299 $3,058,244
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

- ------------------------------

(1) Includes dividends applicable to preferred shareholders of $11.3 million in
1996 and $7.6 million in 1997.

(2) Dividends per share in 1996 were based on historical Union Bank common cash
dividends declared and did not include the $145 million dividend paid to The
Mitsubishi Bank, Limited in the first quarter of 1996 by BanCal Tri-State
Corporation and The Bank of California, N.A.

(3) Dividends per share were $0.47 in 1996, $0.51 in 1997, and $0.61 in 1998,
and are based on UnionBanCal Corporation's shares outstanding as of the
declaration date.

See accompanying notes to consolidated financial statements.

F-49
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
(DOLLARS IN THOUSANDS) 1996 1997 1998
- ----------------------------------------------------------------- ---------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................... $ 249,458 $ 411,296 $ 466,461
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for credit losses.................................. 40,000 -- 45,000
Depreciation, amortization and accretion..................... 65,092 65,469 67,640
Provision for deferred income taxes.......................... 50,658 59,814 28,097
Gain on sales of securities available for sale............... (4,502) (2,711) (5,686)
Merger and integration costs in excess of (less than) cash
utilized................................................... 54,344 (31,414) (12,388)
Net (increase) decrease in trading account assets............ (359,234) 52,743 126,595
Other, net................................................... 52,101 173,706 (117,258)
---------- ----------- -----------
Total adjustments.......................................... (101,541) 317,607 132,000
---------- ----------- -----------
Net cash provided by operating activities...................... 147,917 728,903 598,461
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale........... 19,536 171,629 418,477
Proceeds from matured and called securities available for
sale......................................................... 757,463 587,034 259,465
Purchases of securities available for sale..................... (995,479) (1,112,080) (1,528,281)
Proceeds from matured and called securities held to maturity... 95,829 79,828 28,540
Purchases of premises and equipment............................ (69,047) (60,829) (82,880)
Net increase in loans.......................................... (741,335) (1,788,179) (1,625,149)
Other, net..................................................... 14,927 4,245 12,466
---------- ----------- -----------
Net cash used by investing activities.......................... (918,106) (2,118,352) (2,517,362)
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits....................................... 1,877,917 1,763,414 1,211,505
Net increase (decrease) in federal funds purchased and
securities sold under repurchase agreements.................. 127,596 13,230 (28,140)
Net increase (decrease) in commercial paper and other borrowed
funds........................................................ (201,214) (797,464) 333,325
Maturity and redemption of subordinated debt................... (119,369) (234,000) (50,000)
Proceeds from issuance of subordinated debt.................... -- 200,000 --
Payments of cash dividends..................................... (222,533) (93,303) (98,160)
Redemption of preferred stock.................................. -- (135,000) --
Repayment of borrowing to support corporate owned life
insurance.................................................... (95,475) -- --
Other, net..................................................... (882) (2,661) 8,473
---------- ----------- -----------
Net cash provided by financing activities...................... 1,366,040 714,216 1,377,003
---------- ----------- -----------
Net increase (decrease) in cash and cash equivalents............. 595,851 (675,233) (541,898)
Cash and cash equivalents at beginning of year................... 3,352,423 3,937,697 3,199,455
Effect of exchange rate changes on cash and cash equivalents..... (10,577) (63,009) 20,921
---------- ----------- -----------
Cash and cash equivalents at end of year......................... $3,937,697 $ 3,199,455 $ 2,678,478
---------- ----------- -----------
---------- ----------- -----------
CASH PAID DURING THE YEAR FOR:
Interest....................................................... $ 764,327 $ 820,355 $ 784,023
Income taxes................................................... 172,451 113,588 234,895
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Loans transferred to foreclosed assets (OREO).................. $ 44,557 $ 23,114 $ 17,260
Dividends declared but unpaid.................................. 20,383 24,528 33,300
</TABLE>

See accompanying notes to consolidated financial statements.

F-50
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1996, 1997, AND 1998

NOTE 1-- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS

INTRODUCTION

UnionBanCal Corporation, a commercial bank holding company, and subsidiaries
(the Company) was created on April 1, 1996 by the combination of Union Bank with
BanCal Tri-State Corporation and its banking subsidiary, The Bank of California,
N.A. (the Bank). The combination was accounted for as a reorganization of
entities under common control (similar to a business combination under the
pooling of interests method). Accordingly, all historical financial information
has been restated as if the combination had been in effect for all periods
presented. The merger was effected by the issuance of 54.4 million shares of
Union Bank common stock in exchange for all the outstanding common shares of
BanCal Tri-State Corporation. Information pertaining to merger and integration
expense is presented in Note 7. Prior to the March 3, 1999 transaction discussed
below, the Company was 82 percent owned by The Bank of Tokyo-Mitsubishi, Ltd.
(BTM) and 18 percent owned by other shareholders.

On August 10, 1998, the Company exchanged 10.2 million shares of its Common
Stock for the 7.2 million shares of the Bank's Common Stock owned directly by
BTM. This share exchange provided the Company with a 100 percent ownership
interest in the Bank. In addition, on that date, it increased BTM's ownership
percentage of the Company to 82 percent from 81 percent.

On November 18, 1998, the Board of Directors approved the declaration of a
3-for-1 common stock split effective for shareholders of record on December 7,
1998. Accordingly, all historical financial information has been restated as if
the stock split had been in effect for all periods presented.

Also on November 18, 1998, the Board of Directors approved a change in the
stated value of the Company's Common Stock to no stated value from $1.67 per
share effective as of December 7, 1998. Accordingly, amounts previously reported
as Additional Paid-in Capital have been reclassified to combine them with Common
Stock.

On March 3, 1999, the Company completed a secondary offering of 28.75
million shares of its Common Stock owned by BTM. The Company received no
proceeds from this transaction. Concurrent with the secondary offering, the
Company repurchased 8.6 million shares of its outstanding Common Stock from BTM
and 2.1 million shares owned by Meiji Life Insurance Company with $311 million
of the net proceeds from the issuance of $350 million of 7 3/8 percent capital
securities that occurred on February 19, 1999. After the secondary offering and
the repurchase, BTM owns 64 percent of the Company, or 105.6 million shares,
compared with 82 percent prior to the transactions.

The Company provides a wide range of financial services to consumers, small
businesses, middle market companies and major corporations, primarily in
California, Oregon, and Washington, but also nationally and internationally.

F-51
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 1-- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(CONTINUED)
BASIS OF FINANCIAL STATEMENT PRESENTATION

The accounting and reporting policies of the Company conform to generally
accepted accounting principles (GAAP) and general practice within the banking
industry. Those policies that materially affect the determination of financial
position, results of operations, and cash flows are summarized below.

The Consolidated Financial Statements include the accounts of the Company.
All material intercompany transactions and balances have been eliminated. The
preparation of financial statements in conformity with GAAP 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 revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Certain amounts for prior periods have been reclassified to conform with current
financial statement presentation.

CASH AND CASH EQUIVALENTS

For purposes of reporting cash flows, cash and cash equivalents include cash
and due from banks, interest bearing deposits in banks, and federal funds sold
and securities purchased under resale agreements, substantially all of which
have maturities less than 90 days.

TRADING ACCOUNT ASSETS

Trading account assets are those financial instruments that management
acquires with the intent to hold for short periods of time in order to take
advantage of anticipated changes in market values. Substantially all of these
assets are securities with a high degree of liquidity and a readily determinable
market value. Interest earned, paid, or accrued on trading account assets is
included in interest income using a method that generally produces a level
yield. Realized gains and losses from the close out of trading account positions
and unrealized market value adjustments are recognized in noninterest income.

SECURITIES AVAILABLE FOR SALE AND SECURITIES HELD TO MATURITY

The Company's securities portfolios consist of debt and equity securities
that are classified either as securities available for sale or securities held
to maturity.

Debt securities for which the Company has the positive intent and ability to
hold until maturity are classified as securities held to maturity and carried at
amortized cost.

Debt securities and equity securities with readily determinable market
values that are not classified as either securities held to maturity or trading
account assets are classified as securities available for sale and carried at
fair value, with the unrealized gains or losses reported net of taxes as a
component of accumulated other comprehensive income in shareholders' equity
until realized.

Realized gains and losses arising from the sale of securities are based upon
the specific identification method and included in noninterest income as
securities gains (losses), net.

F-52
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 1-- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(CONTINUED)
Interest income on debt securities includes the amortization of premiums and
the accretion of discounts using the effective interest method and is included
in interest income on securities. Dividend income on equity securities is
included in noninterest income.

LOANS

Loans are reported at the principal amounts outstanding, net of unamortized
nonrefundable loan fees and related direct loan origination costs. Deferred net
fees and costs are recognized in interest income over the loan term using a
method that generally produces a level yield on the unpaid loan balance.
Nonrefundable fees and direct loan origination costs related to loans held for
sale are deferred and recognized as a component of the gain or loss on sale.
Interest income is accrued principally on a simple interest basis.

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.

Interest accruals are continued for certain small business loans that are
processed centrally, consumer loans, and one-to-four family residential mortgage
loans. These loans are charged off or written down to their net realizable value
based on delinquency time frames that range from 120 to 270 days, depending on
the type of credit that has been extended. Interest accruals are also continued
for loans that are both well-secured and in the process of collection. For this
purpose, loans are considered well-secured if they are collateralized by
property having a net realizable value in excess of the amount of principal and
accrued interest outstanding or are guaranteed by a financially responsible and
willing party. Loans are considered "in the process of collection" if collection
is proceeding in due course either through legal action or other actions that
are reasonably expected to result in the prompt repayment of the debt or in its
restoration to current status.

When a loan is placed on nonaccrual, all previously accrued but uncollected
interest is reversed against current period operating results. All subsequent
payments received are first applied to unpaid principal and then to uncollected
interest. Interest income is accrued at such time as the loan is brought fully
current as to both principal and interest, and, in management's judgment, such
loans are considered to be fully collectible. However, Company policy also
allows management to continue the recognition of interest income on certain
loans designated as nonaccrual. This portion of the nonaccrual portfolio is
referred to as "Cash Basis Nonaccrual" loans. This policy only applies to loans
that are well secured and in management's judgment are considered to be fully
collectible. Although the accrual of interest is suspended, any payments
received may be applied to the loan according to its contractual terms and
interest income recognized when cash is received.

Loans are considered impaired when, based on current information, it is
probable that the Company will be unable to collect all amounts due according to
the contractual terms of the loan agreement, including interest payments.
Impaired loans are carried at the lower of the recorded investment in the loan,
the estimated present value of total expected future cash flows, discounted at
the loan's effective rate, or the fair value of the collateral, if the loan is
collateral dependent. Additionally, some impaired loans with commitments of less
than $1 million are aggregated for the purpose of measuring impairment using

F-53
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 1-- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(CONTINUED)
historical loss factors as a means of measurement. Excluded from the impairment
analysis are large groups of smaller balance homogeneous loans such as consumer,
installment, residential mortgage loans, and automobile leases.

Renegotiated loans are those in which the Company has formally restructured
a significant portion of the loan. The remaining portion is normally charged
off, with a concession either in the form of below market rate financing, or
debt forgiveness on the charged off portion. Loans that have been renegotiated
and have not met specific performance standards for payment are classified as
renegotiated loans within the classification of nonperforming assets. Upon
payment performance, such loans may be transferred from nonperforming status to
accrual status.

The Company offers primarily two types of leases to customers: 1) direct
financing leases where the assets leased are acquired without additional
financing from other sources, and 2) leveraged leases where a substantial
portion of the financing is provided by debt with no recourse to us. Direct
financing leases are carried net of unearned income, unamortized nonrefundable
fees and related direct costs associated with the origination or purchase of
leases. Leveraged leases are carried net of nonrecourse debt.

ALLOWANCE FOR CREDIT LOSSES

The Company maintains an allowance for credit losses to absorb losses
inherent in the loan portfolio. The allowance is based on ongoing, quarterly
assessments of the probable estimated losses inherent in the loan portfolio, and
to a lesser extent, unused commitments to provide financing. The allowance is
increased by the provision for credit losses, which is charged against current
period operating results and decreased by the amount of chargeoffs, net of
recoveries. The Company's methodology for assessing the appropriateness of the
allowance consists of several key elements, which include the formula allowance,
specific allowances and the unallocated allowance.

The formula allowance is calculated by applying loss factors to outstanding
loans and certain unused commitments. Loss factors are based on the Company's
historical loss experience and may be adjusted for significant factors that, in
management's judgement, affect the collectibility of the portfolio as of the
evaluation date. The Company derives the loss factors for problem graded loans
from a loss migration model, for pass graded loans by using historical average
net chargeoffs during a business cycle, and for pooled loans by using expected
net chargeoffs for one year. Pooled loans are homogenous in nature and include
consumer installment, residential mortgage, automobile leases and other loans
and leases.

The unallocated allowance is composed of two elements. The first element
recognizes the model and estimation risk associated with the formula and
specific allowances. The second element is based upon management's evaluation of
various conditions that are not directly measured in the determination of the
formula and specific allowances. The conditions evaluated in connection with the
unallocated allowance may include existing general economic and business
conditions affecting the key lending areas of the Company, credit quality
trends, collateral values, loan volumes and concentrations, seasoning of the
loan portfolio, specific industry conditions within portfolio segments, recent
loss experience in particular

F-54
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 1-- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(CONTINUED)
segments of the portfolio, duration of the current business cycle, bank
regulatory examination results and findings of the Company's internal credit
examiners.

The allowance also incorporates the results of measuring impaired loans as
provided in Statement of Financial Accounting Standards (SFAS) No. 114,
"Accounting by Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting
by Creditors for Impairment of a Loan--Income Recognition and Disclosures".
These accounting standards prescribe the measurement methods, income recognition
and disclosures related to impaired loans. A loan is consider impaired when
management determines that it is probable that the Company will be unable to
collect all amounts due according to the original contractual terms of the loan
agreement. Impairment is measured by the difference between the recorded
investment in the loan (including accrued interest, net deferred loan fees or
costs and unamortized premium or discount) and the estimated present value of
total expected future cash flows, discounted at the loan's effective rate, or
the fair value of the collateral, if the loan is collateral dependent.
Impairment is recognized by adjusting an allocation of the existing allowance
for credit losses.

PREMISES AND EQUIPMENT

Premises and equipment are carried at cost, less accumulated depreciation
and amortization. Depreciation and amortization are calculated using the
straight-line method over the estimated useful life of each asset. Lives of
premises range from ten to forty years; lives of furniture, fixtures and
equipment range from three to eight years. Leasehold improvements are amortized
over the term of the respective lease or 10 years, whichever is shorter.

OTHER ASSETS

Goodwill represents the excess of purchase price over the fair value of
identifiable net assets of acquired companies and is reported as intangible
assets. Goodwill is amortized using the straight-line method, generally over 15
years.

Other real estate owned (OREO) represents the collateral acquired through
foreclosure in full or partial satisfaction of the related loan. OREO is
recorded at the lower of the loan's unpaid principal balance or its fair value
as established by a current appraisal, adjusted for disposition costs. Any
write-down at the date of transfer is charged to the allowance for credit
losses. OREO values, recorded in other assets, are reviewed annually and any
decline in value is recognized as foreclosed asset expense in the current
period. The net operating results from these assets are included in the current
period in noninterest expense as foreclosed asset expense (income).

DERIVATIVE INSTRUMENTS HELD FOR TRADING OR CUSTOMER ACCOMMODATION

The Company enters into a variety of interest rate derivative contracts,
primarily swaps, options and foreign exchange contracts, either for trading
purposes, based on management's intent at inception, or as an accommodation to
customers.

Derivatives held or issued for trading or customer accommodation are carried
at fair value, with realized and unrealized changes in fair values on contracts
included in noninterest income in the period in

F-55
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 1-- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(CONTINUED)
which the changes occur. Unrealized gains and losses are reported gross and
included in trading account assets and other liabilities, respectively. Cash
flows are reported net as operating activities.

DERIVATIVE INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING

The Company enters into a variety of derivative contracts as a means of
reducing the Company's interest rate and foreign exchange exposures. At
inception these contracts are evaluated in order to determine if they qualify
for hedge accounting treatment and are accounted for either on a deferral,
accrual or market value basis, depending on the nature of the Company's hedge
strategy and the method used to account for the hedged item. Hedge criteria
include demonstrating the manner in which the hedge will reduce risk,
identifying the specific asset, liability or firm commitment being hedged, and
citing the time horizon being hedged. A monthly evaluation is performed to
ensure that continuing correlation exists between the hedge and the item being
hedged.

Net interest settlements on interest rate swap, cap and floor agreements are
recognized on an accrual basis as interest income or interest expense of the
related asset or liability over the lives of the agreements. Premiums paid or
received for interest rate caps and floors are amortized either to interest
income or to interest expense of the related asset or liability over the lives
of the agreements. If an agreement is terminated early, any resulting gain or
loss is deferred and amortized as interest income or interest expense of the
related asset or liability over the remaining life of the original agreement.
Net settlement amounts are reported gross as other assets and other liabilities.
Cash flows are reported net as operating activities.

FOREIGN CURRENCY TRANSLATION

Assets, liabilities and results of operations for foreign branches are
recorded based on the functional currency of each branch. Since the functional
currency of the branches is the local currency, the net assets are remeasured
into U.S. dollars using a combination of current and historical exchange rates.
The resulting gains or losses are included in shareholders' equity, as a
component of accumulated other comprehensive income, on a net of tax basis.

TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT OF
LIABILITIES

On January 1, 1997, the Company adopted SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities".
The Statement establishes standards for when transfers of financial assets,
including those with continuing involvement by the transferor, should be
considered a sale. SFAS No. 125 also establishes standards for when a liability
should be considered extinguished. This Statement is effective for transfers of
assets and extinguishments of liabilities occurring after December 31, 1996 and
has been applied prospectively. In December 1996, the Financial Accounting
Standards Board (FASB) reconsidered certain provisions of SFAS No. 125 and
issued SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of
FASB Statement No. 125", to defer for one year the effective date of
implementation for transactions related to repurchase agreements, dollar-roll
repurchase agreements, securities lending and similar transactions. Management
determined that the effect of adoption of SFAS No. 125 and SFAS No. 127 on the
Company's financial statements was not material.

F-56
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 1-- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(CONTINUED)
INCOME TAXES

The Company files consolidated federal and combined state income tax
returns. Amounts provided for income tax expense are based on income reported
for financial statement purposes and do not necessarily represent amounts
currently payable under tax laws. Deferred taxes, which arise principally from
temporary differences between the period in which certain income and expenses
are recognized for financial accounting purposes and the period in which they
affect taxable income, are included in the amounts provided for income taxes.
Under this method, the computation of the net deferred tax liability or asset
gives current recognition to changes in the tax laws.

NET INCOME PER COMMON SHARE

Basic earnings per share (EPS) is computed by dividing net income after
preferred dividends by the weighted average number of common shares outstanding
during the period. Diluted EPS incorporates the dilutive effect of common stock
equivalents outstanding on an average basis during the period. Stock options
(see Note 12) are a common stock equivalent. Also see Note 17.

COMPREHENSIVE INCOME

On January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", which requires that an enterprise report and display, by
major components and as a single total, the change in its net assets during the
period from non-owner sources. The adoption of this Statement resulted in a
change in the financial statement presentation, but did not have an impact on
the Company's consolidated financial position, results of operations or cash
flows. As required by the provisions of SFAS No. 130, all prior period data
presented has been restated. Also see Note 18.

EMPLOYEE BENEFIT AND INCENTIVE PLANS AND OTHER POSTRETIREMENT BENEFITS

The Company provides a variety of benefit and incentive compensation plans
for eligible employees and retirees. Provisions for the costs of these employee
benefit and incentive plans and postretirement benefit plans are accrued and
charged to expense when the benefit is earned.

During 1998, the Company adopted SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits", and, accordingly, has revised the
disclosures for pensions and other postretirement benefits. Adoption of this
Statement did not impact the Company's consolidated financial position, results
of operations, or cash flows, and any effect was limited to the form and content
of its disclosures. As required by the provisions of SFAS No. 132, all prior
period data presented has been restated. Also see Note 6.

STOCK-BASED COMPENSATION

As allowed under the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation", the Company has chosen to continue to recognize compensation
expense using the intrinsic value-based method of valuing stock options
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and related Interpretations. Under the intrinsic
value-based method,

F-57
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 1-- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(CONTINUED)
compensation cost is measured as the amount by which the quoted market price of
the Company's stock at the date of grant exceeds the stock option exercise
price.

Compensation cost associated with the Company's unvested restricted stock
issued under the management stock plan is measured based on the market price of
the stock at the grant date and is expensed over the vesting period.

SEGMENT REPORTING

During 1998, the Company adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information". SFAS No. 131 establishes annual and
interim reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas, and major customers.
Adoption of this Statement did not impact the Company's consolidated financial
position, results of operations, or cash flows, and any effect was limited to
the form and content of its disclosures.

PENDING ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Statement will require the Company to
recognize all derivatives on the balance sheet at fair value. SFAS No. 133
requires that derivative instruments used to hedge be identified specifically to
assets, liabilities, firm commitments or anticipated transactions and measured
as to effectiveness and ineffectiveness when hedging changes in fair value or
cash flows. Derivative instruments that do not qualify as either a fair value or
cash flow hedge will be valued at fair value with the resultant gain or loss
recognized in current earnings. Changes in the effective portion of fair value
hedges will be recognized in current earnings along with the change in fair
value of the hedged item. Changes in the effective portion of the fair value of
cash flow hedges will be recognized in other comprehensive income until
realization of the cash flows of the hedged item through current earnings. Any
ineffective portion of hedges will be recognized in current earnings. Management
believes that, depending upon the accumulated net gain or loss of the effective
portion of cash flow hedges at the date of adoption, the impact of SFAS No. 133
could have a material impact on other comprehensive income. However, management
believes that any ineffective portion of cash flow hedges or any other hedges
will not have a material impact on the Company's financial position or results
of operations. This Statement is effective for fiscal years beginning after June
15, 1999, with earlier application encouraged. The Company expects to adopt SFAS
No. 133 as of January 1, 2000.

In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise". This Statement amends SFAS No.
65, "Accounting for Certain Mortgage Banking Activities", which established
accounting and reporting standards for certain activities of mortgage banking
and other similar enterprises. After securitization of mortgage loans held for
sale, SFAS No. 134 requires an entity to classify the resulting mortgage-backed
securities or other retained interests based on its ability or intent to sell or
hold those investments. Management believes that the adoption of SFAS No. 134
will have no impact on the Company's financial position or results of
operations. This Statement is effective for fiscal years beginning after
December 15, 1998, with earlier application permitted. The Company expects to
adopt SFAS No. 134 on January 1, 1999.

F-58
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 1-- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(CONTINUED)
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use". SOP 98-1 requires the
capitalization of eligible costs of specified activities related to computer
software developed or obtained for internal use. Management believes that the
adoption of SOP 98-1 will not have a material effect on the Company's financial
position or results of operations. The Statement is effective for fiscal years
beginning after December 15, 1998, with earlier adoption encouraged. The Company
expects to adopt SOP 98-1 on January 1, 1999.

In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities". SOP 98-5 requires that entities expense start-up costs and
organization costs as they are incurred. Management believes that the adoption
of SOP 98-5 will not have a material effect on the Company's financial position
or results of operations. The Statement is effective for fiscal years beginning
after December 15, 1998, with earlier adoption encouraged. The Company expects
to adopt SOP 98-5 on January 1, 1999.

NOTE 2--SECURITIES

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

SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1997
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
(DOLLARS IN THOUSANDS) COST GAINS LOSSES VALUE
- ----------------------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury.................................................... $ 987,374 $10,793 $ 170 $ 997,997
Other U.S. government............................................ 709,536 6,005 67 715,474
Mortgage-backed securities....................................... 679,692 3,331 265 682,758
State and municipal.............................................. 90,937 13,236 -- 104,173
Corporate debt securities........................................ 2,698 311 1 3,008
Equity securities................................................ 28,881 1,596 672 29,805
Foreign securities............................................... 5,132 39 -- 5,171
---------- ---------- ---------- ----------
Total securities available for sale............................ $2,504,250 $35,311 $1,175 $2,538,386
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------

1998
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
(DOLLARS IN THOUSANDS) COST GAINS LOSSES VALUE
- ----------------------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury.................................................... $ 753,991 $16,341 $-- $ 770,332
Other U.S. government............................................ 856,463 12,364 -- 868,827
Mortgage-backed securities....................................... 1,875,141 9,271 2,634 1,881,778
State and municipal.............................................. 72,777 11,469 -- 84,246
Corporate debt securities........................................ 8,069 -- -- 8,069
Equity securities................................................ 18,149 252 -- 18,401
Foreign securities............................................... 6,799 121 41 6,879
---------- ---------- ---------- ----------
Total securities available for sale............................ $3,591,389 $49,818 $2,675 $3,638,532
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>

F-59
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 2--SECURITIES (CONTINUED)

SECURITIES HELD TO MATURITY
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1997
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
(DOLLARS IN THOUSANDS) COST GAINS LOSSES VALUE
- ------------------------------------------------------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury.......................................... $ 40,092 $1,333 $-- $ 41,425
Other U.S. government.................................. 99,520 2,568 -- 102,088
Mortgage-backed securities............................. 24,477 1,745 14 26,208
State and municipal.................................... 24,686 75 1,367 23,394
--------- ---------- ---------- --------
Total securities held to maturity.................... $188,775 $5,721 $1,381 $193,115
--------- ---------- ---------- --------
--------- ---------- ---------- --------

1998
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
(DOLLARS IN THOUSANDS) COST GAINS LOSSES VALUE
- ------------------------------------------------------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury.......................................... $ 40,047 $1,050 -$- $ 41,097
Other U.S. government.................................. 89,783 1,392 -- 91,175
Mortgage-backed securities............................. 15,247 1,178 -- 16,425
State and municipal.................................... 15,436 4 893 14,547
--------- ---------- ----- --------
Total securities held to maturity.................... $160,513 $3,624 $893 $163,244
--------- ---------- ----- --------
--------- ---------- ----- --------
</TABLE>

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

<TABLE>
<CAPTION>
SECURITIES SECURITIES
AVAILABLE FOR SALE(1) HELD TO MATURITY(1)
-------------------------- ----------------------
DECEMBER 31, 1998 DECEMBER 31, 1998
-------------------------- ----------------------
AMORTIZED FAIR AMORTIZED FAIR
(DOLLARS IN THOUSANDS) COST VALUE COST VALUE
- ------------------------------------------------------------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less...................................... $ 657,328 $ 662,332 $ 109,829 $ 111,688
Due after one year through five years........................ 1,037,195 1,063,390 22,093 22,711
Due after five years through ten years....................... 343,504 348,998 8,749 9,129
Due after ten years.......................................... 1,535,213 1,545,411 19,842 19,716
Equity securities............................................ 18,149 18,401 -- --
------------ ------------ ---------- ----------
Total securities........................................... $ 3,591,389 $ 3,638,532 $ 160,513 $ 163,244
------------ ------------ ---------- ----------
------------ ------------ ---------- ----------
</TABLE>

- ------------------------------

During the years ended 1996, 1997 and 1998, there were no sales or transfers
from the securities held to maturity portfolio.

In 1996, proceeds from sales of securities available for sale were $20
million with gross realized gains of $5 million and no gross realized losses. In
1997, proceeds from sales of securities available for sale were $172 million
with gross realized gains of $3 million and no gross realized losses. In 1998,
proceeds from sales of securities available for sale were $418 million with
gross realized gains of $6 million and no gross realized losses.

F-60
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 3--LOANS AND ALLOWANCE FOR CREDIT LOSSES

A summary of loans net of unearned interest and fees of $128 million and
$126 million at December 31, 1997 and 1998, respectively, is as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
(DOLLARS IN THOUSANDS) 1997 1998
- ----------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Domestic:
Commercial, financial and industrial............................................. $ 10,747,179 $ 13,119,534
Construction..................................................................... 293,333 439,806
Mortgage:
Residential.................................................................... 2,961,233 2,627,668
Commercial..................................................................... 2,951,807 2,975,484
------------- -------------
Total mortgage............................................................... 5,913,040 5,603,152
Consumer:
Installment.................................................................... 2,090,752 1,984,941
Home equity.................................................................... 992,916 818,199
Credit card and other lines of credit.......................................... 270,097 --
------------- -------------
Total consumer............................................................... 3,353,765 2,803,140
Lease financing.................................................................. 874,860 1,032,148
------------- -------------
Total loans in domestic offices.............................................. 21,182,177 22,997,780
Loans originated in foreign branches............................................... 1,559,231 1,298,331
------------- -------------
Total loans.................................................................. 22,741,408 24,296,111
Allowance for credit losses.................................................. 451,692 459,328
------------- -------------
Loans, net................................................................... $ 22,289,716 $ 23,836,783
------------- -------------
------------- -------------
</TABLE>

Changes in the allowance for credit losses were as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
(DOLLARS IN THOUSANDS) 1996 1997 1998
- ----------------------------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Balance, beginning of year................................................... $ 555,149 $ 523,946 $ 451,692
Loans charged off............................................................ (119,100) (122,779) (76,790)
Recoveries of loans previously charged off................................... 48,024 51,014 41,144
---------- ---------- ----------
Total net loans charged off................................................ (71,076) (71,765) (35,646)
Provision for credit losses.................................................. 40,000 -- 45,000
Transfer of reserve for trading account assets............................... -- -- (1,911)
Foreign translation adjustment and other net deductions...................... (127) (489) 193
---------- ---------- ----------
Balance, end of year......................................................... $ 523,946 $ 451,692 $ 459,328
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

In 1998, the Company reclassified a $1.9 million previously established
reserve for credit losses related to interest rate derivatives and foreign
exchange contracts from the unallocated portion of the allowance for credit
losses. The reserve for derivative and foreign exchange contracts is presented
as an offset to

F-61
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 3--LOANS AND ALLOWANCE FOR CREDIT LOSSES (CONTINUED)
trading account assets. Future changes in the reserve as a result of changes in
the positive replacement cost of those contracts will be provided as an offset
to trading gains and losses.

Nonaccrual loans totaled $109 million and $78 million at December 31, 1997
and 1998, respectively. There were no renegotiated loans at December 31, 1997
and 1998. Interest foregone on loans designated as nonaccrual at December 31,
1996, 1997 and 1998 was $9 million, $6 million and $4 million, respectively.

LOAN IMPAIRMENT

Impaired loans of the Company include commercial, financial and industrial,
construction and commercial mortgage loans designated as nonaccrual. When the
value of an impaired loan is less than the recorded investment in the loan, a
portion of the Company's allowance for credit losses is allocated as an
impairment allowance.

The Company's policy for recognition of interest income, chargeoffs of
loans, and application of payments on impaired loans is the same as the policy
applied to nonaccrual loans.

The following table sets forth information about the Company's impaired
loans.

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
(DOLLARS IN THOUSANDS) 1996 1997 1998
- ------------------------------------------------------------------------------- ---------- ---------- ---------
<S> <C> <C> <C>
Impaired loans with an allowance............................................... $ 69,886 $ 59,351 $ 49,741
Impaired loans without an allowance(1)......................................... 43,962 49,033 28,709
---------- ---------- ---------
Total impaired loans(2)...................................................... $ 113,848 $ 108,384 $ 78,450
---------- ---------- ---------
---------- ---------- ---------
Allowance for impaired loans................................................... $ 21,260 $ 9,418 $ 11,219
Average balance of impaired loans during the year.............................. $ 145,351 $ 120,096 $ 91,233
Interest income recognized on nonaccrual loans during the year................. $ 4,795 $ 2,506 $ 274
</TABLE>

- ------------------------------

(1) These loans do not require an allowance for credit losses since the fair
values of the impaired loans equal or exceed the recorded investments in the
loans.

(2) This amount was evaluated for impairment using three measurement methods as
follows: $38 million, $27 million, and $53 million was evaluated using the
present value of the expected future cash flows at December 31, 1996, 1997
and 1998, respectively; $45 million, $53 million, and $8 million was
evaluated using the fair value of the collateral at December 31, 1996, 1997
and 1998, respectively; and $31 million, $28 million, and $17 million was
evaluated using historical loss factors at December 31, 1996, 1997 and 1998,
respectively.

RELATED PARTY LOANS

In some cases, the Company makes loans to related parties including its
directors, executive officers, and their affiliated companies. At December 31,
1997, related party loans outstanding to individuals who served as directors or
executive officers at anytime during the year totaled $38 million, as compared
to $138 million at December 31, 1998. In the opinion of management, these
related party loans were made on substantially the same terms, including
interest rates and collateral requirements, as those terms prevailing at the
date these loans were made. During 1997 and 1998, there were no loans to related
parties which were charged off. Additionally, at December 31, 1997 and 1998,
there were no loans to related parties which were nonperforming.

F-62
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 4--PREMISES AND EQUIPMENT

Premises and equipment are carried at cost, less accumulated depreciation
and amortization. As of December 31, 1997 and 1998, the amounts were:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------------
1997 1998
---------------------------------------- ----------------------------------------
ACCUMULATED ACCUMULATED
DEPRECIATION AND NET BOOK DEPRECIATION AND NET BOOK
(DOLLARS IN THOUSANDS) COST AMORTIZATION VALUE COST AMORTIZATION VALUE
- -------------------------------------- ---------- ---------------- ---------- ---------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Land.................................. $ 69,290 $ -- $ 69,290 $ 68,598 $ -- $ 68,598
Premises.............................. 253,752 101,997 151,755 261,271 108,114 153,157
Leasehold improvements................ 135,609 80,019 55,590 143,810 84,767 59,043
Furniture, fixtures and equipment..... 400,774 271,110 129,664 442,914 302,621 140,293
---------- -------- ---------- ---------- -------- ----------
Total................................. $ 859,425 $ 453,126 $ 406,299 $ 916,593 $ 495,502 $ 421,091
---------- -------- ---------- ---------- -------- ----------
---------- -------- ---------- ---------- -------- ----------
</TABLE>

Rental and depreciation and amortization expenses were as follows:

Future minimum lease payments are as follows:

<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) DECEMBER 31, 1998
- ----------------------------------------------------------------------------------------------- -----------------
<S> <C>
Years ending December 31,
1999......................................................................................... $ 49,473
2000......................................................................................... 45,214
2001......................................................................................... 42,314
2002......................................................................................... 34,594
2003......................................................................................... 29,857
Later years.................................................................................. 120,319
--------
Total minimum operating lease payments......................................................... $ 321,771
--------
--------
Minimum rental income due in the future under noncancellable subleases......................... $ 45,880
--------
--------
</TABLE>

Included in other liabilities in the accompanying December 31, 1998
Consolidated Balance Sheet is $11 million of future operating lease payments
accrued in connection with the merger (also see Note 7).

F-63
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 4--PREMISES AND EQUIPMENT (CONTINUED)
A majority of the leases provide for the payment of taxes, maintenance,
insurance, and certain other expenses applicable to the leased premises. Many of
the leases contain extension provisions, escalation clauses, and purchase
options. There are no restrictions on paying dividends, incurring additional
debt or negotiating additional leases under the terms of the present lease
agreements.

NOTE 5--DEPOSITS

At December 31, 1998, the Company had $393 million in domestic interest
bearing time deposits with a remaining term of greater than one year, of which
$110 million exceeded $100,000. Maturity information for all domestic interest
bearing time deposits with a remaining term of greater than one year is
summarized below.

<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) DECEMBER 31, 1998
- ----------------------------------------------------------------------------------------------- -----------------
<S> <C>
Due after one year through two years........................................................... $ 189,863
Due after two years through three years........................................................ 96,836
Due after three years through four years....................................................... 67,830
Due after four years through five years........................................................ 31,523
Due after five years........................................................................... 6,870
--------
Total........................................................................................ $ 392,922
--------
--------
</TABLE>

Substantially all of the foreign interest bearing time deposits exceeding
$100,000 mature in less than one year.

NOTE 6-- EMPLOYEE BENEFIT AND INCENTIVE PLANS AND OTHER POSTRETIREMENT BENEFITS

RETIREMENT PLANS

The Company maintains the Union Bank of California, N.A. Retirement Plan
(the Plan), which is a noncontributory defined benefit plan covering
substantially all of the employees of the Company. The plan provides retirement
benefits based on years of credited service and the final average compensation
amount, as defined in the Plan. Employees become eligible for this plan after
one year of service and become fully vested after five years of service. The
Company's funding policy is to make contributions equal to the maximum
deductible amount as allowed by the Internal Revenue Code. Contributions are
intended to provide not only for benefits attributed to services to date, but
also for those expected to be earned in the future. Plan assets are invested in
U.S. government securities, corporate bonds, and commingled investment funds.

In 1996, the Company maintained a second plan for former BanCal Tri-State
Corporation employees. The former plan, which was terminated effective January
1, 1997, was a defined contribution plan. The Company's expense for pension
contributions for the year ended December 31, 1996 was $5 million.

F-64
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 6-- EMPLOYEE BENEFIT AND INCENTIVE PLANS AND OTHER POSTRETIREMENT BENEFITS
(CONTINUED)
OTHER POSTRETIREMENT BENEFITS

The Company provides certain health care and life insurance benefits for its
retired employees. The health care cost is shared between the Company and the
retiree. The life insurance plan is noncontributory. The accounting for the
health care plan anticipates future cost-sharing changes to the written plan
that are consistent with the Company's intent to maintain a level of
cost-sharing at approximately 25 percent. Assets set aside to cover such
obligations are primarily invested in mutual funds.

The following table sets forth the funded status of the Company's defined
benefit pension plan and its other postretirement benefit plans.

<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------------- --------------------
YEARS ENDED DECEMBER YEARS ENDED DECEMBER
31, 31,
---------------------- --------------------
(DOLLARS IN THOUSANDS) 1997 1998 1997 1998
- ------------------------------------------------------------------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation, beginning of year.............................. $ 323,646 $ 400,958 $ 80,274 $ 79,308
Service cost....................................................... 20,667 22,697 3,123 3,067
Interest cost...................................................... 25,049 28,475 5,150 5,068
Plan participants' contributions................................... -- -- 570 919
Amendments......................................................... 10,926 -- -- --
Actuarial (gain) loss.............................................. 31,588 49,433 (5,452) (258)
Benefits paid...................................................... (10,918) (12,185) (4,357) (5,075)
---------- ---------- --------- ---------
Benefit obligation, end of year.................................... 400,958 489,378 79,308 83,029
---------- ---------- --------- ---------
CHANGE IN PLAN ASSETS
Fair value of plan assets, beginning of year....................... 381,194 460,501 21,703 31,136
Actual return on plan assets....................................... 66,765 65,537 4,445 3,428
Employer contribution.............................................. 23,460 23,234 8,775 9,060
Plan participants' contributions................................... -- -- 570 919
Benefits paid...................................................... (10,918) (12,185) (4,357) (5,075)
---------- ---------- --------- ---------
Fair value of plan assets, end of year............................. 460,501 537,087 31,136 39,468
---------- ---------- --------- ---------
Funded status...................................................... 59,543 47,710 (48,172) (43,560)
Unrecognized transition amount..................................... (210) (61) 59,813 55,825
Unrecognized net actuarial gain.................................... (37,717) (23,505) (21,119) (20,314)
Unrecognized prior service cost.................................... 12,915 9,740 -- --
---------- ---------- --------- ---------
Prepaid (accrued) benefit cost..................................... $ 34,531 $ 33,884 $ (9,478) $ (8,049)
---------- ---------- --------- ---------
---------- ---------- --------- ---------
</TABLE>

F-65
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 6-- EMPLOYEE BENEFIT AND INCENTIVE PLANS AND OTHER POSTRETIREMENT BENEFITS
(CONTINUED)
The following table summarizes the assumptions used in computing the present
value of the projected benefit obligation and the net pension expense.

<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------ ------------------
YEARS ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31,
------------------ ------------------
1996 1997 1998 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Discount rate in determining expense................... 7.50% 7.50% 7.00% 7.50% 7.00% 6.50%
Discount rate in determining benefit obligations at
year end............................................. 7.50 7.00 6.50 7.50 7.00 6.50
Rate of increase in future compensation levels for
determining expense.................................. 5.50 5.50 5.00 -- -- --
Rate of increase in future compensation levels for
determining benefit obligations at year end.......... 5.50 5.00 5.00 -- -- --
Expected return on plan assets......................... 8.25 8.25 8.25 8.00 8.00 8.00
</TABLE>

The following table sets forth the components of postretirement benefit
expense.

<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------------------- -------------------------------
YEARS ENDED DECEMBER 31, YEARS ENDED DECEMBER 31,
------------------------------- -------------------------------
(DOLLARS IN THOUSANDS) 1996 1997 1998 1996 1997 1998
- -------------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost................................ $ 12,651 $ 20,667 $ 22,697 $ 1,741 $ 3,123 $ 3,067
Interest cost............................... 22,043 25,049 28,475 5,581 5,150 5,068
Expected return on plan assets.............. (23,877) (27,119) (31,648) (1,335) (1,736) (2,491)
Amortization of prior service cost.......... 2,108 3,175 3,175 -- -- --
Amortization of transition amount........... (149) (149) (149) 3,988 3,987 3,987
Recognized net actuarial (gain) loss........ -- -- 1,330 (846) (1,870) (2,000)
--------- --------- --------- --------- --------- ---------
Net periodic benefit cost............... $ 12,776 $ 21,623 $ 23,880 $ 9,129 $ 8,654 $ 7,631
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>

For 1996, the Company assumed a 9 percent annual rate of increase in the per
capita cost of postretirement medical benefits for the indemnity plan and a 4
percent annual rate of increase was assumed for the health maintenance
organization (HMO) plan. For future periods, the assumed rate for the indemnity
plan gradually decreased from 9 percent to 5.5 percent in 2007 and remained
level thereafter. The assumed rate of change on the HMO plan increased to 7
percent in 1997 and then gradually decreased to 5.5 percent in 2007 and
thereafter.

For 1997, the Company assumed a 9 percent annual rate of increase in the per
capita cost of postretirement medical benefits for the indemnity plan and a 4
percent annual rate of increase was assumed for the HMO plan. For future
periods, the rate for the indemnity plan was expected to gradually decrease from
9 percent to 5.5 percent in 2007 and remain at that level thereafter. The rate
for the HMO plan was expected to increase after one year of being at a low rate
and then gradually decrease to 5.5 percent in 2007 and thereafter.

F-66
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 6-- EMPLOYEE BENEFIT AND INCENTIVE PLANS AND OTHER POSTRETIREMENT BENEFITS
(CONTINUED)

For 1998, the Company assumed a 9 percent annual rate of increase in the per
capita cost of postretirement medical benefits for the indemnity plan and a 7
percent annual rate of increase was assumed for the HMO plan. For future
periods, the rate for the indemnity plan was expected to gradually decrease from
9 percent to 5.5 percent in 2007 and remain at that level thereafter. The rate
for the HMO plan was expected to gradually decrease to 5.5 percent in 2007 and
remain at that level thereafter.

The healthcare cost trend rate assumption has a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects.

<TABLE>
<CAPTION>
1-PERCENTAGE-
POINT 1-PERCENTAGE-
(DOLLARS IN THOUSANDS) INCREASE POINT DECREASE
- ----------------------------------------------------------------------------------- ------------- --------------
<S> <C> <C>
Effect on total of service and interest cost components............................ $ 1,131 $ (932)
Effect on postretirement benefit obligation........................................ 9,757 (8,176)
</TABLE>

EXECUTIVE SUPPLEMENTAL BENEFIT PLANS

The Company has several Executive Supplemental Benefit Plans (ESBP) which
provide eligible employees with supplemental retirement benefits. The plans are
unfunded. The accrued liability for ESBP's included in other liabilities in the
Consolidated Balance Sheets was $25 million at December 31, 1997 and $28 million
at December 31, 1998. The Company's expense relating to the ESBP's was $3
million for each of the years ended December 31, 1996, 1997 and 1998.

SECTION 401(k) SAVINGS PLANS

The Company has a defined contribution plan authorized under Section 401(k)
of the Internal Revenue Code. All benefits-eligible employees with at least one
year of service are eligible to participate in the plan. Employees may
contribute up to 16 percent of their pre-tax covered compensation or up to 10
percent of their after-tax covered compensation through salary deductions. The
Company contributes 50 percent of every pre-tax dollar an employee contributes
up to the first 6 percent of the employee's pre-tax covered compensation.
Effective January 1, 1997, employees are fully vested in the employer's
contributions immediately. In addition, the Company may make a discretionary
annual profit-sharing contribution up to 2.5 percent of an employee's pay. This
profit-sharing contribution is for all eligible employees, regardless of whether
an employee is participating in the 401(k) plan, and depends on the Bank's
annual financial performance. All employer contributions are tax deductible by
the Company. The Company's combined matching contribution expense was $9
million, $13 million and $12 million for the years ended December 31, 1996, 1997
and 1998, respectively.

F-67
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 7--OTHER EXPENSES

The detail of other expenses is as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
(DOLLARS IN THOUSANDS) 1996 1997 1998
- -------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Merchant transaction processing............................... $ 37,091 $ 42,274 $ 43,926
Communications................................................ 40,133 42,372 41,710
Professional services......................................... 24,342 28,075 36,748
Advertising and public relations.............................. 28,788 28,664 31,897
Data processing............................................... 22,140 25,973 28,091
Printing and office supplies.................................. 27,085 24,098 26,716
Other......................................................... 118,448 135,029 164,218
--------- --------- ---------
Total other expenses...................................... $ 298,027 $ 326,485 $ 373,306
--------- --------- ---------
--------- --------- ---------
</TABLE>

In connection with the merger, the Company incurred merger and integration
expense of $117 million and $6 million for the years ended 1996 and 1997 and
none for the year ended 1998, as summarized in the following table.

Total merger and integration expense of $124 million was recorded to cover
$38 million of personnel expense for severance, retention, and other employee
related costs, $54 million for facilities expense related to redundant banking
facilities, and $32 million in professional services and other expense. At
December 31, 1998, the liability balance included amounts primarily for
operating lease payments related to redundant banking facilities that are
continuing over the expected term of the leases.

F-68
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 8--INCOME TAXES

The components of income tax expense were as follows:

The components of the net deferred tax balances of the Company were as
follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
(DOLLARS IN THOUSANDS) 1997 1998
- ------------------------------------------------------------------------ --------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for credit losses........................................... $ 169,769 $ 178,161
Accrued income and expense............................................ 21,987 33,434
Accrued merger expense................................................ 15,641 10,410
Deferred state taxes.................................................. 21,063 4,910
Net operating loss carryforwards...................................... -- 14,974
Other................................................................. 7,585 4,861
Valuation allowance................................................... -- (14,974)
--------- ---------
Total deferred tax assets........................................... 236,045 231,776
--------- ---------
Deferred tax liabilities:
Leasing............................................................... 297,891 329,263
Depreciation.......................................................... 17,192 11,108
Unrealized gain on securities available for sale...................... 13,536 18,033
--------- ---------
Total deferred tax liabilities...................................... 328,619 358,404
--------- ---------
Net deferred tax liability........................................ $ 92,574 $ 126,628
--------- ---------
--------- ---------
</TABLE>

During 1998, a valuation allowance was established to offset deferred tax
assets related to state income tax net operating loss carryforwards. The
carryforwards expire on December 31, 2002, and are subject to various conditions
and limitations. In the opinion of management, the Company may not meet the
conditions necessary to realize the benefits of such carryforwards.

F-69
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 8--INCOME TAXES (CONTINUED)
The following table is an analysis of the effective tax rate:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1996 1997 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
Federal income tax rate...................................................... 35% 35% 35%
Net tax effects of:
State income taxes, net of federal income tax benefit...................... 4 2 (4)
Tax-exempt interest income................................................. (1) (1) --
Amortization of intangibles................................................ 1 1 1
Other...................................................................... 1 -- (1)
-- -- --
Effective tax rate....................................................... 40% 37% 31%
-- -- --
-- -- --
</TABLE>

During 1997, the Company received a refund from the State of California
Franchise Tax Board of approximately $25 million, net of federal tax, in
settlement of litigation, administration, and audit disputes covering the years
1975-1987. The refund was recorded as a reduction to state income tax expense.

The Company has filed its 1997, and intends to file its 1998, California
franchise tax return on a worldwide unitary basis, incorporating the financial
results of BTM and its worldwide affiliates. As a result, during 1998, the
Company reduced its state income tax liabilities by $29 million, net of federal
tax, for previously accrued 1997 state tax liabilities and lowered its 1998
state tax provision by $31 million, net of federal tax.

Federal and state tax returns for several years are under or subject to
examination by the respective taxing authorities. Although the ultimate outcome
of such examinations cannot be determined at this time, management believes that
the resolution of issues that have been or may be raised will not have a
material adverse effect on the Company's consolidated financial position or
results of operations.

F-70
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 9--BORROWED FUNDS

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

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
(DOLLARS IN THOUSANDS) 1997 1998
- --------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Federal funds purchased and securities sold under repurchase
agreements with weighted average interest rates of 5.38% and 4.88%
at December 31, 1997 and 1998, respectively........................ $1,335,884 $1,307,744
Commercial paper, with weighted average interest rates of 5.64% and
5.01% at December 31, 1997 and 1998, respectively.................. 966,575 1,444,745
Other borrowed funds, with weighted average interest rates of 6.23%
and 5.35% at December 31, 1997 and 1998, respectively.............. 476,010 331,165
--------- ---------
Total borrowed funds............................................. $2,778,469 $3,083,654
--------- ---------
--------- ---------
Federal funds purchased and securities sold under repurchase
agreements:
Maximum outstanding at any month end............................... $1,575,930 $2,058,610
Average balance during the year.................................... 1,097,707 1,604,675
Weighted average interest rate during the year..................... 5.33% 5.26%

Commercial paper:
Maximum outstanding at any month end............................... $1,876,135 $1,918,700
Average balance during the year.................................... 1,637,070 1,631,216
Weighted average interest rate during the year..................... 5.49% 5.42%

Other borrowed funds:
Maximum outstanding at any month end............................... $ 851,694 $ 438,151
Average balance during the year.................................... 635,900 328,872
Weighted average interest rate during the year..................... 5.42% 5.68%
</TABLE>

NOTE 10--SUBORDINATED CAPITAL NOTES AND PREFERRED STOCK

The following is a summary of capital notes that are subordinated to other
obligations of the Company.

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
(DOLLARS IN THOUSANDS) 1997 1998
- ------------------------------------------------------------------------ --------- ---------
<S> <C> <C>
Floating rate notes due June 2007. These notes bear interest at 0.325%
above 3-month London Interbank Offered Rate (LIBOR) and are payable to
BTM................................................................... $ 200,000 $ 200,000
Floating rate notes due July 2000. These notes bear interest at 0.30%
above 3-month LIBOR................................................... 98,000 98,000
Floating rate notes due July 1998. These notes bear interest at 0.25%
above 3-month LIBOR and are payable to BTM............................ 50,000 --
--------- ---------
Total subordinated capital notes.................................... $ 348,000 $ 298,000
--------- ---------
--------- ---------
</TABLE>

All of the above notes qualify as Tier 2 risk-based capital under the
Federal Reserve guidelines for assessing regulatory capital. For the total
risk-based capital ratio, the amount of notes that qualify as

F-71
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 10--SUBORDINATED CAPITAL NOTES AND PREFERRED STOCK (CONTINUED)
capital is reduced as the notes approach maturity. At December 31, 1997 and
1998, $239 million and $220 million, respectively, of the notes qualified as
risk-based capital.

Provisions of several of the notes restrict the use of the Company's
property as security for borrowings, and place limitations on leases,
indebtedness, distributions to shareholders, mergers, sales of certain assets,
transactions with affiliates, and changes in majority stock ownership of the
Company.

The following table presents the maturities of subordinated capital notes.

At December 31, 1996, the Company had outstanding 1.35 million shares (or
5.4 million depositary shares) of 8 3/8 percent Noncumulative Preferred Stock,
Series A (Preferred Stock) totaling $135 million. On September 3, 1997, the
Company redeemed all 1.35 million outstanding shares of its Preferred Stock,
reducing shareholders' equity by $135 million. The redemption price was equal to
the stated value of $100 per share of Preferred Stock (equivalent to $25 per
depositary share), plus $2 million in accrued and unpaid dividends to the
redemption date. The redemption was funded by proceeds from the issuance of $200
million in subordinated capital notes in June 1997.

NOTE 11--DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN

The Company has a dividend reinvestment and stock purchase plan for
shareholders. The plan allows shareholders to automatically reinvest all or part
of their dividends in additional shares of the Company's common stock at a cost
of 5 percent below the market price. Participating shareholders also have the
option of purchasing additional shares at the full market price with cash
payments of $25 to $3,000 per quarter. The Company obtains shares required for
reinvestment through open market purchases or through the issuance of new shares
from its authorized but unissued stock. During 1996, 1997 and 1998, 155,724,
131,127 and 83,727 shares, respectively, were required for dividend reinvestment
purposes, of which 71,706, 3,687 and 5,166 shares were considered new issuances
during 1996, 1997 and 1998, respectively. BTM did not participate in the plan in
1997 and 1998.

NOTE 12--MANAGEMENT STOCK PLAN

The Company has a management stock plan (the Stock Plan) which has 6.6
million shares of the Company's common stock authorized to be awarded to key
employees and outside directors of the Company and its subsidiaries at the
discretion of the Executive Compensation and Benefits Committee of the Board of
Directors (the Committee). Committee members and employees on rotational
assignment from BTM are not eligible for stock awards.

The Committee determines the term of each stock option grant, up to a
maximum of ten years from the date of grant. The exercise price of the options
issued under the Stock Plan shall not be less than the fair market value on the
date the option is granted. Unvested restricted stock issued under the Stock
Plan

F-72
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 12--MANAGEMENT STOCK PLAN (CONTINUED)
is shown as a reduction to retained earnings. The value of the restricted shares
at the date of grant is amortized to compensation expense over its vesting
period. All cancelled or forfeited options and restricted stock become available
for future grants.

In 1996, 1997 and 1998, the Company granted options to various key
employees, including principal officers, under the Stock Plan. The stock options
vest pro rata on each anniversary of the grant date and become fully exercisable
three years from the grant date, provided that the employee has completed the
specified continuous service requirement. They vest earlier if the employee
dies, is permanently and totally disabled, or retires under certain grant, age,
and service conditions.

The following is a summary of stock option transactions under the Stock
Plan.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------
1996 1997 1998
-------------------------- -------------------------- --------------------------
NUMBER OF WEIGHTED-AVERAGE NUMBER OF WEIGHTED-AVERAGE NUMBER OF WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- --------------- --------- --------------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year..... 1,082,106 $ 10.42 1,263,807 $ 12.13 1,397,178 $ 15.41
Granted............. 277,200 18.29 441,900 22.13 533,850 35.08
Exercised........... (80,496) 10.69 (289,029) 10.84 (169,995) 13.34
Forfeited........... (15,003) 10.47 (19,500) 22.13 (20,952) 30.63
--------- --------- ---------
Options outstanding, end
of year............... 1,263,807 $ 12.13 1,397,178 $ 15.41 1,740,081 $ 21.47
--------- --------- ---------
--------- --------- ---------
Options exercisable, end
of year............... 686,145 $ 10.38 712,107 $ 11.50 894,432 $ 13.77
--------- --------- ---------
--------- --------- ---------
</TABLE>

The weighted-average fair value of options granted was $6.00 during 1996,
$6.94 during 1997, and $11.99 during 1998.

The following table summarizes information about stock options outstanding.

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AT DECEMBER 31, 1998 OPTIONS EXERCISABLE AT
------------------------------------------------ DECEMBER 31, 1998
RANGE OF WEIGHTED-AVERAGE ------------------------------
EXERCISE NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- -------------- ----------- ---------------- ----------------- ----------- -----------------
<C> <C> <S> <C> <C> <C>
$ 6.67-9.08 214,008 4.4 years $ 8.51 214,008 $ 8.51
11.25-12.83 398,253 5.3 11.79 398,253 11.79
18.29-22.13 608,220 7.7 20.73 274,371 20.15
35.08 519,600 9.2 35.08 7,800 35.08
----------- -----------
1,740,081 894,432
----------- -----------
----------- -----------
</TABLE>

In 1996, 1997 and 1998, the Company also granted 133,440, 178,320 and
184,935 shares, respectively, of restricted stock to key officers, including
executive officers, under the Stock Plan. The awards of restricted stock vest
pro rata on each anniversary of the grant date and become fully vested four
years from

F-73
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 12--MANAGEMENT STOCK PLAN (CONTINUED)
the grant date, provided that the employee has completed the specified
continuous service requirement. They vest earlier if the employee dies, is
permanently and totally disabled, or retires under certain grant, age, and
service conditions. Restricted shareholders have the right to vote their
restricted shares and receive dividends.

The following is a summary of restricted stock transactions under the Stock
Plan.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------
1996 1997 1998
-------------------------- -------------------------- --------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
NUMBER OF GRANT DATE NUMBER OF GRANT DATE NUMBER OF GRANT DATE
SHARES FAIR VALUE SHARES FAIR VALUE SHARES FAIR VALUE
--------- --------------- --------- --------------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Restricted stock awards
outstanding,
beginning of year..... 1,044,951 $ 8.99 1,166,820 $ 10.04 1,337,217 $ 11.59
Granted............. 133,440 18.29 178,320 22.18 184,935 33.43
Cancelled........... (11,571) 10.78 (7,923) 20.08 (17,850) 24.58
--------- --------- ---------
Restricted stock awards
outstanding, end of
year.................. 1,166,820 $ 10.04 1,337,217 $ 11.59 1,504,302 $ 14.12
--------- --------- ---------
--------- --------- ---------
Restricted stock awards
vested, end of year... 764,670 $ 8.35 942,738 $ 9.17 1,115,229 $ 10.18
--------- --------- ---------
--------- --------- ---------
</TABLE>

At December 31, 1996, 1997 and 1998, 958,383, 3,365,586 and 2,685,603
shares, respectively, were available for future grants as either stock options
or restricted stock under the Stock Plan.

The Company follows the intrinsic value based method in accounting for its
employee stock-based compensation plan. Accordingly, no compensation cost has
been recognized for its stock option grants. Had compensation cost for the
Company's stock-based plan been determined based on the fair value at the grant
dates for awards under that plan consistent with the method of SFAS No. 123,
"Accounting for Stock-Based Compensation", the Company's net income and net
income per share would have decreased to the pro forma amounts indicated in the
following table. Options that were granted prior to January 1, 1995

F-74
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 12--MANAGEMENT STOCK PLAN (CONTINUED)
with vesting periods in 1995 and later are excluded from the pro forma results
indicated for 1996 in the following table.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1997 1998
- -------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Net income
As reported................................................. $ 249,458 $ 411,296 $ 466,461
Pro forma................................................... 248,874 410,068 463,998
Net income applicable to common stock
As reported................................................. $ 238,152 $ 403,696 $ 466,461
Pro forma................................................... 237,568 402,468 463,998
Net income per share--basic
As reported................................................. $ 1.37 $ 2.31 $ 2.66
Pro forma................................................... 1.36 2.30 2.65
Net income per share--diluted
As reported................................................. $ 1.36 $ 2.30 $ 2.65
Pro forma................................................... 1.36 2.30 2.64
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants made in 1996, 1997 and 1998: risk-free interest
rates of 6.3 percent in 1996, 6.6 percent in 1997, and 5.8 percent in 1998;
expected volatility of 28 percent in 1996, 26 percent in 1997, and 29 percent in
1998; expected lives of 7, 6 and 6 years for 1996, 1997 and 1998, respectively;
and expected dividend yields of 2.6 percent in 1996, 2.1 percent in 1997, and
1.5 percent in 1998.

Effective January 1, 1997, the Company established a Performance Share Plan.
Eligible participants may earn performance share awards to be redeemed in cash
three years after the date of grant. Performance shares are linked to
shareholder value in two ways: (1) the market price of the Company's common
stock, and (2) return on assets, a performance measure closely linked to value
creation. Eligible participants generally receive grants of performance shares
annually. The total number of performance shares granted under the plan cannot
exceed 600,000. The Company granted 14,400 shares in 1997 and 24,900 shares in
1998. In 1998, 2,400 performance shares were forfeited. The value of a
performance share is equal to the market price of the Company's common stock.
All cancelled or forfeited performance shares become available for future
grants.

NOTE 13--FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. All of the fair values presented
below are as of their respective period ends and have been made under this
definition of fair value unless otherwise disclosed.

F-75
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 13--FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

It is management's belief that the fair values presented below are
reasonable based on the valuation techniques and data available to the Company
as of December 31, 1997 and 1998, as more fully described below. It should be
noted that the operations of the Company are managed on a going concern basis
and not on a liquidation basis. As a result, the ultimate value realized for the
financial instruments presented could be substantially different when actually
recognized over time through the normal course of operations. Additionally, a
substantial portion of an institution's inherent value is its capitalization and
franchise value. Neither of these components has been given consideration in the
presentation of fair values that follow.

The table below presents the carrying value and fair value of the specified
assets and liabilities held by the Company.

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1997 1998
------------------------ ------------------------
CARRYING CARRYING
(DOLLARS IN THOUSANDS) VALUE FAIR VALUE VALUE FAIR VALUE
- --------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents.................. $3,199,455 $ 3,199,455 $2,678,478 $ 2,678,478
Trading account assets..................... 394,313 394,313 267,718 267,718
Securities available for sale.............. 2,538,386 2,538,386 3,638,532 3,638,532
Securities held to maturity................ 188,775 193,115 160,513 163,244
Loans, net of allowance for credit
losses(1)................................ 21,419,718 21,189,820 22,808,435 22,568,873
LIABILITIES
Deposits:
Noninterest bearing...................... 8,849,544 8,849,544 10,179,405 10,179,405
Interest bearing......................... 14,446,830 14,453,029 14,328,474 14,343,972
----------- ----------- ----------- -----------
Total deposits......................... 23,296,374 23,302,573 24,507,879 24,523,377
Borrowed funds............................. 2,778,469 2,775,531 3,083,654 3,081,418
Subordinated capital notes................. 348,000 348,000 298,000 298,000
</TABLE>

- ------------------------------

(1) Excludes lease financing.

The Company is also a party to financial instruments that are not reflected
on the balance sheet but represent obligations of the Company in the normal
course of business. For information regarding the fair value of off-balance
sheet financial instruments, see Note 14.

The following methods and assumptions were used to estimate fair value of
each class of financial instruments for which it is practicable to estimate that
value.

CASH AND CASH EQUIVALENTS: The book value of cash and cash equivalents is
considered a reasonable estimate of fair value.

TRADING ACCOUNT ASSETS: Trading account assets are short term in nature and
valued at market based on quoted market prices or dealer quotes. If a quoted
market price is not available, the recorded amounts are estimated using quoted
market prices for similar securities. Thus, carrying value is considered a
reasonable estimate of fair value for these financial instruments.

F-76
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 13--FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
SECURITIES: The fair value of securities is based on quoted market prices
or dealer quotes. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities. Securities
available for sale are carried at their aggregate fair value, while securities
held to maturity are carried at amortized cost.

LOANS: The fair value for performing fixed and non-reference rate loans was
estimated by discounting the future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings and for
similar remaining maturities and, where available, discount rates were based on
current market rates.

The fair value of performing loans tied to the Company's reference rate with
normal credit risk is assumed to approximate their book value. The fair value
for these floating rate loans with increasing credit risk was estimated by
calculating their present value using a yield the Company would currently
require for loans with similar terms to borrowers with similar credit quality.

Loans that are on nonaccrual status were not included in the loan valuation
methods discussed previously. The fair value of these assets was estimated
assuming these loans were sold on a liquidation basis.

The fair value of performing mortgage loans was based on quoted market
prices for loans with similar credit and interest rate risk characteristics.

The fair value of performing credit card loans and credit lines is assumed
to approximate their book value. For credit lines and credit card loans that
were past due at December 31, 1997 and 1998, the fair value was estimated by
segregating them according to their past due status and then discounting them
based on the Company's historical probability of loss.

NONINTEREST BEARING DEPOSITS: The fair value of noninterest bearing
deposits is the amount payable on demand at the reporting date. The fair value
of the demand deposit intangible has not been estimated.

INTEREST BEARING DEPOSITS: The fair value of savings accounts and certain
money market accounts is the amount payable on demand at the reporting date. The
fair value of fixed maturity certificates of deposit was estimated using rates
currently being offered on certificates with similar maturities.

BORROWED FUNDS: The book values of federal funds purchased and securities
sold under repurchase agreements and other short-term borrowings are assumed to
approximate their fair value due to their limited duration characteristics. The
fair value for commercial paper and term federal funds purchased was estimated
using market quotes.

SUBORDINATED CAPITAL NOTES: The fair value of fixed-rate subordinated
capital notes was estimated using discounted cash flows based on market rates
for A-rated bank borrowings. The book values for variable-rate subordinated
capital notes are assumed to approximate fair market value.

F-77
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 14-- DERIVATIVE INSTRUMENTS AND OTHER FINANCIAL INSTRUMENTS WITH
OFF-BALANCE SHEET RISK

The Company is a party to certain derivative and other financial instruments
that are not reflected on the balance sheet but represent obligations or assets
of the Company in the normal course of business. These financial instruments are
used for trading activities of the Company, to meet the needs of customers, and
to reduce the impact on the Company's operating results due to market
fluctuations in currency or interest rates.

These financial instruments involve, to varying degrees, elements of credit
and market risk which are not recognized on the balance sheet. 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. Market risk is the possibility that
future changes in market conditions may make the financial instrument less
valuable.

DERIVATIVE INSTRUMENTS

The fair value of the derivative financial instruments was calculated based
on quoted market prices where available. If quoted market prices were not
available, the Company used the estimated amount it would receive or pay to
offset or terminate the agreements at December 31, 1998 based upon the terms of
such contracts relative to prevailing interest rates.

TRADING ACTIVITIES IN DERIVATIVE INSTRUMENTS

The following table reflects the Company's positions relating to trading
activities in derivative instruments. Trading activities include both activities
for the Company's own account and for customers. At December 31, 1997 and 1998,
the majority of the Company's derivative transactions for customers are hedged
with essentially offsetting contracts with other counterparties. The average
fair value of derivatives held or written for trading purposes during the year
is not significant. The notional amount of derivative instruments reflects the
extent of the Company's involvement in these instruments. For interest rate
swap, cap and floor agreements, notional amounts do not represent exposure to
credit or market risk. Notional amounts are not exchanged, but serve as a point
of reference for calculating payments.

F-78
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 14-- DERIVATIVE INSTRUMENTS AND OTHER FINANCIAL INSTRUMENTS WITH
OFF-BALANCE SHEET RISK (CONTINUED)
The following is a summary of derivative instruments held or written for
trading purposes.

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------
1997 1998
----------------------------------- -----------------------------------
NOTIONAL CREDIT ESTIMATED NOTIONAL CREDIT ESTIMATED
(DOLLARS IN THOUSANDS) AMOUNTS RISK(1) FAIR VALUE AMOUNTS RISK(1) FAIR VALUE
- ------------------------------------------------- ------------ --------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
HELD OR WRITTEN FOR TRADING PURPOSES AND CUSTOMER
ACCOMMODATIONS
Foreign exchange forward contracts:
Commitments to purchase........................ $ 531,330 $ 366 $ (34,304) $ 451,123 $ 22,297 $ 20,675
Commitments to sell............................ 709,512 40,671 40,274 553,351 1,878 (21,599)
Foreign exchange OTC options:
Options purchased.............................. 46,533 -- (634) 3,000 1 1
Options written................................ 46,533 637 637 3,000 -- (1)
Currency swap agreements:
Commitments to pay............................. 55,725 -- (5,971) 36,725 1,546 1,546
Commitments to receive......................... 55,725 5,971 5,971 36,725 -- (1,436)
Interest rate contracts:
Caps purchased................................. 1,189,791 796 796 1,031,599 1,453 1,453
Floors purchased............................... 119,000 612 612 186,564 926 926
Caps written................................... 1,189,791 -- (796) 1,031,599 -- (1,453)
Floors written................................. 119,000 -- (612) 186,564 -- (926)
Swap contracts:
Pay variable/receive variable................ 58,000 301 -- 58,000 306 --
Pay fixed/receive variable................... 976,180 364 (29,579) 1,040,042 1,049 (41,593)
Pay variable/receive fixed................... 976,180 30,240 29,926 1,040,042 44,360 43,430
</TABLE>

- ------------------------------

(1) Credit risk amounts reflect the replacement cost for those contracts in a
gain position in the event of nonperformance by counterparties.

ASSET AND LIABILITY MANAGEMENT DERIVATIVE INSTRUMENTS

Derivative positions are integral components of the Company's designated
asset and liability management activities. Therefore, the Company does not
believe it is meaningful to separately analyze the derivative components of its
risk management activities in isolation from related positions. The Company uses
interest rate derivative instruments as part of its management of asset and
liability positions. Derivatives are used to manage interest rate risk relating
to specified groups of assets and liabilities, including LIBOR based commercial
loans, deposit liabilities, and certain subordinated capital notes. The Company
uses foreign currency forward contracts as a means of managing foreign exchange
rate risk associated with assets or liabilities denominated in foreign
currencies.

The following table reflects summary information on derivative contracts
used to hedge or modify the Company's risk as of December 31, 1997 and 1998.
Amounts included in the fair value column do not include gains or losses from
changes in the value of the underlying asset or liability being hedged. Notional

F-79
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 14-- DERIVATIVE INSTRUMENTS AND OTHER FINANCIAL INSTRUMENTS WITH
OFF-BALANCE SHEET RISK (CONTINUED)
amounts are not exchanged, but serve as a point of reference for calculating
payments. For interest rate swap, cap and floor agreements, notional amounts do
not represent exposure to credit or market risk.

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------------------------
1997 1998
------------------------------------------------ ------------------------------------------------
UNAMORTIZED UNAMORTIZED
PREMIUM PREMIUM
NOTIONAL PAID CREDIT ESTIMATED NOTIONAL PAID CREDIT ESTIMATED
(DOLLARS IN THOUSANDS) AMOUNTS (RECEIVED) RISK(1) FAIR VALUE AMOUNTS (RECEIVED) RISK(1) FAIR VALUE
- ------------------------- --------- ----------- ----------- ----------- --------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HELD FOR ASSET AND
LIABILITY MANAGEMENT
PURPOSES
Foreign exchange forward
contracts:
Commitments to
purchase............. $ 341,298 $ -- $ 862 $ (5,055) $ 233,380 $ -- $ 2,185 $ 989
Commitments to sell.... 51,754 -- 35 (822) 53,607 -- 235 145
Currency swap agreements:
Commitments to pay..... 26,400 -- 2,590 2,590 25,432 -- -- (1,104)
Interest rate contracts:
Caps purchased......... 15,420 -- -- -- -- -- -- --
Floors purchased....... 3,550,000 11,730 4,040 4,040 2,350,000 5,737 24,303 24,303
Caps written........... 250,000 (335) 273 273 -- -- -- --
Floors written......... 1,850,000 (534) -- (1,309) 1,350,000 -- -- (3,740)
Swap contracts:
Pay variable/receive
fixed.............. 575,000 -- 2,302 2,302 525,000 -- 9,755 9,755
</TABLE>

- ------------------------------

(1) Credit risk amounts reflect the replacement cost for those contracts in a
gain position in the event of nonperformance by counterparties.

OTHER FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

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 payment of a fee or maintenance of compensatory balances. Such
fees are deferred and, upon partial or full exercise of the commitment,
amortized over the life of the loan or, if exercise is deemed remote, amortized
over the commitment period. Since many of the commitments are expected to expire
without being drawn upon, the contractual amounts do not necessarily represent
future cash requirements. With respect to commitments to extend credit and
letters of credit, the Company's exposure to credit risk in the event of
nonperformance by customers is represented by the contractual amount of those
instruments.

Standby letters of credit are provided to customers to assure their
performance to a third party, generally in the production of goods and services
or under contractual commitments in the financial markets. Commercial letters of
credit are issued to customers to facilitate foreign or domestic trade
transactions. The Company charges fees for the issuance of standby and
commercial letters of credit. The majority of these types of commitments have
terms of one year or less and any fees charged are recognized

F-80
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 14-- DERIVATIVE INSTRUMENTS AND OTHER FINANCIAL INSTRUMENTS WITH
OFF-BALANCE SHEET RISK (CONTINUED)
as noninterest income upon extension of the commitment. The credit risk involved
in issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers and is represented by the contractual
amount of those instruments. When deemed necessary, the Company holds
appropriate collateral supporting those commitments. Management does not
anticipate any material losses as a result of these transactions.

The Company uses the same credit underwriting policies in granting or
accepting such commitments or contingent obligations as it does for on-balance
sheet instruments, by evaluating customers' credit worthiness. The amount of
collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on management's evaluation of the customer. The nature of the
collateral varies but may include deposits held in financial institutions,
marketable securities, accounts receivable, inventory, property and equipment,
and real estate. The Company also provides for potential losses from either
commitments to extend credit or standby letters of credit as a component of its
evaluation in determining the adequacy of its allowance for credit losses and
resulting level of provision charged against current period earnings.

The Company's pricing of these financial instruments is based on the credit
quality and other covenants or requirements. Management believes that the
current fees assessed on these off-balance sheet items represent market rates
that would be charged for similar agreements. Based on this belief, the Company
feels that the carrying amounts are reasonable estimates of the fair value of
these financial instruments. At December 31, 1997 and 1998, fair value
represents management's estimate of the unamortized fee income associated with
these instruments. The following is a summary of other financial instruments
with off-balance sheet risk.

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1997 1998
-------------------- --------------------
CONTRACTUAL FAIR CONTRACTUAL FAIR
(DOLLARS IN THOUSANDS) AMOUNTS VALUE AMOUNTS VALUE
- -------------------------------------------------- ----------- ------- ----------- -------
<S> <C> <C> <C> <C>
Commitments to extend credit...................... $15,111,062 $27,571 $14,850,571 $36,592
Standby letters of credit......................... 2,289,878 5,776 2,215,476 8,523
Other letters of credit........................... 314,594 -- 305,842 --
</TABLE>

The Company conducts securities lending transactions for institutional
customers as a fully disclosed agent, and, at times, indemnifies its customers
against counterparty default. All lending transactions are collateralized,
primarily by cash. The amount of securities lent with indemnification was $1,268
million and $1,259 million at December 31, 1997 and 1998, respectively. The
market value of the associated collateral was $1,294 million and $1,284 million
at December 31, 1997 and 1998, respectively.

NOTE 15-- RESTRICTIONS ON CASH AND DUE FROM BANKS, SECURITIES, LOANS AND
DIVIDENDS

Federal Reserve Board regulations require the Bank to maintain reserve
balances based on the types and amounts of deposits received. Average reserve
balances were approximately $339 million and $229 million for the years ended
December 31, 1997 and 1998, respectively.

F-81
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 15-- RESTRICTIONS ON CASH AND DUE FROM BANKS, SECURITIES, LOANS AND
DIVIDENDS (CONTINUED)
As of December 31, 1997 and 1998, securities carried at $1.7 billion for
each of the years, and loans of $2.6 billion and $2.5 billion, respectively,
were pledged as collateral for borrowings, to secure public and trust department
deposits, and for repurchase agreements as required by contract or law.

The Federal Reserve Act restricts the extension of credit by the Bank to BTM
and affiliates and to the Company and its non-bank subsidiaries and requires
that such loans be secured by certain types of collateral. At December 31, 1998,
$67 million remained outstanding on three Bankers Commercial Corporation notes
payable to the Bank, and $7 million remained outstanding on a UnionBanCal
Leasing Corporation note payable to the Bank. The respective notes were fully
collateralized with equipment leases pledged by both Bankers Commercial
Corporation and UnionBanCal Leasing Corporation.

The payment of dividends by the Bank to the Company is subject to the
approval of the Office of the Comptroller of the Currency (OCC) if the total of
all dividends declared in any calendar year exceeds certain calculated amounts.
The payment of dividends is also limited by minimum capital requirements imposed
on national banks by the OCC. At December 31, 1998, the Bank could have declared
dividends aggregating $354 million without prior regulatory approval.

NOTE 16--REGULATORY CAPITAL REQUIREMENTS

The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies, including minimum
capital requirements. Failure to meet minimum capital requirements can initiate
certain mandatory, and possibly additional discretionary, actions by regulators
that, if undertaken, could have a direct material effect on the Company's
Consolidated Financial Statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company and the Bank must
meet specific capital guidelines that involve quantitative measures of the
Company's and Bank's assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. The Company's and the Bank's
capital amounts and the Bank's prompt corrective action classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as
defined) to quarterly average assets (as defined). Management believes, as of
December 31, 1998, that the Company and the Bank met all capital adequacy
requirements to which they are subject.

As of December 31, 1997 and 1998, the most recent notification from the OCC
categorized the Bank as "well capitalized" under the regulatory framework for
prompt corrective action. To be categorized as "well capitalized", the Bank must
maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios
as set forth in the following table. There are no conditions or events since
that notification that management believes have changed the Bank's category.

F-82
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 16--REGULATORY CAPITAL REQUIREMENTS (CONTINUED)

The Company's and the Bank's capital amounts and ratios are presented in the
following tables.

<TABLE>
<CAPTION>
FOR CAPITAL
ACTUAL ADEQUACY PURPOSES
----------------- ------------------------------
(DOLLARS IN
THOUSANDS) AMOUNT RATIO AMOUNT RATIO
- -------------------- ---------- ------ ------------------ -------
<S> <C> <C> <C> <C>
CAPITAL RATIOS FOR
THE COMPANY:
As of December 31,
1997:
Total capital (to
risk-weighted
assets)........... $3,188,173 11.05% greater than/equal to $2,308,988 greater than/equal to 8.0%
Tier 1 capital (to
risk-weighted
assets)........... 2,587,071 8.96 greater than/equal to 1,154,494 greater than/equal to 4.0
Tier 1 capital (to
quarterly average
assets)(1)........ 2,587,071 8.53 greater than/equal to 1,213,381 greater than/equal to 4.0
As of December 31,
1998
Total capital (to
risk-weighted
assets)........... $3,570,803 11.61% greater than/equal to $2,460,243 greater than/equal to 8.0%
Tier 1 capital (to
risk-weighted
assets)........... 2,965,865 9.64 greater than/equal to 1,230,122 greater than/equal to 4.0
Tier 1 capital (to
quarterly average
assets)(1)........ 2,965,865 9.38 greater than/equal to 1,265,081 greater than/equal to 4.0
</TABLE>

- ------------------------------
(1) Excludes certain intangible assets.
<TABLE>
<CAPTION>
FOR CAPITAL
ACTUAL ADEQUACY PURPOSES
----------------- ---------------------------
(DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO
- ---------------------------------------- ---------- ----- ---------------- -------
<S> <C> <C> <C> <C>
CAPITAL RATIOS FOR THE BANK:
As of December 31, 1997:
Total capital (to risk-weighted
assets)............................... $3,025,030 10.58% greater than/equal to $2,286,296 greater than/equal to 8.0%
Tier 1 capital (to risk-weighted
assets)............................... 2,527,468 8.84 greater than/equal to 1,143,148 greater than/equal to 4.0
Tier 1 capital (to quarterly average
assets)(1)............................ 2,527,468 8.35 greater than/equal to 1,210,898 greater than/equal to 4.0
As of December 31, 1998
Total capital (to risk-weighted
assets)............................... $3,396,596 11.16% greater than/equal to $2,433,917 greater than/equal to 8.0%
Tier 1 capital (to risk-weighted
assets)............................... 2,895,757 9.52 greater than/equal to 1,216,959 greater than/equal to 4.0
Tier 1 capital (to quarterly average
assets)(1)............................ 2,895,757 9.21 greater than/equal to 1,257,875 greater than/equal to 4.0

<CAPTION>
TO BE WELL CAPITALIZED
UNDER PROMPT CORRECTIVE
ACTION PROVISIONS
----------------------------
(DOLLARS IN THOUSANDS) AMOUNT RATIO

- ---------------------------------------- ---------------- --------

<S> <C> <C>
CAPITAL RATIOS FOR THE BANK:
As of December 31, 1997:
Total capital (to risk-weighted
assets)............................... greater than/equal to $2,857,870 greater than/equal to 10.0%

Tier 1 capital (to risk-weighted
assets)............................... greater than/equal to 1,714,722 greater than/equal to 6.0

Tier 1 capital (to quarterly average
assets)(1)............................ greater than/equal to 1,513,622 greater than/equal to 5.0

As of December 31, 1998
Total capital (to risk-weighted
assets)............................... greater than/equal to $3,042,396 greater than/equal to 10.0%

Tier 1 capital (to risk-weighted
assets)............................... greater than/equal to 1,825,438 greater than/equal to 6.0

Tier 1 capital (to quarterly average
assets)(1)............................ greater than/equal to 1,572,343 greater than/equal to 5.0

</TABLE>

- ------------------------------
(1) Excludes certain intangible assets.

NOTE 17--EARNINGS PER SHARE

Basic EPS is computed by dividing net income after preferred dividends by
the weighted average number of common shares outstanding during the period.
Diluted EPS is computed based on the weighted average number of common shares
outstanding adjusted for common stock equivalents, which include

F-83
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 17--EARNINGS PER SHARE (CONTINUED)
stock options. The following table presents a reconciliation of basic and
diluted EPS for the years ended December 31, 1996, 1997 and 1998, in accordance
with SFAS No. 128:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------
1996 1997 1998
---------------------- ------------------------ ----------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) BASIC DILUTED BASIC DILUTED BASIC DILUTED
- ----------------------------------------------- ---------- ---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net income..................................... $ 249,458 $ 249,458 $ 411,296 $ 411,296 $ 466,461 $ 466,461
Less: Dividends on preferred stock............. (11,306) (11,306) (7,600) (7,600) -- --
---------- ---------- ---------- ------------ ---------- ----------
Income available to common shareholders........ $ 238,152 $ 238,152 $ 403,696 $ 403,696 $ 466,461 $ 466,461
---------- ---------- ---------- ------------ ---------- ----------
---------- ---------- ---------- ------------ ---------- ----------
Weighted average common shares outstanding..... 174,391 174,391 174,683 174,683 175,127 175,127
Additional shares due to:
Assumed conversion of dilutive stock options... -- 393 -- 506 -- 610
---------- ---------- ---------- ------------ ---------- ----------
Adjusted weighted average common shares
outstanding.................................. 174,391 174,784 174,683 175,189 175,127 175,737
---------- ---------- ---------- ------------ ---------- ----------
---------- ---------- ---------- ------------ ---------- ----------
Net income per share........................... $ 1.37 $ 1.36 $ 2.31 $ 2.30 $ 2.66 $ 2.65
---------- ---------- ---------- ------------ ---------- ----------
---------- ---------- ---------- ------------ ---------- ----------
</TABLE>

Options to purchase 277,200 shares of common stock at $18 per share and
options to purchase 519,600 shares of common stock at $35 per share were
outstanding but not included in the computation of diluted EPS in 1996 and 1998,
respectively. There were no anti-dilutive options in 1997.

NOTE 18--ACCUMULATED OTHER COMPREHENSIVE INCOME

The following is a summary of the components of accumulated other
comprehensive income:

<TABLE>
<CAPTION>
FOREIGN NET UNREALIZED GAINS (LOSSES)
CURRENCY TRANSLATION ON SECURITIES AVAILABLE FOR SALE
--------------------------------- --------------------------------
YEARS ENDED DECEMBER 31, YEARS ENDED DECEMBER 31,
--------------------------------- --------------------------------
(DOLLARS IN THOUSANDS) 1996 1997 1998 1996 1997 1998
- ------------------------------------------------------ --------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance..................................... $ (1,240) $ (3,183) $ (12,458) $ 24,900 $ 14,064 $ 19,886
Change during the year................................ (1,943) (9,275) 2,807 (10,836) 5,822 9,223
--------- ---------- ---------- ---------- --------- ---------
Ending balance........................................ $ (3,183) $ (12,458) $ (9,651) $ 14,064 $ 19,886 $ 29,109
--------- ---------- ---------- ---------- --------- ---------
--------- ---------- ---------- ---------- --------- ---------
</TABLE>

<TABLE>
<CAPTION>
MINIMUM PENSION ACCUMULATED OTHER
LIABLITY ADJUSTMENT COMPREHENSIVE INCOME (LOSS)
------------------------------- -------------------------------
YEARS ENDED DECEMBER 31, YEARS ENDED DECEMBER 31,
------------------------------- -------------------------------
(DOLLARS IN THOUSANDS) 1996 1997 1998 1996 1997 1998
- ---------------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance............................. $ -- $ -- $ -- $ 23,660 $ 10,881 $ 7,428
Change during the year........................ -- -- (1,748) (12,779) (3,453) 10,282
--------- --------- --------- --------- --------- ---------
Ending balance................................ $ -- $ -- $ (1,748) $ 10,881 $ 7,428 $ 17,710
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>

NOTE 19--CONTINGENCIES

The Company is subject to various pending and threatened legal actions that
arise in the normal course of business. The Company maintains reserves for
losses from legal actions that are both probable and estimable. In the opinion
of management, the disposition of claims currently pending will not have a
material adverse effect on the Company's financial position or results of
operations.

NOTE 20--TRANSACTIONS WITH AFFILIATES

The Company had, and expects to have in the future, banking transactions and
other transactions in the ordinary course of business with BTM and with its
affiliates and associates. During 1996, 1997 and

F-84
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 20--TRANSACTIONS WITH AFFILIATES (CONTINUED)
1998, such transactions included, but were not limited to, origination,
participation, servicing and remarketing of loans and leases, purchase and sale
of acceptances, interest rate derivatives and foreign exchange transactions,
funds transfers, custodianships, electronic data processing, investment advice
and management, deposits and credit examination, and trust services. In the
opinion of management, such transactions were made at prevailing rates, terms,
and conditions and do not involve more than the normal risk of collectibility or
present other unfavorable features. In addition, some compensation for services
rendered to the Company is paid to the expatriate officers from BTM, and
reimbursed by the Company to BTM under a services agreement.

NOTE 21--BUSINESS SEGMENTS

The Company is organized based on the products and services that it offers
and operates in five principal areas:

- The Community Banking Group provides loan products and deposit services
primarily to consumers and small businesses.

- The Commercial Financial Services Group provides a wide variety of banking
services, principally loans, to commercial customers.

- The International Banking Group provides trade-finance products to banks,
and extends primarily short-term credit to corporations engaged in
international business. The group's revenue predominately relates to
foreign customers.

- The Trust and Private Financial Services Group principally provides
fiduciary, private banking, investment and asset management services for
individuals and institutions.

- The Global Markets Group manages the Company's securities portfolio,
trading operations, wholesale funding needs, and interest rate and
liquidity risk.

The information, set forth in the table on page F-87, reflects the condensed
income statements and a selected balance sheet item by business unit. The
information presented does not necessarily represent the business units'
financial condition and results of operations as if they were independent
entities. Unlike financial accounting, there is no authoritative body of
guidance for management accounting equivalent to generally accepted accounting
principles. Consequently, reported results are not necessarily comparable with
those presented by other companies.

F-85
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 21--BUSINESS SEGMENTS (CONTINUED)

The information in this table is derived from the internal management
reporting system used by management to measure the performance of the segments
and the Company overall. The management reporting system assigns balance sheet
and income statement items to each 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 a
segment are assigned to that business. Indirect costs, such as overhead,
operations, and technology expense, are allocated to the segments based on
studies of billable unit costs for product or data processing. The provision for
credit losses is allocated based on the formula and specific reserves and the
net chargeoffs for each respective segment. Equity is allocated based on a
combination of regulatory requirements and management's assessment of economic
risk factors, primarily credit, operating, foreign exchange, and interest rate
risk. Depreciation and capital expenditures are not used by management when
measuring the performance of the segments.

"Other" is comprised of goodwill, merger and integration expense, certain
parent company non-bank subsidiaries, the elimination of the fully
taxable-equivalent amounts, the unallocated allowance and related provision for
credit losses, the net impact of transfer pricing, the earnings associated with
the unallocated equity capital, and the residual costs of support groups. In
addition, it includes two units, the Credit and Compliance Group, which manages
nonperforming assets, and the Pacific Rim Group, which offers financial products
to Asian-owned subsidiaries located in the U.S. On an individual basis, none of
the items in "Other" are significant to our business.

F-86
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 21--BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
COMMUNITY COMMERCIAL FINANCIAL
BANKING GROUP SERVICES GROUP
---------------------------- ----------------------------
YEARS ENDED DECEMBER 31, YEARS ENDED DECEMBER 31,
---------------------------- ----------------------------
1996 1997 1998 1996 1997 1998
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS):
Net interest income.......................................... $658,144 $682,782 $673,463 $401,912 $440,804 $494,713
Noninterest income........................................... 133,559 142,944 178,208 78,238 100,316 109,520
-------- -------- -------- -------- -------- --------
Total revenue................................................ 791,703 825,726 851,671 480,150 541,120 604,233

Noninterest expense.......................................... 577,655 568,031 596,714 201,870 231,906 257,124
Credit expense (income)...................................... 35,644 57,870 4,300 14,362 18,872 21,316
-------- -------- -------- -------- -------- --------
Income before income tax expense and performance center
earnings (expense)(1)...................................... 178,404 199,825 250,657 263,918 290,342 325,793
Performance center earnings (expense)(1)..................... 7,688 10,040 7,769 4,141 3,926 2,270
-------- -------- -------- -------- -------- --------
Income (loss) before income tax expense...................... 186,092 209,865 258,426 268,059 294,268 328,063
Income tax expense (benefit)................................. 75,319 86,063 102,138 108,494 120,676 127,854
-------- -------- -------- -------- -------- --------
Net income (loss)............................................ $110,773 $123,802 $156,288 $159,565 $173,592 $200,209
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Total assets (DOLLARS IN MILLIONS)........................... $ 10,511 $ 10,783 $ 10,230 $ 9,940 $ 11,172 $ 13,543
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------

<CAPTION>
TRUST AND PRIVATE
INTERNATIONAL BANKING GROUP FINANCIAL SERVICES GROUP
---------------------------- ----------------------------

YEARS ENDED DECEMBER 31, YEARS ENDED DECEMBER 31,
---------------------------- ----------------------------
1996 1997 1998 1996 1997 1998
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS):
Net interest income.......................................... $ 48,175 $ 49,405 $ 55,741 $ 11,539 $ 20,995 $ 22,979
Noninterest income........................................... 62,373 62,238 65,834 110,182 128,100 145,593
-------- -------- -------- -------- -------- --------
Total revenue................................................ 110,548 111,643 121,575 121,721 149,095 168,572
Noninterest expense.......................................... 72,719 64,874 66,967 108,495 123,102 134,977
Credit expense (income)...................................... (4,361) 234 11,304 927 155 345
-------- -------- -------- -------- -------- --------
Income before income tax expense and performance center
earnings (expense)(1)...................................... 42,190 46,535 43,304 12,299 25,838 33,250
Performance center earnings (expense)(1)..................... (6,917) (3,759) (4,087) (674) (1,472) 122
-------- -------- -------- -------- -------- --------
Income (loss) before income tax expense...................... 35,273 42,776 39,217 11,625 24,366 33,372
Income tax expense (benefit)................................. 14,276 17,542 14,773 4,705 9,992 13,133
-------- -------- -------- -------- -------- --------
Net income (loss)............................................ $ 20,997 $ 25,234 $ 24,444 $ 6,920 $ 14,374 $ 20,239
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Total assets (DOLLARS IN MILLIONS)........................... $ 2,558 $ 2,657 $ 1,717 $ 241 $ 283 $ 374
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
GLOBAL MARKETS GROUP OTHER
--------------------------- ----------------------------
YEARS ENDED DECEMBER 31, YEARS ENDED DECEMBER 31,
--------------------------- ----------------------------
1996 1997 1998 1996 1997 1998
-------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS):
Net interest income.................................. $ 13,342 $ 25,348 $35,472 $ 35,466 $ 12,348 $ 35,855
Noninterest income................................... 22,101 21,189 29,854 12,223 8,214 4,522
-------- -------- ------- -------- -------- --------
Total revenue........................................ 35,443 46,537 65,326 47,689 20,562 40,377

Noninterest expense.................................. 20,535 22,574 26,718 153,630 34,178 52,718
Credit expense (income).............................. -- -- -- (6,572) (77,131) 7,735
-------- -------- ------- -------- -------- --------
Income before income tax expense and performance
center earnings (expense)(1)....................... 14,908 23,963 38,608 (99,369) 63,515 (20,076)
Performance center earnings (expense)(1)............. (10,236) (10,194) (9,231) 5,998 1,459 3,157
-------- -------- ------- -------- -------- --------
Income (loss) before income tax expense.............. 4,672 13,769 29,377 (93,371) 64,974 (16,919)
Income tax expense (benefit)......................... 1,891 5,647 11,608 (41,793) (1,198) (64,431)
-------- -------- ------- -------- -------- --------
Net income (loss).................................... $ 2,781 $ 8,122 $17,769 $(51,578) $ 66,172 $ 47,512
-------- -------- ------- -------- -------- --------
-------- -------- ------- -------- -------- --------
Total assets (DOLLARS IN MILLIONS)................... $ 4,565 $ 3,961 $ 4,479 $ 1,419 $ 1,729 $ 1,933
-------- -------- ------- -------- -------- --------
-------- -------- ------- -------- -------- --------

<CAPTION>
UNIONBANCAL CORPORATION
----------------------------------

YEARS ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS):
Net interest income.................................. $1,168,578 $1,231,682 $1,318,223
Noninterest income................................... 418,676 463,001 533,531
---------- ---------- ----------
Total revenue........................................ 1,587,254 1,694,683 1,851,754
Noninterest expense.................................. 1,134,904 1,044,665 1,135,218
Credit expense (income).............................. 40,000 -- 45,000
---------- ---------- ----------
Income before income tax expense and performance
center earnings (expense)(1)....................... 412,350 650,018 671,536
Performance center earnings (expense)(1)............. -- -- --
---------- ---------- ----------
Income (loss) before income tax expense.............. 412,350 650,018 671,536
Income tax expense (benefit)......................... 162,892 238,722 205,075
---------- ---------- ----------
Net income (loss).................................... $ 249,458 $ 411,296 $ 466,461
---------- ---------- ----------
---------- ---------- ----------
Total assets (DOLLARS IN MILLIONS)................... $ 29,234 $ 30,585 $ 32,276
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

- ----------------------------------

F-87
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 22-- CONDENSED UNIONBANCAL CORPORATION UNCONSOLIDATED FINANCIAL STATEMENTS

CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
(DOLLARS IN THOUSANDS) 1997 1998
- -------------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks............................................................. $ 66,872 $ 123,976
Investment in and advances to subsidiaries.......................................... 2,879,898 3,264,207
Other assets........................................................................ 7,971 5,252
------------ ------------
Total assets...................................................................... $ 2,954,741 $ 3,393,435
------------ ------------
------------ ------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Commercial paper.................................................................... $ -- $ 99,958
Subordinated capital notes.......................................................... 250,000 200,000
Other liabilities................................................................... 25,442 35,233
------------ ------------
Total liabilities................................................................. 275,442 335,191
Shareholders' equity................................................................ 2,679,299 3,058,244
------------ ------------
Total liabilities and shareholders' equity........................................ $ 2,954,741 $ 3,393,435
------------ ------------
------------ ------------
</TABLE>

F-88
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 22-- CONDENSED UNIONBANCAL CORPORATION UNCONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

CONDENSED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
(DOLLARS IN THOUSANDS) 1996 1997 1998
- -------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
INCOME:
Dividends from bank subsidiary.............................. $ 270,662 $ 85,660 $ 98,159
Dividends from nonbank subsidiaries......................... 421 -- 23,000
Interest income on advances to subsidiaries and deposits in
bank...................................................... 24,366 12,217 11,744
Other income................................................ 959 1,040 404
--------- --------- ---------
Total income............................................ 296,408 98,917 133,307
--------- --------- ---------
EXPENSE:
Interest expense............................................ 22,220 11,174 15,573
Other expense, net.......................................... 1,072 1,583 2,706
--------- --------- ---------
Total expense........................................... 23,292 12,757 18,279
--------- --------- ---------
Income before income taxes and equity in undistributed net
income of subsidiaries.................................... 273,116 86,160 115,028
Income tax expense (benefit)................................ 889 204 (2,346)
--------- --------- ---------
Income before equity in undistributed net income of
subsidiaries.............................................. 272,227 85,956 117,374
Equity in undistributed net income (loss) of subsidiaries:
Bank subsidiary(1)........................................ (32,894) 314,739 360,738
Nonbank subsidiaries(2)................................... 10,125 10,601 (11,651)
--------- --------- ---------
NET INCOME.................................................... $ 249,458 $ 411,296 $ 466,461
--------- --------- ---------
--------- --------- ---------
</TABLE>

- ------------------------------

(1) In 1996, the amount represents dividends distributed by the Bank in excess
of its 1996 net income.

(2) In 1998, the amount represents dividends distributed by nonbank
subsidiaries in excess of their 1998 net income.

F-89
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 22-- CONDENSED UNIONBANCAL CORPORATION UNCONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
(DOLLARS IN THOUSANDS) 1996 1997 1998
- ----------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................... $ 249,458 $ 411,296 $ 466,461
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in undistributed (earnings) losses of subsidiaries.......... 22,769 (325,340) (349,087)
Other, net......................................................... (3,772) 1,059 (6,007)
--------- --------- ---------
Net cash provided by operating activities...................... 268,455 87,015 111,367
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to subsidiaries............................................. (12,779) (130,805) (34,747)
Repayment of advances to subsidiaries................................ 70,000 76,104 18,088
Sales and maturities of securities................................... 322 -- --
--------- --------- ---------
Net cash provided (used) by investing activities............... 57,543 (54,701) (16,659)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short term borrowings..................... (632,296) -- 99,958
Proceeds from reduction of investment in subsidiary equity........... 3,966 -- --
Maturity and redemption of subordinated capital notes and long term
debt............................................................... (70,000) (50,000) (50,000)
Proceeds from issuance of subordinated capital notes................. -- 200,000 --
Payments of cash dividends........................................... (182,652) (93,303) (98,160)
Redemption of preferred stock........................................ -- (135,000) --
Other, net........................................................... 17,813 9,119 10,598
--------- --------- ---------
Net cash used by financing activities.......................... (863,169) (69,184) (37,604)
--------- --------- ---------
Net increase (decrease) in cash and due from banks..................... (537,171) (36,870) 57,104
Cash and due from banks at beginning of year........................... 640,913 103,742 66,872
--------- --------- ---------
Cash and due from banks at end of year................................. $ 103,742 $ 66,872 $ 123,976
--------- --------- ---------
--------- --------- ---------
CASH PAID (RECEIVED) DURING THE YEAR FOR:
Interest............................................................. $ 25,785 $ 9,814 $ 16,056
Income taxes......................................................... (198) 1,148 (4,836)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Dividends declared but unpaid........................................ $ 20,383 $ 24,528 $ 33,300
</TABLE>

F-90
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 23--SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Certain amounts in the following unaudited quarterly financial information
have been reclassified to conform with current presentation. In the opinion of
management, all adjustments necessary to fairly present the results of
operations have been made.

<TABLE>
<CAPTION>
1997 QUARTERS ENDED
----------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- -------------------------------------------------- -------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Interest income................................... $485,031 $504,663 $520,237 $523,530
Interest expense.................................. 191,000 197,647 207,983 205,149
-------- -------- ------------ -----------
Net interest income............................... 294,031 307,016 312,254 318,381
Provision for credit losses....................... -- -- -- --
Noninterest income................................ 114,786 111,021 116,820 120,374
Noninterest expense............................... 253,138 255,753 253,317 282,457
-------- -------- ------------ -----------
Income before income taxes........................ 155,679 162,284 175,757 156,298
Income tax expense................................ 63,177 65,739 45,953 63,853
-------- -------- ------------ -----------
Net income........................................ $ 92,502 $ 96,545 $129,804 $ 92,445
-------- -------- ------------ -----------
-------- -------- ------------ -----------
Net income applicable to common stock............. $ 89,676 $ 93,718 $127,857 $ 92,445
-------- -------- ------------ -----------
-------- -------- ------------ -----------
Net income per common share--basic................ $ 0.51 $ 0.54 $ 0.73 $ 0.53
-------- -------- ------------ -----------
-------- -------- ------------ -----------
Net income per common share--diluted.............. $ 0.51 $ 0.54 $ 0.73 $ 0.53
-------- -------- ------------ -----------
-------- -------- ------------ -----------
Dividends per share(1)............................ $ 0.12 $ 0.12 $ 0.14 $ 0.14
-------- -------- ------------ -----------
-------- -------- ------------ -----------
</TABLE>

<TABLE>
<CAPTION>
1998 QUARTERS ENDED
----------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- -------------------------------------------------- -------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Interest income................................... $508,653 $511,996 $535,973 $528,557
Interest expense.................................. 191,203 186,440 199,340 189,973
-------- -------- ------------ -----------
Net interest income............................... 317,450 325,556 336,633 338,584
Provision for credit losses....................... 20,000 15,000 10,000 --
Noninterest income................................ 128,030 147,994 123,925 133,582
Noninterest expense............................... 268,475 277,325 290,378 299,040
-------- -------- ------------ -----------
Income before income taxes........................ 157,005 181,225 160,180 173,126
Income tax expense................................ 61,428 72,704 11,913 59,030
-------- -------- ------------ -----------
Net income........................................ $ 95,577 $108,521 $148,267 $114,096
-------- -------- ------------ -----------
-------- -------- ------------ -----------
Net income applicable to common stock............. $ 95,577 $108,521 $148,267 $114,096
-------- -------- ------------ -----------
-------- -------- ------------ -----------
Net income per common share--basic................ $ 0.55 $ 0.62 $ 0.85 $ 0.65
-------- -------- ------------ -----------
-------- -------- ------------ -----------
Net income per common share--diluted.............. $ 0.54 $ 0.62 $ 0.84 $ 0.65
-------- -------- ------------ -----------
-------- -------- ------------ -----------
Dividends per share(1)............................ $ 0.14 $ 0.14 $ 0.14 $ 0.19
-------- -------- ------------ -----------
-------- -------- ------------ -----------
</TABLE>

- ------------------------------

(1) Dividends per share are based on the Company's common stock outstanding as
of the declaration date.

F-91
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

NOTE 24--SUBSEQUENT EVENT

F-92
<PAGE>
UNIONBANCAL CORPORATION
MANAGEMENT STATEMENT

The management of UnionBanCal Corporation is responsible for the
preparation, integrity, and fair presentation of its published financial
statements and all other information presented in this annual report. The
financial statements have been prepared in accordance with generally accepted
accounting principles and, as such, include amounts based on informed judgments
and estimates made by management.

We maintain a system of internal accounting controls to provide reasonable
assurance that assets are safeguarded and that transactions are executed in
accordance with management's authorization and recorded properly to permit the
preparation of financial statements in accordance with generally accepted
accounting principles. Management recognizes that even a highly effective
internal control system has inherent risks, including the possibility of human
error and the circumvention or overriding of controls, and that the
effectiveness of an internal control system can change with circumstances.
However, management believes that the internal control system provides
reasonable assurance that errors or irregularities that could be material to the
financial statements would be prevented or detected on a timely basis and
corrected through the normal course of business. As of December 31, 1998,
management believes that the internal controls are in place and operating
effectively.

The Audit and Examining Committee of the Board of Directors is comprised
entirely of outside directors who are independent of our management; it includes
members with banking or related financial management expertise and who are not
large customers of Union Bank of California, N.A. The Audit and Examining
Committee has access to outside counsel. The Audit and Examining Committee is
responsible for recommending to the Board of Directors the selection of
independent auditors. It meets periodically with management, the independent
auditors, and the internal auditors to ensure that they are carrying out their
responsibilities. The Audit and Examining Committee is also responsible for
performing an oversight role by reviewing and monitoring our financial,
accounting, and auditing procedures in addition to reviewing our financial
reports. The independent auditors and internal auditors have full and free
access to the Audit and Examining Committee, with or without the presence of
management, to discuss the adequacy of the internal control structure for
financial reporting and any other matters which they believe should be brought
to the attention of the Audit and Examining Committee.

The financial statements have been audited by Deloitte & Touche LLP,
independent auditors, who were given unrestricted access to all financial
records and related data, including minutes of all meetings of shareholders, the
Board of Directors and committees of the Board. Management believes that all
representations made to the independent auditors during their audit were valid
and appropriate. The independent auditors' report is presented on page F-94.

<TABLE>
<S> <C>
/s/ TAKAHIRO MORIGUCHI
------------------------------
Takahiro Moriguchi
PRESIDENT AND CHIEF EXECUTIVE
OFFICER

/s/ YOSHIHIKO SOMEYA
------------------------------
Yoshihiko Someya
DEPUTY CHAIRMAN OF THE BOARD

/s/ DAVID I. MATSON
------------------------------
David I. Matson
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER

/s/ DAVID A. ANDERSON
------------------------------
David A. Anderson
SENIOR VICE PRESIDENT AND
CONTROLLER
</TABLE>

March 3, 1999

F-93
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Shareholders and Directors of UnionBanCal Corporation:

We have audited the accompanying consolidated balance sheets of UnionBanCal
Corporation and subsidiaries (the "Company") as of December 31, 1997 and 1998,
and the related consolidated statements of income, changes in shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of UnionBanCal Corporation and
subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.

/s/ Deloitte & Touche LLP

San Francisco, California
March 3, 1999

F-94
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, UnionBanCal Corporation has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

<TABLE>
<S> <C> <C>
UNIONBANCAL CORPORATION (Registrant)

By: /s/ TAKAHIRO MORIGUCHI
-----------------------------------------
Takahiro Moriguchi
PRESIDENT AND CHIEF EXECUTIVE OFFICER

By: /s/ DAVID I. MATSON
-----------------------------------------
David I. Matson
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER

By: /s/ DAVID A. ANDERSON
-----------------------------------------
David A. Anderson
SENIOR VICE PRESIDENT AND CONTROLLER

Date: March 24, 1999
</TABLE>

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of UnionBanCal
Corporation and in the capacities and on the date indicated below.

<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------

<S> <C>
/s/ RICHARD D. FARMAN
- ------------------------------
Richard D. Farman Director

/s/ STANLEY F. FARRAR
- ------------------------------
Stanley F. Farrar Director

/s/ HERMAN E. GALLEGOS
- ------------------------------
Herman E. Gallegos Director

/s/ JACK L. HANCOCK
- ------------------------------
Jack L. Hancock Director

/s/ RICHARD C. HARTNACK
- ------------------------------
Richard C. Hartnack Director
</TABLE>

II-1
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------

<S> <C>
/s/ KAORU HAYAMA
- ------------------------------
Kaoru Hayama Director

/s/ HARRY W. LOW
- ------------------------------
Harry W. Low Director

/s/ MARY S. METZ
- ------------------------------
Mary S. Metz Director

/s/ RAYMOND E. MILES
- ------------------------------
Raymond E. Miles Director

/s/ TAKAHIRO MORIGUCHI
- ------------------------------
Takahiro Moriguchi Director

/s/ J. FERNANDO NIEBLA
- ------------------------------
J. Fernando Niebla Director

/s/ SIDNEY R. PETERSEN
- ------------------------------
Sidney R. Petersen Director

/s/ CARL W. ROBERTSON
- ------------------------------
Carl W. Robertson Director

/s/ YOSHIHIKO SOMEYA
- ------------------------------
Yoshihiko Someya Director

/s/ HENRY T. SWIGERT
- ------------------------------
Henry T. Swigert Director

- ------------------------------
Tsuneo Wakai Director

/s/ ROBERT M. WALKER
- ------------------------------
Robert M. Walker Director

- ------------------------------
Hiroshi Watanabe Director
</TABLE>

II-2
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------

<S> <C>
/s/ BLENDA J. WILSON
- ------------------------------
Blenda J. Wilson Director

- ------------------------------
Kenji Yoshizawa Director

Dated: March 24, 1999
</TABLE>

II-3

<PAGE>

[LETTERHEAD]

SECRETARY OF STATE

I, BILL JONES, Secretary of State of the State of California, hereby
certify:

That the attached transcript has been compared with the record on file
in the office, of which it purports to be a copy, and that it is full, true
and correct.

IN WITNESS WHEREOF, I execute this
certificate and affix the Great Seal
of the State of California this

DEC 07 1998
-------------------------------------

[SEAL]

/s/ BILL JONES

Secretary of State

<PAGE>

CERTIFICATE OF AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
UNIONBANCAL CORPORATION

The undersigned certify that:

1. They are the President and Corporate Secretary, respectively, of
UnionBanCal Corporation, a California corporation.

2. The Articles of Incorporation of this corporation are amended and restated
to read as follows:

AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
UNIONBANCAL CORPORATION

ARTICLE I
NAME

The name of the corporation is: UnionBanCal Corporation

ARTICLE II
PURPOSE

The purpose of the corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law
of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.

<PAGE>

ARTICLE III
AUTHORIZED STOCK

A. This corporation is authorized to issue two classes of stock
designated "Preferred Stock" and "Common Stock." The number of shares of
Preferred Stock authorized to be issued is 5,000,000 and the number of shares
of Common Stock authorized to be issued is 300,000,000. Upon the amendment of
this article to read as herein set forth, each outstanding share of Common
Stock is split up and converted into three shares.

B. The Preferred Stock may be divided into such number of series as the
Board of Directors may determine. The Board of Directors is authorized
to determine and alter the rights, preferences, privileges and restrictions
granted to or imposed upon any wholly unissued series of Preferred Stock and to
fix the number of shares of any series of Preferred Stock and the designation
of any such series of Preferred Stock. The Board of Directors, within the
limits and restrictions stated in any resolution or resolutions of the Board of
Directors originally fixing the number of shares constituting any series, may
increase or decrease (but not below the number of shares of such series then
outstanding) the number of shares of any series subsequent to the issue of
shares of that series. In case the number of shares of any series shall be so
decreased, the shares constituting such decrease shall resume the status which
they had prior to the adoption of the resolution originally fixing the number
of shares of such series.

ARTICLE IV
CUMULATIVE VOTING

No shareholder of this corporation shall be entitled to cumulate votes at
any election of directors of this corporation.

ARTICLE V
DIRECTORS

The number of directors of this corporation shall not be less than sixteen
(16) nor more than thirty (30) until changed by an amendment of the Articles of
Incorporation. The exact number of directors within these limits shall be
fixed from time to time by a resolution duly adopted by the shareholders or by
the Board of Directors of this corporation. Said Directors shall have the
right and duty to conduct the affairs of this corporation and to otherwise
regulate the business and affairs of this corporation and the powers of the
Directors and shareholders in a manner not in conflict with law.

<PAGE>

ARTICLE VI
ELECTION

This corporation elects to be governed by all of the provisions of the
California General Corporation Law of 1977 not otherwise applicable to it under
Chapter 23 thereof.

ARTICLE VII
DIRECTORS LIABILITY

The liability of the directors of this corporation for monetary damages shall
be eliminated to the fullest extent permissible under California law. Any
repeal or modification of this Article VII, or the adoption of any provision
of the Articles of Incorporation inconsistent with this Article VII shall
only be prospective and shall not adversely affect the rights under this
Article VII in effect at the time of the alleged occurrence of any action or
omission to act giving rise to liability.

ARTICLE VIII
INDEMNIFICATION

This corporation is authorized to indemnify its agents (as defined in
Section 317 of the California Corporations Code) through Bylaw provisions,
agreements with agents, vote of shareholders or disinterested directors, or
otherwise, in excess of the indemnification otherwise permitted by Section 317
of the California Corporations Code, subject only to the applicable limits on
indemnification of directors and agents of the corporation set forth in Section
204 of the California Corporations Code with respect to actions for breach of a
duty to the corporation and its shareholders. Any repeal or modification of
this Article VIII, or the adoption of any provision of the Articles of
Incorporation inconsistent with this Article VIII, shall only be prospective
and shall not adversely affect the rights under this Article VIII in effect at
the time of the alleged occurrence of any action or omission to act giving rise
to indemnification.

3. The Company's common stock is designated as qualified for trading on the
Nasdaq National Market, and the Company has 2,117 shareholders of its
common stock as of April 10, 1998, the record date of the Company's most
recent annual meeting of shareholders.

4. The foregoing amendment and restatement of Articles of Incorporation has
been duly approved by the Board of Directors.

<PAGE>

5. The foregoing amendment and restatement of Articles of Incorporation has
been duly approved by the required vote of shareholders in accordance with
Section 902, California Corporations Code. The total number of
outstanding shares of the corporation is 54,945,321. The number of
shares voting in favor of the amendment equaled or exceeded the vote
required. The percentage vote required was more than 50%.

We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our knowledge.

/s/ Takahiro Moriguchi
DATE: May 27, 1998 ----------------------------------
Takahiro Moriguchi, President
and Chief Executive Officer

/s/ Jean C. Nomura
----------------------------------
Jean C. Nomura, Vice President
and Corporate Secretary

[SEAL]

<PAGE>

PART IV - ITEM 14 (a)(3) EXHIBIT NO. 12.1
UnionBanCal Corporation and Subsidiaries
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividend Requirements

(In millions, except ratios) For the Years Ended December 31,
- -------------------------------------------------------------- -----------------------------------------------------------------
1994 1995 1996 1997 1998
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
EXCLUDING INTEREST ON DEPOSITS
Income before income taxes and effect of accounting changes $ 246 $ 506 $ 412 $ 650 $ 672

Fixed Charges:
Interest expense 483 705 759 802 767
One third of rents, net income from subleases (A) 17 14 18 12 13
------- ------- ------- ------- -------
Total fixed charges 500 719 777 814 780
------- ------- ------- ------- -------
Earnings before taxes, fixed charges, and effect of
accounting changes, excluding capitalized interest $ 746 $ 1,225 $ 1,189 $ 1,464 $ 1,452
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Fixed charges, as above $ 500 $ 719 $ 777 $ 814 $ 780
Preferred stock dividends 11 11 11 8 -
------- ------- ------- ------- -------
Fixed charges including preferred stock dividends $ 511 $ 730 $ 788 $ 822 $ 780
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Ratio of earnings to fixed charges and preferred
stock dividend requirements 1.46 1.68 1.51 1.78 1.86
------- ------- ------- ------- -------
------- ------- ------- ------- -------
INCLUDING INTEREST ON DEPOSITS
Fixed charges including preferred stock dividends $ 511 $ 730 $ 788 $ 822 $ 780
Add: Interest on deposits 311 454 532 596 555
------- ------- ------- ------- -------
Total fixed charges including preferred stock
dividends and interest on deposits $ 822 $ 1,184 $ 1,320 $ 1,418 $ 1,335
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Earnings before taxes, fixed charges, and effect of
accounting changes, excluding capitalized
interest, as above $ 746 $ 1,225 $ 1,189 $ 1,464 $ 1,452
Add: Interest on deposits 311 454 532 596 555
------- ------- ------- ------- -------
Total earnings before taxes, fixed charges, effect
of accounting changes, and interest on deposits $ 1,057 $ 1,679 $ 1,721 $ 2,060 $ 2,007
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Ratio of earnings to fixed charges and preferred
stock dividend requirements 1.29 1.42 1.30 1.45 1.50
------- ------- ------- ------- -------
------- ------- ------- ------- -------
(A) The proportion deemed representative of the interest factor.

</TABLE>

<PAGE>

Exhibit No. 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statements Nos.
33-3-3040, 333-67581, 333-67581-01, 333-67581-02, 333-67581-03 and
333-67581-04 on Form S-3 and Registration Statements Nos. 33-3-3042,
33-3-3044 and 333-27987 on Form S-8 of UnionBanCal Corporation of our report
dated March 3, 1999, appearing in this Annual Report on Form 10-K of
UnionBanCal Corporation for the year ended December 31, 1998.

San Francisco, California

March 26, 1999

<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF INCOME AND THE ACCOMPANYING TABLES
OF FORM 10-K. INFORMATION HEREIN IS QUALIFIED BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,135,380
<INT-BEARING-DEPOSITS> 209,568
<FED-FUNDS-SOLD> 333,530
<TRADING-ASSETS> 267,718
<INVESTMENTS-HELD-FOR-SALE> 3,638,532
<INVESTMENTS-CARRYING> 160,513
<INVESTMENTS-MARKET> 163,244
<LOANS> 24,296,111
<ALLOWANCE> 459,328
<TOTAL-ASSETS> 32,276,316
<DEPOSITS> 24,507,879
<SHORT-TERM> 3,083,654
<LIABILITIES-OTHER> 839,059
<LONG-TERM> 298,000
0
0
<COMMON> 1,725,619
<OTHER-SE> 1,332,625
<TOTAL-LIABILITIES-AND-EQUITY> 32,276,316
<INTEREST-LOAN> 1,826,096
<INTEREST-INVEST> 200,337
<INTEREST-OTHER> 58,746
<INTEREST-TOTAL> 2,085,179
<INTEREST-DEPOSIT> 555,128
<INTEREST-EXPENSE> 766,956
<INTEREST-INCOME-NET> 1,318,223
<LOAN-LOSSES> 45,000
<SECURITIES-GAINS> 5,686
<EXPENSE-OTHER> 1,135,218
<INCOME-PRETAX> 671,536
<INCOME-PRE-EXTRAORDINARY> 671,536
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 466,461
<EPS-PRIMARY> 2.66
<EPS-DILUTED> 2.65
<YIELD-ACTUAL> 4.81
<LOANS-NON> 78,450
<LOANS-PAST> 31,498
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 451,692
<CHARGE-OFFS> 76,790
<RECOVERIES> 41,144
<ALLOWANCE-CLOSE> 459,328
<ALLOWANCE-DOMESTIC> 197,700
<ALLOWANCE-FOREIGN> 47,000
<ALLOWANCE-UNALLOCATED> 214,628

</TABLE>