UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016
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: 1-15081

MUFG Americas Holdings Corporation

(Exact name of registrant as specified in its charter)

Delaware	94-1234979
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1251 Avenue of the Americas, New York, NY	10020
(Address of principal executive offices)	(Zip Code)
(Registrant's telephone number, including area code) (212) 782-5911

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

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

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

Large accelerated filer o	Accelerated filer o
Non-accelerated filer x (Do not check if a smaller reporting company)	Smaller reporting company o

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

Number of shares of Common Stock outstanding at July 29, 2016: 142,728,918

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

MUFG Americas Holdings Corporation and Subsidiaries

Table of Contents

PART I. FINANCIAL INFORMATION	41
Item 1. Financial Statements	41
Consolidated Statements of Income (Unaudited)	41
Consolidated Statements of Comprehensive Income (Unaudited)	42
Consolidated Balance Sheets (Unaudited)	43
Consolidated Statements of Changes in Stockholder's Equity (Unaudited)	44
Consolidated Statements of Cash Flows (Unaudited)	45
Note 1—Summary of Significant Accounting Policies and Nature of Operations	46
Note 2—Correction of Prior Period Amounts	49
Note 3—Securities	50
Note 4—Loans and Allowance for Loan Losses	56
Note 5—Variable Interest Entities	65
Note 6—Commercial Paper and Other Short-Term Borrowings	68
Note 7—Long-Term Debt	69
Note 8—Fair Value Measurement and Fair Value of Financial Instruments	70
Note 9—Derivative Instruments and Other Financial Instruments Used For Hedging	77
Note 10—Accumulated Other Comprehensive Income	81
Note 11—Employee Pension and Other Postretirement Benefits	84
Note 12—Commitments, Contingencies and Guarantees	84
Note 13—Business Segments	86
Note 14—Subsequent Event	90
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	7
Consolidated Financial Highlights	7
Introduction	10
Executive Overview	10
Financial Performance	13
Balance Sheet Analysis	18
Capital Management	19
Risk Management	23
Business Segments	34
Critical Accounting Estimates	39
Item 3. Quantitative and Qualitative Disclosures About Market Risk	40
Item 4. Controls and Procedures	40
PART II. OTHER INFORMATION	91
Item 1. Legal Proceedings	91
Item 1A. Risk Factors	91
Item 6. Exhibits	94
SIGNATURES	95

2

Glossary of Defined Terms

The following acronyms and abbreviations are used throughout this report, particularly in Part I, Item 1. “Financial Statements," Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Item 3. “Quantitative and Qualitative Disclosures About Market Risk” and Part II, Item 1A. “Risk Factors.”

Agency Securities	Securities guaranteed by a U.S. government agency
ALCO	Asset Liability Management Committee
ALM	Asset Liability Management
AOCI	Accumulated other comprehensive income
ARC	Americas Risk Committee
ASU	Accounting Standards Update
BCBS	Basel Committee on Banking Supervision
BHC	U.S. bank holding company
BTMU	The Bank of Tokyo-Mitsubishi UFJ, Ltd. and its consolidated subsidiaries
CCAR	Comprehensive Capital Analysis and Review
CD	Certificate of deposit
CLO	Collateralized loan obligation
CMBS	Commercial mortgage-backed securities
Dodd-Frank Act	Dodd-Frank Wall Street Reform and Consumer Protection Act
ESBP	Executive Supplemental Benefit Plan
Exchange Act	U.S. Securities Exchange Act of 1934
FASB	Financial Accounting Standards Board
FBO	Foreign banking organization
FDIC	Federal Deposit Insurance Corporation
Federal Reserve	Board of Governors of the Federal Reserve System
FHLB	Federal Home Loan Bank
FICO	Fair Isaac Corporation
HQLA	High quality liquid assets
IHC	Intermediate Holding Company
LCR	Liquidity Coverage Ratio
LIHC	Low income housing credit
LTV	Loan-to-value
MRM	Market Risk Management
MRMC	Market Risk Management Committee
MUAH	MUFG Americas Holdings Corporation
MUB	MUFG Union Bank, N.A.
MUFG	Mitsubishi UFJ Financial Group, Inc.
OCC	Office of the Comptroller of the Currency
OCI	Other comprehensive income
OREO	Other real estate owned
PCI	Purchased credit-impaired
PEP	Petroleum exploration and production
RMBS	Residential mortgage-backed securities
S&P	Standard & Poor's Ratings Services
SEC	Securities and Exchange Commission
SERP	Supplemental Executive Retirement Plan
SLR	Supplementary Leverage Ratio
TDR	Troubled debt restructuring
VaR	Value-at-risk
VIE	Variable interest entity

3

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report includes forward-looking statements, which include expectations for our operations and business and our assumptions for those expectations. Do not rely unduly on forward-looking statements. Actual results might differ significantly compared to our expectations. See Part I, Item 1A. “Risk Factors,” in our 2015 Form 10-K, Part II, Item 1A. “Risk Factors” in this Form 10-Q, and the other risks described in this Form 10-Q and in our 2015 Form 10-K, for factors to be considered when reading any forward-looking statements in this filing.

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

In this document and other reports to the SEC, for example, we make forward-looking statements, which discuss our expectations about:

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

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

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

• The economic outlook for the U.S. in general, West Coast states and global economies

• The impact of changes in interest rates resulting from changes in Federal Reserve policy or for other reasons, our strategy to manage our interest rate risk profile and other market risks, our outlook for short-term and long-term interest rates and their effect on our net interest margin (including our expectation that the current interest rate environment and the decline in our PCI portfolio will continue to place pressure on our net interest margin in 2016), our investment portfolio and our borrowers’ ability to service their loans and on residential mortgage loans and refinancings

• Pending and recent legislative and regulatory actions, and future legislative and regulatory developments, including the effects of legislation and other governmental measures, including the monetary policies of the Federal Reserve introduced in response to the 2008-2009 financial crises, and the ensuing recession affecting the banking system, financial markets and the U.S. economy, the Dodd-Frank Act, changes to the deposit insurance assessment policies of the FDIC, the effect on and application of foreign and other laws and regulations to our business and operations, and anticipated fees, costs or other impacts on our business and operations as a result of these developments

• Our strategies and expectations regarding capital levels and liquidity, our funding base, core deposits, our expectations regarding the capital, liquidity and enhanced prudential standards adopted by the U.S. bank regulators as a result of or under the Dodd-Frank Act and the BCBS capital and liquidity standards and recently adopted and proposed regulations by the U.S. federal banking agencies, and the effect of the foregoing on our business and expectations regarding compliance

• Regulatory and compliance controls and processes and their impact on our business, including our operating costs and revenues

4

• The costs and effects of legal actions, investigations, regulatory actions, criminal proceedings or similar matters, our anticipated litigation strategies, our assessment of the timing and ultimate outcome of legal actions, or adverse facts and developments related thereto

• Our allowance for credit losses, including the conditions we consider in determining the unallocated allowance and our portfolio credit quality, risk rating and credit migration trends and loss factors

• Loan portfolio composition and risk rating trends, residential loan delinquency rates compared to the industry average, portfolio credit quality, our strategy regarding TDRs, and our intent to sell or hold loans we originate

• Our intent to sell or hold, and the likelihood that we would be required to sell, or expectations regarding recovery of the amortized cost basis of, various investment securities

• Our hedging strategies, positions, expectations regarding reclassifications of gains or losses on hedging instruments into earnings; and the sensitivity of our net income to various factors, including customer behavior relating to mortgage pre-payments and deposit repricing

• Expected rates of return, maturities, yields, loss exposure, growth rates, pension plan strategies, contributions and benefit payments, and projected results

• Tax rates and taxes, the possible effect of changes in taxable profits of the U.S. operations of MUFG on our state tax obligations and of expected tax credits or benefits

• Critical accounting policies and estimates, the impact or anticipated impact of recent accounting pronouncements, guidance or changes in accounting principles and future recognition of impairments for the fair value of assets, including goodwill, financial instruments, intangible assets and other assets acquired in our acquisitions of Pacific Capital Bancorp, PB Capital Corporation’s institutional commercial real estate lending portfolio, First Bank Association Bank Services, Smartstreet and our April 2010 FDIC-assisted acquisitions

• Decisions to downsize, sell or close units, dissolve subsidiaries, expand our branch network, pursue acquisitions, purchase banking facilities and equipment, realign our business model or otherwise restructure, reorganize or change our business mix, and their timing and impact on our business

• Our expectations regarding the impact of acquisitions on our business and results of operations and amounts we expect to collect from or must pay to the FDIC under loss share agreements

• The impact of changes in our credit rating including methodology changes adopted by rating agencies

• Maintenance of casualty and liability insurance coverage appropriate for our operations

• The relationship between our business and that of BTMU and MUFG, the impact of their credit ratings, operations or prospects on our credit ratings and actions that may or may not be taken by BTMU and MUFG

• Threats to the banking sector and our business due to cyber-security issues and attacks on financial institutions and other businesses, such as large retailers, and regulatory expectations relating to cyber-security

• Our understanding that BTMU will continue to limit its participation in transactions with Iranian entities and individuals to certain types of transactions

• Challenges associated with our business integration initiative with our parent company, BTMU, effective July 1, 2014

• The objectives and effects on operations of our business integration initiative and its near term effect on our balance sheet, earnings and capital ratios

• The effect of the California drought on its economy and related governmental actions

• Our expectation that the formation of the IHC will not result in a significant change in the Company's risk-based capital ratios, although it will result in a decline in the Company's Tier 1 leverage ratio

• Descriptions of assumptions underlying or relating to any of the foregoing

5

Readers of this document should not rely unduly on any forward-looking statements, which reflect only our management’s belief as of the date of this report. There are numerous risks and uncertainties that could cause actual outcomes and results to differ materially from those discussed in our forward-looking statements. Many of these factors are beyond our ability to control or predict and could have a material adverse effect on our financial condition, results of operations or prospects. Such risks and uncertainties include, but are not limited to, those described or referred to in Part I, Item 1. “Business” under the captions “Competition” and “Supervision and Regulation” of our 2015 Form 10-K, and in Part II, Item 1A. “Risk Factors” and Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q, and in our other reports to the SEC.

Any factor described in this report could by itself, or together with one or more other factors, adversely affect our business, prospects, results of operations or financial condition.

6

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

MUFG Americas Holdings Corporation and Subsidiaries

Consolidated Financial Highlights

	For the Three Months Ended								For the Six Months Ended
(Dollars in millions)	June 30, 2016			June 30, 2015			Percent Change		June 30, 2016			June 30, 2015			Percent Change
Results of operations:
Net interest income	$	720		$	719		—	%	$	1,417		$	1,402		1	%
Noninterest income	466			385			21		861			720			20
Total revenue	1,186			1,104			7		2,278			2,122			7
Noninterest expense	810			843			(4	)	1,686			1,692			—
Pre-tax, pre-provision income(1)	376			261			44		592			430			38
(Reversal of) provision for credit losses	(37		)	15			(347	)	125			18			nm
Income before income taxes and including noncontrolling interests	413			246			68		467			412			13
Income tax expense	119			71			68		136			105			30
Net income including noncontrolling interests	294			175			68		331			307			8
Deduct: Net loss from noncontrolling interests	11			6			83		23			11			109
Net income attributable to MUAH	$	305		$	181		69		$	354		$	318		11
Balance sheet (period average):
Total assets	$	116,281		$	112,907		3	%	$	116,074		$	113,020		3	%
Total securities	23,259			22,915			2		23,383			22,546			4
Total loans held for investment	79,934			76,751			4		79,193			77,026			3
Earning assets	105,150			102,289			3		105,020			102,443			3
Total deposits	83,663			82,147			2		83,836			83,112			1
MUAH stockholder's equity	15,918			15,238			4		15,804			15,154			4
Performance ratios:
Return on average assets(2)	1.05		%	0.64		%			0.61		%	0.56		%
Return on average MUAH stockholder's equity(2)	7.65			4.73					4.48			4.19
Efficiency ratio(3)	68.42			76.42					74.06			79.75
Adjusted efficiency ratio(4)	61.13			69.02					66.39			71.86
Net interest margin(2) (5)	2.77			2.84					2.73			2.77
Net loans charged-off to average total loans held for investment(2)	0.49			0.10					0.26			0.06

7

MUFG Americas Holdings Corporation and Subsidiaries

Consolidated Financial Highlights (Continued)

	As of
	June 30, 2016			December 31, 2015			Percent Change
Balance sheet (end of period):
Total assets	$	117,156		$	116,216		1	%
Total securities	23,105			24,502			(6	)
Total loans held for investment	79,392			77,599			2
Nonperforming assets	648			573			13
Core deposits(6)	75,296			76,094			(1	)
Total deposits	82,692			84,340			(2	)
Long-term debt	10,445			12,349			(15	)
MUAH stockholder's equity	16,179			15,461			5
Credit ratios:
Allowance for loan losses to total loans held for investment(7)	0.94		%	0.93		%
Allowance for loan losses to nonaccrual loans(7)	118.24			130.53
Allowance for credit losses to total loans held for investment(8)	1.15			1.14
Allowance for credit losses to nonaccrual loans(8)	144.50			160.42
Nonperforming assets to total loans held for investment and OREO	0.82			0.74
Nonperforming assets to total assets	0.55			0.49
Nonaccrual loans to total loans held for investment	0.80			0.71
Capital ratios:
Regulatory:
Common Equity Tier 1 risk-based capital ratio(9)	13.58		%	13.63		%
Tier 1 risk-based capital ratio(9)	13.58			13.64
Total risk-based capital ratio(9)	15.44			15.56
Tier 1 leverage ratio(9)	11.59			11.40
Other:
Tangible common equity ratio(10)	11.27		%	10.71		%
Common Equity Tier 1 risk-based capital ratio (U.S. Basel III standardized   approach; fully phased-in)(11)	13.56			13.46

8

MUFG Americas Holdings Corporation and Subsidiaries

Consolidated Financial Highlights (Continued)

(1) Pre-tax, pre-provision income is total revenue less noninterest expense. Management believes that this is a useful financial measure because it enables investors and others to assess the Company's ability to generate capital to cover credit losses through a credit cycle.

(2) Annualized.

(3) The efficiency ratio is total noninterest expense as a percentage of total revenue (net interest income and noninterest income).

(4) The adjusted efficiency ratio, a non-GAAP financial measure, is adjusted noninterest expense (noninterest expense excluding staff costs associated with fees from affiliates - support services, foreclosed asset expense and other credit costs, certain costs related to productivity initiatives, LIHC investment amortization expense, expenses of the LIHC consolidated variable interest entities, merger and business integration costs, privatization-related expenses, intangible asset amortization, and a contract termination fee) as a percentage of adjusted total revenue (net interest income (taxable-equivalent basis) and noninterest income), excluding the impact of fees from affiliates - support services, productivity initiatives related to the sale of certain premises, accretion related to privatization-related fair value adjustments, other credit costs and impairment on private equity investments. Management discloses the adjusted efficiency ratio as a measure of the efficiency of our operations, focusing on those costs most relevant to our business activities. Please refer to Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Noninterest Income and Noninterest Expense" in this Form 10-Q for further information.

(5) Yields, interest income and net interest margin are presented on a taxable-equivalent basis using the federal statutory tax rate of 35%.

(6) Core deposits exclude brokered deposits, foreign time deposits, domestic time deposits greater than $250,000 and certain other deposits not considered to be core customer relationships.

(7) The allowance for loan losses ratios are calculated using the allowance for loan losses as a percentage of end of period total loans held for investment or total nonaccrual loans, as appropriate.

(8) The allowance for credit losses ratios include the allowances for loan losses and for losses on unfunded credit commitments as a percentage of end of period total loans held for investment or total nonaccrual loans, as appropriate.

(9) These capital ratios are calculated in accordance with the transition guidelines set forth in the U.S. federal banking agencies' final U.S. Basel III regulatory capital rules.

(10) The tangible common equity ratio, a non-GAAP financial measure, is calculated as tangible common equity divided by tangible assets. The methodology for determining tangible common equity may differ among companies. The tangible common equity ratio facilitates the understanding of the Company's capital structure and is used to assess and compare the quality and composition of the Company's capital structure to other financial institutions. Please refer to Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Capital Management" in this Form 10-Q for further information.

(11) Common Equity Tier 1 risk-based capital (standardized, fully phased-in basis) is a non-GAAP financial measure that is used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies as if the transition provisions of the U.S. Basel III rules were fully phased in for the periods in which the ratio is disclosed.  Management reviews this ratio, which excludes accumulated other comprehensive loss, along with other measures of capital as part of its financial analyses and has included this non-GAAP information because of current interest in such information by market participants. Refer to Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Capital Management" in this Form 10-Q for further information.

nm = not meaningful

9

Please refer to our Consolidated Financial Statements and the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2015 (2015 Form 10-K) along with the following discussion and analysis of our consolidated financial position and results of operations for the period ended June 30, 2016 in this Form 10-Q. Averages, as presented in the following tables, are substantially all based upon daily average balances.

As used in this Form 10-Q, terms such as “the Company,” “we,” “us” and “our” refer to MUFG Americas Holdings Corporation (MUAH), one or more of its consolidated subsidiaries, or to all of them together.

Introduction

We are a financial holding company and bank holding company whose principal subsidiary is MUFG Union Bank, N.A. (MUB or the Bank). We are owned by BTMU and MUFG. BTMU is a wholly-owned subsidiary of MUFG.

During the fourth quarter of 2015, the management of MUFG Americas announced a realignment of its business model in the Americas, which includes MUAH. The realignment combined the customer base of the Commercial Banking operating segment, including its products and services, into the activities performed within various other segments. As part of this realignment, a Regional Bank operating segment was created, providing a coordinated local delivery model in our western footprint encompassing retail and wealth, and middle market commercial and real estate markets. Additionally, all corporate clients with annual revenues over $500 million, including those previously served within the former Commercial Banking segment, were moved into the newly created U.S. Wholesale Banking segment in order to strengthen our position as a strategic advisor with deep industry coverage and product capability. After the realignment, the Company has four reportable segments: Regional Bank, U.S. Wholesale Banking, Investment Banking & Markets and Transaction Banking.

We service U.S. Wholesale Banking, Investment Banking & Markets, and certain Transaction Banking customers through the MUFG brand and continue to serve Regional Bank and Transaction Banking customers through the Union Bank brand. We provide a wide range of financial services to consumers, small businesses, middle-market companies and major corporations, both nationally and internationally. The Company had consolidated assets of $117.2 billion at June 30, 2016.

The Company’s leadership team is bicoastal with Regional Bank and Transaction Banking leaders on the West Coast while U.S. Wholesale Banking and Investment Banking & Markets leaders are based in New York City. The corporate headquarters (principal executive office) for MUB and MUAH is in New York City. MUB's main banking office is in San Francisco.

References to the privatization transaction in this report refer to the transaction on November 4, 2008, when we became a privately held company. All of our issued and outstanding shares of common stock are owned by BTMU and MUFG.

Executive Overview

We are providing you with an overview of what we believe are the most significant factors and developments that affected our second quarter 2016 results and that could influence our future results. Further detailed information can be found elsewhere in this Form 10-Q. In addition, you should carefully read this entire document and any other reports that we refer to in this Form 10-Q for more detailed information to assist your understanding of trends, events and uncertainties that impact us.

Our sources of revenue are net interest income and noninterest income (collectively “total revenue”). Net interest income is generated predominantly from interest earned from loans, investment securities and other interest-earning assets, less interest incurred on deposits and borrowings. The primary sources of noninterest income are revenues from service charges on deposit accounts, trust and investment management fees, trading account activities, credit facility fees, merchant banking fees and fees from affiliates. Changes in interest rates, credit quality, economic trends and the capital markets are primary factors that affect our revenue sources. In the second quarter of 2016, revenue was comprised of 61% net interest income and 39% noninterest income. A summary of our financial results is discussed below.

Our primary sources of liquidity are core deposits, securities and wholesale funding. Core deposits exclude brokered deposits, foreign time deposits, domestic time deposits greater than $250,000, and certain other deposits not considered to be core customer relationships. Wholesale funding includes unsecured funds

10

raised from interbank and other sources, both domestic and international, and secured funds raised by selling securities under repurchase agreements and by borrowing from the FHLB. We evaluate and monitor the stability and reliability of our various funding sources to help ensure that we have sufficient liquidity when adverse situations arise.

Performance Highlights

Net income attributable to MUAH was $305 million in the second quarter of 2016, an increase of $124 million from the second quarter of 2015, driven by an increase in noninterest income and a lower provision for credit losses. Net income for the six months ended June 30, 2016 was $354 million, an increase of $36 million compared with the prior year period, due to an increase in noninterest income partially offset by an increase in the provision for credit losses. Noninterest income increased $81 million and $141 million during the three and six months ended June 30, 2016, respectively, due to an increase in fees from affiliates and a decrease in FDIC indemnification asset amortization expense, which is included in other noninterest income.

The reversal of provision for credit losses in the second quarter of 2016 was $37 million, compared with a provision of $162 million for the first quarter of 2016, resulting in a provision for credit losses of $125 million for the six months endedJune 30, 2016. The change in the provision for credit losses from the first quarter of 2016 reflects stabilization in the credit quality of the oil and gas sector of our loan portfolio and improving credit quality elsewhere in the commercial portfolio.

Criticized commitments in the PEP portfolio decreased to $2.5 billion at June 30, 2016, compared with $2.7 billion at March 31, 2016 and $2.2 billion at December 31, 2015. The decrease in criticized commitments during the quarter is due in part to transfers to held for sale and charge-offs within our PEP portfolio. During the second quarter of 2016, the Company recorded PEP portfolio charge-offs of $95 million, $51 million of which related to the transfer of certain PEP loans to held for sale. The allowance for credit losses within the PEP portfolio as a percentage of total PEP loan commitments was 7.07% at June 30, 2016, compared with 7.52% at March 31, 2016 and 5.53% at December 31, 2015. PEP loan commitments accounted for approximately 78% of our total oil and gas loan commitments at June 30, 2016, and 77% of PEP loan commitments were collateralized by oil and gas reserves. See "Concentration of Risk" within the "Risk Management" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information about our oil and gas loan exposures.

Capital Ratios

The Company's capital ratios continued to exceed all well-capitalized and minimum regulatory thresholds for BHCs, as applicable. The U.S. Basel III Common Equity Tier 1, Tier 1 and Total risk-based capital ratios were 13.58%, 13.58% and 15.44%, respectively at June 30, 2016. The Tier 1 leverage ratio was 11.59% at June 30, 2016.

Formation of the U.S. Intermediate Holding Company

On July 1, 2016 Mitsubishi UFJ Financial Group, Inc. designated MUAH as its IHC in accordance with the requirements of the U.S. Federal Reserve Board's final rules for Enhanced Prudential Standards and transferred interests in substantially all its U.S. subsidiaries to the IHC. The subsidiaries include MUFG Securities Americas Inc. (formerly Mitsubishi UFJ Securities (USA), Inc.), a registered broker-dealer, and various other non-bank subsidiaries. As a broker-dealer, MUFG Securities Americas Inc. (MUS (USA)) engages in capital markets origination transactions, private placements, collateralized financing, securities borrowing and lending transactions, and domestic and foreign debt and equities securities transactions. The most significant other non-bank subsidiary is engaged in the financing of large equipment and assets through products such as leases, loans and equity investments.

11

The transferred subsidiaries had assets of approximately $31 billion and liabilities of approximately $30 billion at June 30, 2016, consisting substantially of securities borrowed and securities purchased under agreements to resell and securities loaned and securities sold under agreements to repurchase, respectively, reflecting the operations of MUS (USA). Revenues from the transferred subsidiaries were approximately $237 million for the six months endedJune 30, 2016, primarily representing noninterest income. While the Company does not expect its risk-based capital ratios to change significantly, the addition of assets from the transferred entities will decrease the Tier 1 leverage ratio by approximately 2 percent.

The transfer of entities will be accounted for as a combination of entities under common control. Beginning in the third quarter of 2016, MUAH's comparative historical financial statements will be retrospectively adjusted to include the prior period results of the transferred entities. The Company will evaluate the impact of this transfer on MUAH's business segments during the third quarter of 2016.

12

Financial Performance

Net Interest Income

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

	For the Three Months Ended
	June 30, 2016							June 30, 2015
	Average Balance			Interest Income/ Expense(1)		Average Yield/ Rate(1)(2)		Average Balance			Interest Income/ Expense(1)		Average Yield/ Rate(1)(2\)
(Dollars in millions)
Assets
Loans held for investment:(3)
Commercial and industrial(4)	$	30,359		$	243	3.23	%	$	28,107		$	224	3.19	%
Commercial mortgage(4)	15,095			139		3.66		13,859			127		3.65
Construction(4)	2,211			21		3.92		2,045			18		3.62
Lease financing	733			11		5.58		772			10		5.40
Residential mortgage	27,770			230		3.31		28,399			239		3.37
Home equity and other consumer loans	3,473			43		4.96		3,096			33		4.30
Loans, before purchased credit-impaired loans	79,641			687		3.46		76,278			651		3.42
Purchased credit-impaired loans	293			27		36.86		473			50		41.89
Total loans held for investment	79,934			714		3.58		76,751			701		3.66
Securities	23,259			118		2.04		22,915			126		2.20
Interest bearing deposits in banks	1,668			2		0.56		2,275			1		0.26
Federal funds sold and securities purchased under resale agreements	66			—		0.23		69			—		(0.47	)
Trading account assets	152			—		0.40		196			1		0.71
Other earning assets	71			3		7.28		83			—		4.00
Total earning assets	105,150			837		3.19		102,289			829		3.25
Allowance for loan losses	(873		)					(535		)
Cash and due from banks	1,608							1,619
Premises and equipment, net	611							615
Other assets(5)	9,785							8,919
Total assets	$	116,281						$	112,907
Liabilities
Interest bearing deposits:
Transaction and money market accounts	$	37,558		$	29	0.30		$	37,986		$	29	0.31
Savings	5,743			—		0.04		5,588			1		0.06
Time	7,519			20		1.07		8,535			20		0.95
Total interest bearing deposits	50,820			49		0.39		52,109			50		0.39
Commercial paper and other short-term borrowings(6)	2,853			4		0.57		3,826			2		0.21
Long-term debt	11,262			57		2.02		8,855			52		2.34
Total borrowed funds	14,115			61		1.73		12,681			54		1.69
Total interest bearing liabilities	64,935			110		0.68		64,790			104		0.64
Noninterest bearing deposits	32,843							30,038
Other liabilities(7)	2,377							2,626
Total liabilities	100,155							97,454
Equity
MUAH stockholder's equity	15,918							15,238
Noncontrolling interests	208							215
Total equity	16,126							15,453
Total liabilities and equity	$	116,281						$	112,907
Net interest income/spread (taxable-equivalent basis)				727		2.51	%				725		2.61	%
Impact of noninterest bearing deposits						0.23							0.20
Impact of other noninterest bearing sources						0.03							0.03
Net interest margin						2.77							2.84
Less: taxable-equivalent adjustment				7							6
Net interest income				$	720						$	719

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

(2) Annualized.

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

(4) Beginning in the second quarter of 2016, the effect of interest rate hedges on commercial loans were reflected in each loan category. Previously, the entire effect of the interest rate hedges was included in commercial and industrial interest income. Prior period amounts have been reclassified to conform to current presentation.

(5) Includes noninterest bearing trading account assets.

(6) Includes interest bearing trading account liabilities.

(7) Includes noninterest bearing trading account liabilities.

13

	For the Six Months Ended
	June 30, 2016							June 30, 2015
	Average Balance			Interest Income/ Expense(1)		Average Yield/ Rate(1)(2)		Average Balance			Interest Income/ Expense(1)		Average Yield/ Rate(1)(2)
(Dollars in millions)
Assets
Loans held for investment:(3)
Commercial and industrial(4)	$	30,158		$	481	3.21	%	$	28,250		$	435	3.11	%
Commercial mortgage(4)	14,790			272		3.68		13,881			251		3.61
Construction(4)	2,242			44		3.93		1,949			35		3.59
Lease financing	733			19		5.07		774			20		5.25
Residential mortgage	27,568			461		3.34		28,581			486		3.40
Home equity and other consumer loans	3,394			83		4.91		3,099			65		4.26
Loans, before purchased credit-impaired loans	78,885			1,360		3.46		76,534			1,292		3.39
Purchased credit-impaired loans	308			52		33.81		492			88		36.01
Total loans held for investment	79,193			1,412		3.57		77,026			1,380		3.60
Securities	23,383			233		2.00		22,546			232		2.06
Interest bearing deposits in banks	2,034			5		0.54		2,524			3		0.26
Federal funds sold and securities purchased under resale agreements	72			—		0.36		83			—		(0.32	)
Trading account assets	157			—		0.49		196			1		0.71
Other earning assets	181			6		4.34		68			1		3.97
Total earning assets	105,020			1,656		3.16		102,443			1,617		3.17
Allowance for loan losses	(796		)					(539		)
Cash and due from banks	1,656							1,625
Premises and equipment, net	609							618
Other assets(5)	9,585							8,873
Total assets	$	116,074						$	113,020
Liabilities
Interest bearing deposits:
Transaction and money market accounts	$	37,977		$	57	0.30		$	38,845		$	59	0.31
Savings	5,729			1		0.05		5,569			2		0.06
Time	7,548			40		1.07		8,754			41		0.94
Total interest bearing deposits	51,254			98		0.38		53,168			102		0.39
Commercial paper and other short-term borrowings(6)	1,975			5		0.52		3,411			3		0.21
Long-term debt	11,705			122		2.07		8,434			99		2.34
Total borrowed funds	13,680			127		1.85		11,845			102		1.72
Total interest-bearing liabilities	64,934			225		0.69		65,013			204		0.63
Noninterest bearing deposits	32,582							29,944
Other liabilities(7)	2,561							2,687
Total liabilities	100,077							97,644
Equity
MUAH stockholder's equity	15,804							15,154
Noncontrolling interests	193							222
Total equity	15,997							15,376
Total liabilities and equity	$	116,074						$	113,020
Net interest income/spread (taxable-equivalent basis)				1,431		2.47	%				1,413		2.54	%
Impact of noninterest bearing deposits						0.23							0.20
Impact of other noninterest bearing sources						0.03							0.03
Net interest margin						2.73							2.77
Less: taxable-equivalent adjustment				14							11
Net interest income				$	1,417						$	1,402

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

(2) Annualized.

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

(4) Beginning in the second quarter of 2016, the effect of interest rate hedges on commercial loans were reflected in each loan category. Previously, the entire effect of the interest rate hedges was included in commercial and industrial interest income. Prior period amounts have been reclassified to conform to current presentation.

(5) Includes noninterest bearing trading account assets.

(6) Includes interest bearing trading account liabilities.

(7) Includes noninterest bearing trading account liabilities.

14

Net interest income for the three and six months endedJune 30, 2016 increased $1 million and $15 million, respectively, compared with the same periods in 2015 due to increases in average loan balances offset by declines in the net interest margin. Average loan balances increased due to increases in commercial and industrial, commercial mortgage, construction and other consumer loans. These increases were partially offset by decreases in the average residential mortgage balances. Declines in the net interest margin were driven by a decline in PCI loan balances and yields, a decline in yields on residential mortgages and securities, and a shift in the mix of borrowed funds to higher cost long-term debt. Yields on PCI loans decreased due to early payoffs of certain loans in the second quarter of 2015. These declines in the net interest margin were partially offset by the impact of an increase in the average notional amount of receive fixed interest rate swaps used to hedge floating rate commercial loans in the first six months of 2016, which increased net interest income and the net interest margin during the periods. Excluding income on our PCI portfolio, the net interest margin was 2.67% and 2.64% in the three and six months endedJune 30, 2016, respectively, compared with 2.66% and 2.61% in the same prior year periods.

Noninterest Income and Noninterest Expense

The following tables display our noninterest income and noninterest expense for the three and six months endedJune 30, 2016 and 2015:

Noninterest Income

	For the Three Months Ended											For the Six Months Ended
						Increase (Decrease)											Increase (Decrease)
	June 30, 2016			June 30, 2015								June 30, 2016			June 30, 2015
(Dollars in millions)						Amount			Percent								Amount			Percent
Service charges on deposit accounts	$	46		$	49	$	(3	)	(6	)	%	$	95		$	98	$	(3	)	(3	)	%
Trust and investment management fees	30			26		4			15			61			54		7			13
Trading account activities	20			19		1			5			33			27		6			22
Securities gains, net	19			5		14			280			32			8		24			300
Credit facility fees	28			30		(2		)	(7	)		55			60		(5		)	(8	)
Merchant banking fees	23			20		3			15			37			40		(3		)	(8	)
Brokerage commissions and fees	13			14		(1		)	(7	)		26			27		(1		)	(4	)
Card processing fees, net	9			9		—			—			18			17		1			6
Fees from affiliates	239			192		47			24			439			358		81			23
Other investment income	(4		)	9		(13		)	(144	)		(4		)	6		(10		)	(167	)
Other, net	43			12		31			258			69			25		44			176
Total noninterest income	$	466		$	385	$	81		21		%	$	861		$	720	$	141		20		%

Noninterest income increased during the three and six months endedJune 30, 2016 primarily due to increases in fees from affiliates and securities gains, net, and lower FDIC indemnification asset amortization expense, which is included in other, net.

15

For the three and six months endedJune 30, 2016 and 2015, the Company recorded the following income and expenses related to the support services provided as part of the business integration initiative:

	For the Three Months Ended				For the Six Months Ended
(Dollars in millions)	June 30, 2016		June 30, 2015		June 30, 2016		June 30, 2015
Fees from affiliates - support services	$	147	$	134	$	296	$	255
Staff costs associated with fees from affiliates - support services	$	137	$	123	$	276	$	235

The increase in staff costs for support services for the six months endedJune 30, 2016 compared with the six months endedJune 30, 2015 was driven primarily by higher headcount due to regulatory and compliance initiatives, as well as projects to increase operational efficiencies, which also resulted in a corresponding increase in fees from affiliates. The Company also recognized fees from affiliates through revenue sharing agreements with BTMU for various business and banking services, with associated costs included within noninterest expense.

Noninterest Expense

	For the Three Months Ended										For the Six Months Ended
					Increase (Decrease)										Increase (Decrease)
	June 30, 2016		June 30, 2015								June 30, 2016		June 30, 2015
(Dollars in millions)					Amount			Percent							Amount			Percent
Salaries and other compensation	$	441	$	451	$	(10	)	(2	)	%	$	898	$	920	$	(22	)	(2	)	%
Employee benefits	82		104		(22		)	(21	)		168		202		(34		)	(17	)
Salaries and employee benefits	523		555		(32		)	(6	)		1,066		1,122		(56		)	(5	)
Net occupancy and equipment	75		75		—			—			151		155		(4		)	(3	)
Professional and outside services	75		64		11			17			177		141		36			26
Software	37		29		8			28			73		57		16			28
Regulatory assessments	13		14		(1		)	(7	)		27		27		—			—
Intangible asset amortization	6		10		(4		)	(40	)		13		20		(7		)	(35	)
LIHC investment amortization	1		2		(1		)	(50	)		3		4		(1		)	(25	)
Advertising and public relations	7		7		—			—			21		17		4			24
Communications	9		10		(1		)	(10	)		19		20		(1		)	(5	)
Data processing	7		8		(1		)	(13	)		16		15		1			7
Other	57		69		(12		)	(17	)		120		114		6			5
Total noninterest expense	$	810	$	843	$	(33	)	(4	)	%	$	1,686	$	1,692	$	(6	)	—		%

The decreases in noninterest expense for the three and six months endedJune 30, 2016 compared with the three and six months endedJune 30, 2015 were driven primarily by decreases in salaries and employee benefits expense and a contract termination fee in the second quarter of 2015 within other noninterest expense. Salaries and benefits expense declined due to decreases in incentive accruals and pension expense. These decreases were partially offset by increases in professional and outside services expense, related in part to various technology and regulatory compliance initiatives, and increases in software expense.

16

The adjusted efficiency ratio is a non-GAAP financial measure used by management to measure the efficiency of our operations, focusing on those costs management believes to be most relevant to our core business activities. Productivity initiative costs include salaries and benefits associated with operational efficiency enhancements. The following table shows the calculation of this ratio for the three and six months endedJune 30, 2016 and 2015:

	For the Three Months Ended						For the Six Months Ended
(Dollars in millions)	June 30, 2016			June 30, 2015			June 30, 2016			June 30, 2015
Noninterest Expense	$	810		$	843		$	1,686		$	1,692
Less: Staff costs associated with fees from affiliates - support services	137			123			276			235
Less: Foreclosed asset expense and other credit costs	—			—			(1		)	1
Less: Productivity initiative costs	4			2			16			30
Less: LIHC investment amortization expense	2			2			4			4
Less: Expenses of the LIHC consolidated VIEs	11			10			23			18
Less: Merger and business integration costs	5			6			10			15
Less: Net adjustments related to privatization transaction	5			7			10			15
Less: Intangible asset amortization	2			3			5			7
Less: Contract termination fee	—			23			—			23
Noninterest expense, as adjusted (a)	$	644		$	667		$	1,343		$	1,344
Total Revenue	$	1,186		$	1,104		$	2,278		$	2,122
Add: Net interest income taxable-equivalent adjustment	7			6			14			11
Less: Fees from affiliates - support services	147			134			296			255
Less: Productivity initiative gains	—			(1		)	—			—
Less: Accretion related to privatization-related fair value adjustments	3			2			8			3
Less: Other credit costs	(9		)	8			(22		)	4
Less: Impairment on private equity investments	—			—			(12		)	—
Total revenue, as adjusted (b)	$	1,052		$	967		$	2,022		$	1,871
Adjusted efficiency ratio (a)/(b)	61.13		%	69.02		%	66.39		%	71.86		%

Income Tax Expense

Income tax expense and the effective tax rate include both federal and state income taxes. In the second quarter of 2016, income tax expense was $119 million with an effective tax rate of 29%, compared with 29% for the second quarter of 2015. For the six months endedJune 30, 2016, income tax expense was $136 million with an effective tax rate of 29%, compared with 25% in the comparative prior year period. Income tax expense in the first quarter of 2015 was reduced by certain favorable discrete tax adjustments which impacted the effective tax rate.

For further information regarding income tax expense, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Income Tax Expense" in Part II, Item 7. and “Changes in our tax rates could affect our future results” in “Risk Factors” in Part I, Item 1A. and Note 16 to the Consolidated Financial Statements in Part II, Item 8. “Financial Statements and Supplementary Data” in our 2015 Form 10-K.

17

Balance Sheet Analysis

Securities

Our securities portfolio is primarily used for liquidity and interest rate risk management purposes, to invest cash resulting from excess liquidity, and to a lesser extent, to support our business development objectives. We strive to maximize total return while managing this objective within appropriate risk parameters. Securities available for sale are principally comprised of U.S. Treasury securities, RMBS, CMBS, Cash Flow CLOs, and direct bank purchase bonds. Direct bank purchase bonds are instruments that are issued in bond form, accounted for as securities, but underwritten as loans with features that are typically found in commercial loans. Securities held to maturity consist of U.S. Treasury securities, U.S. government-sponsored agency securities, RMBS, and CMBS.

The amortized cost, gross unrealized gains, gross unrealized losses and fair values of securities are detailed in Note 3 to our Consolidated Financial Statements in this Form 10-Q.

Loans Held for Investment

The following table shows loans held for investment outstanding by loan type at the end of each period presented:

					Increase (Decrease)
	June 30, 2016		December 31, 2015
(Dollars in millions)					Amount			Percent
Loans held for investment:
Commercial and industrial	$	29,291	$	29,730	$	(439	)	(1	)%
Commercial mortgage	15,144		13,904		1,240			9
Construction	2,255		2,297		(42		)	(2	)
Lease financing	723		737		(14		)	(2	)
Total commercial portfolio	47,413		46,668		745			2
Residential mortgage	28,244		27,344		900			3
Home equity and other consumer loans	3,459		3,251		208			6
Total consumer portfolio	31,703		30,595		1,108			4
Total loans held for investment, before purchased credit-impaired loans	79,116		77,263		1,853			2
Purchased credit-impaired loans	276		336		(60		)	(18	)
Total loans held for investment	$	79,392	$	77,599	$	1,793		2	%

Loans held for investment increased from December 31, 2015 to June 30, 2016, primarily due to organic loan growth in the commercial mortgage and the residential mortgage loan portfolio.

Cross-Border Outstandings

Our cross-border outstandings reflect certain additional economic and political risks that differ from or are greater than those reflected in domestic outstandings. These risks include, but are not limited to, those arising from exchange rate fluctuations and restrictions on the transfer of funds. Our total cross-border outstandings for Canada, the only country where such outstandings exceeded one percent of total assets, were $1.3 billion and $1.2 billion at June 30, 2016 and December 31, 2015, respectively. The cross-border outstandings are based on category and domicile of ultimate risk and are comprised primarily of loans and trading account assets.

18

Deposits

The table below presents our deposits as of June 30, 2016 and December 31, 2015.

					Increase (Decrease)
	June 30, 2016		December 31, 2015
(Dollars in millions)					Amount			Percent
Interest checking	$	3,978	$	4,514	$	(536	)	(12	)%
Money market	32,898		33,896		(998		)	(3	)
Total interest bearing transaction and money market accounts	36,876		38,410		(1,534		)	(4	)
Savings	5,770		5,687		83			1
Time	7,185		7,780		(595		)	(8	)
Total interest bearing deposits	49,831		51,877		(2,046		)	(4	)
Noninterest bearing deposits	32,861		32,463		398			1
Total deposits	$	82,692	$	84,340	$	(1,648	)	(2	)%
Total interest bearing deposits include the following brokered deposits:
Interest bearing transaction and money market accounts	$	2,564	$	2,976	$	(412	)	(14	)%
Time	2,207		2,512		(305		)	(12	)
Total brokered deposits	$	4,771	$	5,488	$	(717	)	(13	)%
Core Deposits:
Total deposits	$	82,692	$	84,340	$	(1,648	)	(2	)%
Less: total brokered deposits	4,771		5,488		(717		)	(13	)
Less: total foreign deposits and nonbrokered domestic time deposits of over $250,000	2,625		2,758		(133		)	(5	)
Total core deposits	$	75,296	$	76,094	$	(798	)	(1	)%

Total deposits decreased due in part to declines in deposits within our Transaction Banking and Asian Corporate Banking segments. Core deposits as a percentage of total deposits were 91% and 90% at June 30, 2016 and December 31, 2015, respectively.

Capital Management

Both MUAH and MUB are subject to various capital adequacy regulations issued by the federal banking agencies, including requirements to file an annual capital plan and to maintain minimum regulatory capital ratios. As of June 30, 2016, management believes the capital ratios of MUAH and MUB met all regulatory requirements of “well-capitalized” institutions.

The Company timely filed its annual capital plan under the Federal Reserve's CCAR program in April 2016. CCAR evaluates capital planning processes and assesses capital adequacy levels under various scenarios to determine if BHCs would have sufficient capital to continue operations throughout times of economic and financial market stress. The Company's 2016 CCAR submission encompassed a range of expected and stressed economic and financial market scenarios, and included an assessment of expected sources and uses of capital over a prescribed planning horizon, a description of all capital actions within that timeframe, and a discussion of any proposed business plan changes that are likely to have a material impact on capital adequacy. In June 2016, the Company was informed by the Federal Reserve that it did not object to the Company's capital plan. In accordance with regulatory requirements, the Company subsequently disclosed the results of its annual company-run capital stress test.

MUAH and MUB are required to maintain minimum capital ratios in accordance with rules issued by the U.S. federal banking agencies. In July 2013, the U.S. federal banking agencies issued final rules to implement the BCBS capital guidelines for U.S. banking organizations (U.S. Basel III). These rules supersede the U.S. federal banking agencies’ general risk-based capital rules (commonly known as “Basel I”), advanced approaches rules (commonly known as “Basel II”) that are applicable to certain large banking organizations, and leverage rules, and are subject to certain transition provisions. Among other requirements, the U.S. Basel III rules revised

19

the definition of capital; increased minimum capital ratios; introduced a minimum Common Equity Tier 1 capital ratio of 4.5% and a capital conservation buffer of 2.5% (for a total minimum Common Equity Tier 1 capital ratio of 7.0%) and a potential countercyclical buffer of up to 2.5%, which would be imposed by regulators at their discretion if it is determined that a period of excessive credit growth is contributing to an increase in financial institution systemic risk for advanced approaches institutions only; mandated a Tier 1 leverage ratio of 4%; introduced, for large and internationally active BHCs, a Tier 1 SLR that is currently set at 3% and which incorporates off-balance sheet exposures; revised Basel I rules for calculating risk-weighted assets under a standardized approach; modified the existing Basel II advanced approaches rules for calculating risk-weighted assets under U.S. Basel III; and eliminated, for advanced approaches institutions, over a four-year phase-in period beginning on January 1, 2014, the AOCI or loss exclusion that had applied under Basel I and Basel II rules.

As required under U.S. Basel III rules, the 2.5% capital conservation buffer is being implemented on a phased-in basis in equal increments of 0.625% per year over a four-year period that commenced on January 1, 2016. MUAH and MUB would satisfy the minimum capital requirements including the capital conservation buffer on a fully phased-in basis if those requirements were effective as of June 30, 2016.

The following tables summarize the calculation of MUAH’s risk-based capital ratios in accordance with the U.S. Basel III rules as of June 30, 2016 and December 31, 2015.

MUFG Americas Holdings Corporation

	U.S. Basel III
(Dollars in millions)	June 30, 2016		December 31, 2015
Capital Components
Common Equity Tier 1 capital	$	13,233	$	12,920
Tier 1 capital	$	13,233	$	12,923
Tier 2 capital	1,808		1,824
Total risk-based capital	$	15,041	$	14,747
Risk-weighted assets	$	97,412	$	94,775
Average total assets for leverage capital purposes	$	114,215	$	113,364

	U.S. Basel III								Minimum Capital Requirement with Capital Conservation Buffer (1)
(Dollars in millions)	June 30, 2016				December 31, 2015				June 30, 2016
Capital Ratios	Amount		Ratio		Amount		Ratio		Amount			Ratio
Common Equity Tier 1 capital (to risk-weighted assets)	$	13,233	13.58	%	$	12,920	13.63	%	≥	$	4,992	5.125	%
Tier 1 capital (to risk-weighted assets)	13,233		13.58		12,923		13.64		≥	6,454		6.625
Total capital (to risk-weighted assets)	15,041		15.44		14,747		15.56		≥	8,402		8.625
Tier 1 leverage(2)	13,233		11.59		12,923		11.40		≥	4,569		4.000

(1)Beginning January 1, 2016, the minimum capital requirement includes a capital conservation buffer of 0.625%.

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

20

The following tables summarize the calculation of MUB’s risk-based capital ratios in accordance with the transition guidelines set forth in the U.S. Basel III rules as of June 30, 2016 and December 31, 2015.

MUFG Union Bank, N.A.

	U.S. Basel III
(Dollars in millions)	June 30, 2016		December 31, 2015
Capital Components
Common Equity Tier 1 capital	$	12,645	$	12,384
Tier 1 capital	$	12,645	$	12,384
Tier 2 capital	1,630		1,619
Total risk-based capital	$	14,275	$	14,003
Risk-weighted assets	$	95,265	$	93,930
Average total assets for leverage capital purposes	$	112,706	$	112,243

	U.S. Basel III								Minimum Capital Requirement with Capital Conservation Buffer (1)					To Be Well-Capitalized Under Prompt Corrective Action Provisions
(Dollars in millions)	June 30, 2016				December 31, 2015				June 30, 2016					June 30, 2016
Capital Ratios	Amount		Ratio		Amount		Ratio		Amount			Ratio		Amount			Ratio
Common Equity Tier 1 capital (to risk-weighted assets)	$	12,645	13.27	%	$	12,384	13.18	%	≥	$	4,882	5.125	%	≥	$	6,192	6.5	%
Tier 1 capital (to risk-weighted assets)	12,645		13.27		12,384		13.18		≥	6,311		6.625		≥	7,621		8.0
Total capital (to risk-weighted assets)	14,275		14.98		14,003		14.91		≥	8,217		8.625		≥	9,527		10.0
Tier 1 leverage(2)	12,645		11.22		12,384		11.03		≥	4,508		4.000		≥	5,635		5.0

(1)Beginning January 1, 2016, the minimum capital requirement includes a capital conservation buffer of 0.625%.

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

21

In addition to capital ratios determined in accordance with regulatory requirements, we consider the tangible common equity ratio when evaluating capital utilization and adequacy. This capital ratio is monitored by management, and presented below, to further facilitate the understanding of our capital structure and for use in assessing and comparing the quality and composition of the Company’s capital structure to other financial institutions. This ratio is not codified within GAAP or federal banking regulations in effect at June 30, 2016. Therefore, it is considered a non-GAAP financial measure. Our tangible common equity ratio calculation method may differ from those used by other financial services companies.

The following table summarizes the calculation of the Company's tangible common equity ratios as of June 30, 2016 and December 31, 2015:

	June 30, 2016			December 31, 2015
(Dollars in millions)
Total MUAH stockholder's equity	$	16,179		$	15,461
Goodwill	(3,225		)	(3,225		)
Intangible assets, except mortgage servicing rights	(175		)	(190		)
Deferred tax liabilities related to goodwill and intangible assets	48			39
Tangible common equity (a)	$	12,827		$	12,085
Total assets	$	117,156		$	116,216
Goodwill	(3,225		)	(3,225		)
Intangible assets, except mortgage servicing rights	(175		)	(190		)
Deferred tax liabilities related to goodwill and intangible assets	48			39
Tangible assets (b)	$	113,804		$	112,840
Tangible common equity ratio (a)/(b)	11.27		%	10.71		%

The Company’s fully phased-in Common Equity Tier 1 capital ratio calculated under the U.S. Basel III standardized approach at June 30, 2016 and December 31, 2015 was estimated to be 13.56% and 13.46%, respectively. Management believes that the Company would satisfy all capital adequacy requirements under the U.S. Basel III rules on a fully phased-in basis if those requirements had been effective at both June 30, 2016 and December 31, 2015.

The following tables summarize the calculation of the Company's fully phased-in Common Equity Tier 1 capital to total risk-weighted assets ratio under the U.S. Basel III standardized approach as of June 30, 2016 and December 31, 2015:

Common Equity Tier 1 capital under U.S. Basel III (standardized approach; fully phased-in)
	June 30, 2016			December 31, 2015
(Dollars in millions)	(Estimated)			(Estimated)
Common Equity Tier 1 capital under U.S. Basel III (transitional)	$	13,233		$	12,920
Other	(38		)	(61		)
Common Equity Tier 1 capital estimated under U.S. Basel III (standardized approach; fully phased-in) (a)	$	13,195		$	12,859
Risk-weighted assets, estimated under U.S. Basel III (standardized; transitional)	$	97,412		$	94,775
Adjustments	(118		)	756
Total risk-weighted assets, estimated under U.S. Basel III (standardized approach; fully phased-in) (b)	$	97,294		$	95,531
Common Equity Tier 1 capital to total risk-weighted assets estimated under U.S. Basel III (standardized approach; fully phased-in) (1) (a)/(b)	13.56		%	13.46		%

(1) Common Equity Tier 1 risk-based capital (standardized, fully phased-in basis) is a non-GAAP financial measure that is used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies as if the transition provisions of the U.S. Basel III rules were fully phased-in for the period in which the ratio is disclosed.  Management reviews this ratio, which excludes components of accumulated other comprehensive loss, along with other measures of capital as part of its financial analyses and has included this non-GAAP information, and the corresponding reconciliation from Common Equity Tier 1 capital (calculated according to the transition provisions under U.S. Basel III rules) because of current interest in such information by market participants.

22

Risk Management

All financial institutions must manage and control a variety of business risks that can significantly affect their financial condition and performance. Some of the key risks that the Company must manage include credit, market, liquidity, operational, interest rate, compliance, reputation and strategic risks. The Board, directly or through its appropriate committee, provides oversight and approves our various risk management policies. Management has established a risk management structure that is designed to provide a comprehensive approach for identifying, measuring, monitoring, controlling and reporting on the significant risks faced by the Company. For additional information regarding our risk management structure and framework, refer to the section “Risk Management” included in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2015 Form 10-K.

Credit Risk Management

One of our principal business activities is the extension of credit to individuals and businesses. Our policies and the applicable laws and regulations governing the extension of credit require risk analysis, including an extensive evaluation of the purpose of the request and the borrower’s ability and willingness to repay as scheduled. Our process also includes ongoing portfolio and credit management through portfolio diversification, lending limit constraints, credit review and approval policies, and extensive internal monitoring. For additional information regarding our credit risk management policies, refer to the section “Credit Risk Management” included in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2015 Form 10-K.

Allowance for Credit Losses

We maintain an allowance for credit losses (defined as both the allowance for loan losses and the allowance for losses on unfunded credit commitments) to absorb losses inherent in the loan portfolio as well as for unfunded credit commitments. Understanding our policies on the allowance for credit losses is fundamental to understanding our consolidated financial condition and consolidated results of operations. Accordingly, our significant accounting policies on the allowance for credit losses are discussed in detail in Note 1 to our Consolidated Financial Statements in Part II, Item 8. “Financial Statements and Supplementary Data” and in the section “Allowance for Credit Losses” included in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2015 Form 10-K. For additional information regarding our allowance for loan losses, refer to Note 4 of our Consolidated Financial Statements in Part I, Item 1. “Financial Statements” of this Form 10-Q.

The allowance for loan losses was $747 million at June 30, 2016 compared with $721 million at December 31, 2015. Our ratio of allowance for loan losses to total loans held for investment was 0.94% as of June 30, 2016 and 0.93% as of December 31, 2015. The reversal of provision for loan losses was $34 million for the three months ended June 30, 2016compared with a provision of $158 million for the first quarter of 2016, resulting in a provision for loan losses of $124 million for the six months ended June 30, 2016. The change in the provision for loan losses from the first quarter of 2016 reflects stabilization in the credit quality of the oil and gas sector of our loan portfolio and improving credit quality elsewhere in the commercial portfolio. Net loans charged-off for the three months ended June 30, 2016 totaled $98 million, substantially comprised of PEP loans, including $51 million of charge-offs related to the transfer of $241 million of PEP loans to held for sale. Net loans charged-off to average total loans held for investment were 0.49% for the three months ended June 30, 2016 compared with 0.10% for the three months ended June 30, 2015.

The unallocated allowance for loan losses at June 30, 2016 decreased $20 million from December 31, 2015 due to precipitation in California bringing moderate relief to drought conditions.

Nonaccrual loans were $632 million at June 30, 2016 compared with $956 million at March 31, 2016 and $552 million at December 31, 2015. Our ratio of nonaccrual loans to total loans held for investment was 0.80% at June 30, 2016, 1.21% at March 31, 2016 and 0.71% at December 31, 2015. Our ratio of allowance for loan losses to nonaccrual loans was 118.24% at June 30, 2016, 91.99% at March 31, 2016, and 130.53% at December 31, 2015. Criticized loans outstanding in our PEP portfolio decreased to $1.6 billion at June 30, 2016 compared with$1.7 billion at March 31, 2016, and were $1.2 billion at December 31, 2015. The decrease in

23

criticized loans outstanding during the second quarter is primarily due to the transfer of PEP loans from held for investment to held for sale, charge-offs of PEP loans held for investment, and pay downs. Although credit quality of the PEP portfolio as a whole stabilized during the quarter, certain PEP credits migrated to criticized during the quarter, partially offsetting these decreases in PEP criticized loans outstanding. For further discussion see Part I, Item 1A. "Risk Factors - Adverse economic factors affecting certain industries we serve could adversely affect our business" and Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Concentration of Risk" in our 2015 Form 10-K. Criticized credits are those that have regulatory risk ratings of “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. Adversely classified credits are those that are internally risk rated as substandard or doubtful. Substandard credits have well-defined weaknesses, which, if not corrected, could jeopardize the full collection of the debt. A credit classified as doubtful has critical weaknesses that make full collection improbable on the basis of currently existing facts and conditions.

Change in the Allowance for Loan Losses

The following table sets forth a reconciliation of changes in our allowance for loan losses:

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(Dollars in millions)	2016			2015			2016			2015
Allowance for loan losses, beginning of period	$	879		$	530		$	721		$	537
(Reversal of) provision for loan losses	(34		)	26			124			23
Other	—			—			4			(1		)
Loans charged-off:
Commercial and industrial	(46		)	(12		)	(54		)	(13		)
Commercial and industrial - transfer to held for sale	(51		)	—			(51		)	—
Commercial mortgage	—			(1		)	—			(4		)
Total commercial portfolio	(97		)	(13		)	(105		)	(17		)
Residential mortgage	—			—			1			(1		)
Home equity and other consumer loans	(2		)	(3		)	(4		)	(5		)
Total consumer portfolio	(2		)	(3		)	(3		)	(6		)
Purchased credit-impaired loans	—			(8		)	—			(8		)
Total loans charged-off	(99		)	(24		)	(108		)	(31		)
Recoveries of loans previously charged-off:
Commercial and industrial	1			3			2			7
Commercial mortgage	—			—			3			—
Total commercial portfolio	1			3			5			7
Home equity and other consumer loans	—			1			1			1
Total consumer portfolio	—			1			1			1
Total recoveries of loans previously charged-off	1			4			6			8
Net loans recovered (charged-off)	(98		)	(20		)	(102		)	(23		)
Ending balance of allowance for loan losses	747			536			747			536
Allowance for losses on unfunded credit commitments	166			147			166			147
Total allowance for credit losses	$	913		$	683		$	913		$	683

Nonperforming Assets

Nonperforming assets consist of nonaccrual loans and OREO. Nonaccrual loans are those for which management has discontinued accrual of interest because there exists significant uncertainty as to the full and timely collection of either principal or interest, or such loans have become contractually past due 90 days with respect to principal or interest. OREO includes property where the Bank acquired title through foreclosure or “deed in lieu” of foreclosure. For a more detailed discussion of the accounting for nonaccrual loans, see Note 1

24

to our Consolidated Financial Statements included in Part II, Item 8. “Financial Statements and Supplementary Data” in our 2015 Form 10-K.

The following table sets forth the components of nonperforming assets and TDRs:

	June 30, 2016		December 31, 2015		Increase (Decrease)
(Dollars in millions)					Amount			Percent
Nonaccrual loans:
Commercial and industrial	$	396	$	284	$	112		39	%
Commercial mortgage	26		37		(11		)	(30	)
Total commercial portfolio	422		321		101			31
Residential mortgage	177		190		(13		)	(7	)
Home equity and other consumer loans	28		35		(7		)	(20	)
Total consumer portfolio	205		225		(20		)	(9	)
Total nonaccrual loans, before purchased credit-impaired loans	627		546		81			15
Purchased credit-impaired loans	5		6		(1		)	(17	)
Total nonaccrual loans	632		552		80			14
OREO	16		21		(5		)	(24	)
Total nonperforming assets	$	648	$	573	$	75		13	%
Troubled debt restructurings:
Accruing	$	245	$	413	$	(168	)	(41	)%
Nonaccruing (included in total nonaccrual loans above)	$	390	$	409	$	(19	)	(5	)%
Total troubled debt restructurings	$	635	$	822	$	(187	)	(23	)%

Total nonperforming assets as of June 30, 2016 were $648 million, or 0.55% of total assets, compared with $573 million, or 0.49% of total assets, at December 31, 2015.

Troubled Debt Restructurings

TDRs are loans where we have granted a concession to a borrower as a result of the borrower experiencing financial difficulty and, consequently, we receive less than the current market-based compensation for loans with similar risk characteristics. Such loans are reviewed for impairment either individually or in pools with similar risk characteristics. Our loss mitigation strategies are designed to minimize economic loss and, at times, may result in changes to the original terms, including interest rate changes, maturity extensions, principal paydowns, covenant waivers or changes, payment deferrals, or some combination thereof. We evaluate whether these changes to the terms and conditions of our loans meet the TDR criteria after considering the specific situation of the borrower and all relevant facts and circumstances related to the modification. For our consumer portfolio segment, TDRs are typically initially placed on nonaccrual and a minimum of six consecutive months of sustained performance is required before returning to accrual status. For our commercial portfolio segment, we generally determine accrual status for TDRs by performing an individual assessment of each loan, which may include, among other factors, borrower performance under previous loan terms.

Modifications of PCI loans that are accounted for within loan pools do not result in the removal of these loans from the pool even if the modification would otherwise be considered a TDR. Each pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. Accordingly, modifications of loans within such pools are not considered TDRs.

25

The following table provides a summary of TDRs by loan type, including nonaccrual loans and loans that have been returned to accrual status, as of June 30, 2016 and December 31, 2015. Refer to Note 4 to our Consolidated Financial Statements in Part I, Item 1. "Financial Statements" in this Form 10-Q for more information.

					As a Percentage of Ending Loan Balances
(Dollars in millions)	June 30, 2016		December 31, 2015		June 30, 2016		December 31, 2015
Commercial and industrial	$	333	$	499	1.14	%	1.68	%
Commercial mortgage	15		16		0.10		0.11
Total commercial portfolio	348		515		0.73		1.10
Residential mortgage	256		276		0.91		1.01
Home equity and other consumer loans	31		31		0.90		0.97
Total consumer portfolio	287		307		0.91		1.01
Total restructured loans, excluding purchased credit-impaired loans	$	635	$	822	0.80	%	1.06	%

Loans 90 Days or More Past Due and Still Accruing

Loans held for investment 90 days or more past due and still accruing totaled $2 million at June 30, 2016 and December 31, 2015. These amounts exclude PCI loans, which are generally accounted for within loan pools, of $16 million at June 30, 2016 and December 31, 2015. The past due status of individual loans included within PCI loan pools is not a meaningful indicator of credit quality, as potential credit losses are measured at the loan pool level against prior expectations of cash flow performance.

Concentration of Risk

Commercial and industrial loans are extended principally to corporations, middle-market businesses and small businesses and are originated primarily through our commercial banking offices. Our commercial and industrial portfolio is comprised largely of the following industry sectors: finance and insurance, real estate and leasing, power and utilities, oil and gas, and manufacturing. No individual industry sector exceeded 10% of our total loans held for investment at either June 30, 2016 or December 31, 2015.

The Company's credit exposure within the oil and gas industry is substantially all within its commercial loan portfolio. To a much smaller extent, the Company also holds private equity investments issued by entities within the oil and gas industry. The following tables provide further information on the sectors within our oil and gas loan portfolio:

	June 30, 2016				December 31, 2015
Oil and Gas Portfolio Sectors	Percentage of Loan Commitments		Percentage of Loans Outstanding		Percentage of Loan Commitments		Percentage of Loans Outstanding
Petroleum exploration and production	78	%	86	%	78	%	81	%
Transportation	11		10		11		14
Service	3		2		2		3
Other	8		2		9		2

26

	June 30, 2016						March 31, 2016						December 31, 2015
(Dollars in millions)	Total		Criticized		Nonaccrual		Total		Criticized		Nonaccrual		Total		Criticized		Nonaccrual
Total Oil and Gas Portfolio
Loan commitments	$	5,787	$	2,541	$	253	$	6,832	$	2,713	$	547	$	7,351	$	2,156	$	175
Loans outstanding(1)	2,835		1,577		253		3,536		1,709		547		3,654		1,226		175
Allowance for credit losses	326						424						329
Allowance for loan losses	290						392						297
Petroleum Exploration and Production Sector of Portfolio
Loan commitments	$	4,529	$	2,541	$	253	$	5,519	$	2,701	$	547	$	5,768	$	2,156	$	175
Loans outstanding(1)	2,434		1,577		253		3,080		1,705		547		2,943		1,226		175
Allowance for credit losses	320						415						319
Allowance for loan losses	287						386						291

(1) Excludes loans held for sale. Loans held for sale are accounted for at lower of aggregate cost or fair value, with valuation changes included as adjustments to noninterest income.

As of June 30, 2016 and December 31, 2015, approximately 77% and 82%, respectively, of our PEP portfolio was comprised of reserve-based commitments. Reserve-based lending typically consists of loans collateralized with oil and gas reserves. The Company periodically resets its forward-looking view of oil and natural gas prices used to calculate a borrower's reserve value as part of its assessment of the commitment amount.

As of June 30, 2016 and December 31, 2015, approximately 74% and 75%, respectively, of our oil and gas commitments consisted of Shared National Credits, which are loans or commitments with a total size of $20 million or more that are shared among three or more unaffiliated banks. We were the lead agent for 25% and 27% of these commitments as of June 30, 2016 and December 31, 2015, respectively. Second lien and junior commitments were de minimis at June 30, 2016.

The allowance for loan losses for the oil and gas sector is primarily comprised of a segment attribution and formulaic reserves based on internal ratings. Charge-offs within the oil and gas portfolio were $95 million and $101 million for the three and six months endedJune 30, 2016, respectively, and de minimis for the three and six months endedJune 30, 2015. The Company manages risk on this portfolio by proactively risk rating and downgrading loans based on revised cash flow expectations and collateral assessments.

Construction and commercial mortgage loans are secured by deeds of trust or mortgages. Construction loans are extended primarily to commercial property developers and to residential builders. At June 30, 2016, 54% of the Company’s construction loan portfolio was concentrated in California, 12% to borrowers in the state of New York and 6% to borrowers in the state of Washington. The commercial mortgage loan portfolio consists of loans secured by commercial income properties. At June 30, 2016, 66% of the Company’s commercial mortgage loans were made to borrowers located in California, 7% to borrowers in the state of Washington and 6% to borrowers in New York.

Residential mortgage loans are originated and secured by one-to-four family residential properties, through our multiple channel network, including branches, private bankers, mortgage brokers, telephone services and web-based and mobile internet banking applications. We do not have a program for originating or purchasing subprime loan products and we hold the majority of the loans we originate.

At June 30, 2016, payment terms on 43% of our residential mortgage loans required a monthly payment that covers the full amount of interest due, but did not reduce the principal balance. At origination, these interest-only loans had strong credit profiles and had weighted average LTV ratios of approximately 66%. The remainder of the portfolio consisted of regularly amortizing loans.

Home equity and other consumer loans are originated principally through our branch network and Private Banking offices. Approximately 33% of the home equity loans and lines were supported by first liens on residential

27

properties as of June 30, 2016 and December 31, 2015. To manage risk associated with lending commitments, we review all equity-secured lines annually for creditworthiness and may reduce or freeze limits, to the extent permitted by laws and regulations. See Note 4 to our Consolidated Financial Statements in Part I, Item 1. “Financial Statements” in this Form 10-Q for additional information on refreshed FICO scores and refreshed LTV ratios for our residential mortgage loans at June 30, 2016 and December 31, 2015.

As of June 30, 2016, our sovereign and non-sovereign debt exposure to European countries was not material.

Market Risk Management

The objective of market risk management is to mitigate any adverse impact on earnings and capital arising from changes in interest rates and other market variables. Market risk management supports our broad objective of enhancing shareholder value, which encompasses the achievement of stable earnings growth while promoting capital stability over time. Market risk is defined as the risk of loss arising from an adverse change in the market value of financial instruments caused by fluctuations in market prices or rates. The primary market risk to which we are exposed is interest rate risk. Substantially all of our interest rate risk arises from instruments, positions and transactions entered into for purposes other than trading. These include loans, securities, deposits, borrowings and derivative instruments. To a much lesser degree, we are exposed to market risk in our trading portfolio, which is primarily composed of derivative contracts the Company enters into as a financial intermediary for customers.

Market Risk Governance

The MRM Policy, adopted by the Risk Committee of the Board of Directors, governs the Company’s management and oversight of market risk. The MRM Policy establishes the Company’s risk tolerance by outlining standards for measuring market risk, creates Board-level limits for specific market risks, establishes MRMC responsibilities and oversight of market risk activities.

ARC, composed of selected senior officers of the Company, supports the MRM Policy setting process by striving to ensure that the Company has an effective process to identify, monitor, measure and manage market risk as required by the MRM Policy. ARC provides broad and strategic guidance for market risk management by defining the risk and return direction for the Company. MRMC approves the trading policies that govern the Company’s activities. ALCO is responsible for the approval of specific market risk management programs, including those related to interest rate hedging, investment securities and wholesale funding.

The Treasurer is primarily responsible for the implementation of market risk management strategies approved by ALCO and for operational management of market risk, as defined above, through the funding, investment and derivatives hedging activities of Corporate Treasury. The Company's Investment Banking & Markets segment is responsible for managing price risk through its trading activities. The MRM unit is responsible for the monitoring of market risk and functions independently of all operating and management units.

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

Interest Rate Risk Management (Other Than Trading)

ALCO monitors interest rate risk on a monthly basis through a variety of modeling techniques that are used to quantify the sensitivity of net interest income to changes in interest rates. Our net interest income sensitivity analysis typically involves a simulation in which we estimate the net interest income impact of gradual parallel shifts in the yield curve of up 200 basis points and down 100 basis points over a 12-month horizon using a forecasted balance sheet.

28

Net Interest Income Sensitivity

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

(Dollars in millions)	June 30, 2016			December 31, 2015
Effect on net interest income:
Increase 200 basis points	$	86.8		$	56.6
as a percentage of base case net interest income	2.99		%	1.92		%
Decrease 100 basis points	$	(70.7	)	$	(40.4	)
as a percentage of base case net interest income	(2.44		)%	(1.37		)%

An increase in rates increases net interest income. During the six months endedJune 30, 2016, the Company's asset sensitive profile increased due to changes in both the current balance sheet composition and forecasted balance sheet activity over the next twelve months. We believe that our simulation provides management with a comprehensive view of the sensitivity of net interest income to changes in interest rates over the measurement horizon. However, as with any financial model, the underlying assumptions are inherently uncertain and subject to refinement. In particular, two significant models used in interest rate risk measurement address residential mortgage prepayment speeds and non-maturity deposit rate and balance behaviors. The mortgage prepayment model is periodically calibrated to reflect changes in customer behavior. Model performance may be adversely affected by rapid changes in interest rates, home prices and the credit environment. The deposit model uses the Company’s historical deposit pricing to forecast future deposit pricing in its scenarios. Management’s response to future rate scenarios may deviate from historic responses as the 2008 financial crisis may have changed future competitive responses and customer behaviors with respect to deposit repricing. Actual results may differ from those derived in the simulation analysis due to unexpected market events, unanticipated changes in customer behavior, market interest rates, product pricing, and investment, funding and hedging activities.

Investment Securities

Our ALM securities portfolio includes both securities available for sale and securities held to maturity. At June 30, 2016 and December 31, 2015, our ALM securities portfolio fair values were $21.8 billion and $22.9 billion, respectively.

Our ALM securities portfolio is comprised of RMBS, Cash Flow CLOs, CMBS, U.S. Treasury securities and government-sponsored agency securities. The portfolio had an expected weighted average life of 3.8 years at June 30, 2016. At June 30, 2016, approximately $0.7 billion of the portfolio was pledged to secure trust and public deposits and for other purposes as required or permitted by law. During the second quarter of 2016, we purchased $1.7 billion and sold $1.2 billion of securities, as part of our investment portfolio strategy, while $1.0 billion of ALM securities matured, were paid down, or were called.

Based on current prepayment projections, the estimated ALM securities portfolio’s effective duration was 2.5 years at June 30, 2016, compared with 3.4 years at December 31, 2015. Effective duration is a measure of price sensitivity of a bond portfolio to immediate parallel shifts in interest rates. An effective duration of 2.5 years suggests an expected price decrease of approximately 2.5% for an immediate 1.0% parallel increase in interest rates.

In addition to our ALM securities, our securities available for sale portfolio includes approximately $1.6 billion of direct bank purchase bonds that are largely managed within our Regional Bank and U.S. Wholesale Banking operating segments. These instruments are accounted for as securities, but underwritten as loans with terms that are closely aligned with traditional commercial loan features, and are subject to national bank regulatory lending authority standards. These instruments typically are not issued in bearer form, nor are they registered with the SEC or the Depository Trust Company. Additionally, these instruments generally contain certain transferability restrictions and are not assigned external credit ratings. 

29

ALM and Other Risk Management Derivatives

Since December 31, 2015, the notional amount of the ALM derivatives portfolio decreased by $1.1 billion as we added $3.0 billion and terminated $4.1 billion total receive fixed interest rate swap contracts to hedge floating rate commercial loans. The gross positive fair value of ALM derivatives increased during the six months ended June 30, 2016 primarily as a result of changes in interest rate swap rates.

Other risk management derivatives are primarily used to manage non-interest rate related risks. For additional discussion of derivative instruments and our hedging strategies, see Note 9 to our Consolidated Financial Statements in Part I, Item 1. “Financial Statements” of this Form 10-Q and Note 11 to our Consolidated Financial Statements in Part II, Item 8. “Financial Statements and Supplementary Data” in our 2015 Form 10-K.

(Dollars in millions)	June 30, 2016			December 31, 2015		Increase (Decrease)
Total gross notional amount of ALM and other risk management derivatives
ALM derivatives:
Interest rate swap receive fixed contracts	$	14,700		$	15,750	$	(1,050	)
Total ALM derivatives	14,700			15,750		(1,050		)
Other risk management derivatives	324			251		73
Total ALM and other risk management derivatives	$	15,024		$	16,001	$	(977	)
Fair value of ALM and other risk management derivatives
ALM derivatives:
Gross positive fair value	$	344		$	73	$	271
Gross negative fair value	—			14		(14		)
Positive (negative) fair value of ALM derivatives, net	344			59		285
Other risk management derivatives:
Gross positive fair value	3			5		(2		)
Gross negative fair value	8			2		6
Positive (negative) fair value of other risk management derivatives, net	(5		)	3		(8		)
Positive (negative) fair value of ALM and other risk management derivatives, net	$	339		$	62	$	277

Trading Activities

We enter into trading account activities primarily as a financial intermediary for customers. By acting as a financial intermediary, we are able to provide our customers with access to a range of products from the securities, foreign exchange and derivatives markets. We generally take offsetting positions in these transactions to mitigate our exposure to market risk.

We utilize a combination of position limits, VaR, and stop-loss limits, applied at an aggregated level and to various sub-components within those limits. Positions are controlled and reported both in notional and VaR terms. Our calculation of VaR estimates how high the loss in fair value might be, at a 99% confidence level, due to an adverse shift in market prices over a period of ten business days. VaR at the trading activity level is managed within the maximum limit of $6 million established by Board policy for total trading positions. The VaR model incorporates assumptions on key parameters, including holding period and historical volatility.

Consistent with our business strategy of focusing on the sale of capital markets products to customers, we manage our trading risk exposures at relatively low levels. Our foreign exchange business continues to derive the majority of its revenue from customer-related transactions. Similarly, we continue to generate most of our securities trading income from customer-related transactions.

As of June 30, 2016, notional amounts held for customer accommodation purposes were comprised of $117.1 billion of interest rate derivative contracts, $6.1 billion of foreign exchange derivative contracts and $2.7 billion of commodity derivative contracts. Notional amounts at June 30, 2016 also included $1.0 billion, $0.8 billion and $2.9 billion of foreign exchange, commodity and equity contracts, respectively, representing our exposure to the embedded bifurcated derivatives and the related hedges contained in our market-linked CDs.

30

The following table provides the notional value and the fair value of our trading derivatives portfolio as of June 30, 2016 and December 31, 2015, and the change in fair value between June 30, 2016 and December 31, 2015:

(Dollars in millions)	June 30, 2016		December 31, 2015		Increase (Decrease)
Total gross notional amount of positions held for trading purposes:
Interest rate contracts	$	117,067	$	100,932	$	16,135
Commodity contracts	3,482		3,775		(293		)
Foreign exchange contracts(1)	7,120		5,043		2,077
Equity contracts	2,923		3,351		(428		)
Total	$	130,592	$	113,101	$	17,491
Fair value of positions held for trading purposes:
Gross positive fair value	$	2,258	$	1,749	$	509
Gross negative fair value	2,095		1,630		465
Positive fair value of positions, net	$	163	$	119	$	44

(1) Excludes spot contracts with a notional amount of $0.4 billion and $0.5 billion at June 30, 2016 and December 31, 2015, respectively.

Liquidity Risk Management

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

The management of liquidity risk is governed by the ALM Policy under the oversight of ALCO and the Audit & Finance Committee of the Board. ALCO oversees liquidity risk management activities.  Corporate Treasury formulates the liquidity and contingency planning strategies for the Company and the Bank and is responsible for identifying, managing and reporting on liquidity risk. MRM partners with Corporate Treasury to establish sound policies and effective risk and independent monitoring controls. We are also subject to a Contingency Funding Plan that identifies actions to be taken to help ensure adequate liquidity if an event should occur that disrupts or adversely affects the normal funding activities of the Company or the Bank.

Liquidity risk is managed using a total balance sheet perspective that analyzes all sources and uses of liquidity including loans, investments, deposits and borrowings, as well as off-balance sheet exposures. Management does not rely on any one source of liquidity and manages availability in response to changing balance sheet needs. Various tools are used to measure and monitor liquidity, including pro-forma forecasting of the sources and uses of cash flows over a 12-month time horizon, stress testing of the pro-forma forecast and assessment of the Bank’s capacity to raise incremental unsecured and secured funding. Stress testing, which incorporates both bank-specific, and systemic market scenarios, as well as a combination scenario that adversely affects the Bank’s liquidity position and profile, facilitates the identification of appropriate remedial measures to help ensure that the Bank maintains adequate liquidity in adverse conditions. Such measures may include extending the maturity profile of liabilities, optimizing liability levels through pricing strategies, adding new funding sources, altering dependency on certain funding sources and financing or selling assets.

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

Core deposits, which exclude brokered deposits, foreign time deposits, domestic time deposits greater than $250,000, and certain other deposits not considered to be core customer relationships, provide us with a

31

sizable source of relatively stable and low-cost funds. At June 30, 2016, our core deposits totaled $75.3 billion and our total loan-to-total core deposit ratio was 105.4%. Total deposits were down$1.6 billion from $84.3 billion at December 31, 2015 to $82.7 billion at June 30, 2016. The decrease in deposits is due in part to declines in deposits within our Transaction Banking and Asian Corporate Banking segments. In conjunction with expected shifts in total deposits, the Company increased wholesale funding by $1.5 billion to $17.0 billion at June 30, 2016 from $15.5 billion at December 31, 2015.

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

• The Bank has secured borrowing facilities with the FHLB of San Francisco and the Federal Reserve Bank. As of June 30, 2016, the Bank had $4.1 billion of short-term borrowings outstanding with the FHLB of San Francisco, and the Bank had a remaining combined unused borrowing capacity from the FHLB of San Francisco and the Federal Reserve Bank of $28.8 billion.  

• Our securities portfolio provides liquidity through either securities sales or repurchase agreements. Total unpledged securities increased by $0.8 billion to $21.1 billion at June 30, 2016 from $20.3 billion at December 31, 2015. 

• The Bank has a $12.0 billion unsecured bank note program. Available funding under the bank note program was $5.9 billion at June 30, 2016. We do not have any firm commitments in place to sell additional notes under this program.

• The Company has direct access to the capital markets through a $3.6 billion shelf registration statement with the SEC. In February 2015, MUAH issued an aggregate of $2.2 billion of senior notes from the shelf registration statement. As of June 30, 2016, $1.4 billion of debt or other securities were available for issuance. We do not have any firm commitments in place to sell additional securities under this shelf registration statement. 

• MUAH has access to a $500 million, three-year unsecured committed line of credit from BTMU, which is available for contingent liquidity purposes.

We believe that these sources provide a stable funding base. As a result, we have not historically relied on BTMU for our normal funding needs. However, from time to time the Company may issue long-term debt to BTMU. As of June 30, 2016, total long-term debt issued to BTMU was $4.6 billion.

Our costs and ability to raise funds in the capital markets are influenced by our credit ratings. The following table provides our credit ratings as of June 30, 2016:

		MUFG Union Bank, N.A.		MUFG Americas Holdings Corporation
		Deposits	Senior Debt	Senior Debt
Standard & Poor's	Long-term	—	A+	A
	Short-term	—	A-1	A-1
Moody's	Long-term	Aa2	A2	A3
	Short-term	P-1	P-1	—
Fitch	Long-term	A+	A	A
	Short-term	F1	F1	F1

For further information, including information about rating agency assessments, see “The Bank of Tokyo-Mitsubishi UFJ’s and Mitsubishi UFJ Financial Group’s credit ratings and financial or regulatory condition could adversely affect our operations” and "Our credit ratings are important in order to maintain liquidity" in Part I, Item 1A. "Risk Factors" in our 2015 Form 10-K.

The OCC, the Federal Reserve and the FDIC jointly adopted a final rule to implement a standardized quantitative liquidity requirement generally consistent with the LCR standards established by the BCBS. The LCR rule is designed to ensure that covered banking organizations maintain an adequate level of cash and HQLA,

32

such as central bank reserves and government and corporate debt, to meet estimated net liquidity needs in a short-term stress scenario using liquidity inflow and outflow assumptions provided in the rule (net cash outflow). The phase-in period began on January 1, 2016, with full compliance required by January 1, 2017. The Company is in compliance with the LCR requirements.

For further information regarding this rule, see "Supervision and Regulation-Regulatory Capital and Liquidity Standards-Liquidity Coverage Ratio" in Part I, Item 1. and “The effects of changes or increases in, or supervisory enforcement of, banking or other laws and regulations or governmental fiscal or monetary policies could adversely affect us” in Part I, Item 1A. “Risk Factors” in our 2015 Form 10-K.

Operational Risk Management

Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This definition includes legal risk, which includes exposure to fines, penalties, or punitive damages resulting from supervisory actions, as well as private settlements, but excludes strategic and reputation risk. In particular, information security is a significant operational risk element for the Company and includes the risk of losses resulting from cyber attacks. See “We are subject to a wide array of operational risks, including, but not limited to, cyber-security risks” in Part I, Item 1A. “Risk Factors” in this Form 10-Q. Operational risk is mitigated through a system of internal controls that are designed to keep these risks at appropriate levels. For additional information regarding our operational risk management policies, refer to the section “Operational Risk Management” included in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2015 Form 10-K.

33

Business Segments

We have four reportable segments: Regional Bank, U.S. Wholesale Banking, Transaction Banking, and Investment Banking & Markets. For a more detailed description of these reportable segments, refer to Note 13 to our Consolidated Financial Statements included in Part I, Item 1. “Financial Statements” of this Form 10-Q.

Unlike U.S. Generally Accepted Accounting Principles (GAAP), there is no standardized or authoritative guidance for management accounting. Consequently, reported results are not necessarily comparable with those presented by other companies and they are not necessarily indicative of the results that would be reported by our business units if they were unique economic entities. The information set forth in the tables that follow is prepared using various management accounting methodologies to measure the performance of the individual segments. During the normal course of business, the Company occasionally changes or updates its management accounting methodologies or organizational structure. Beginning with the second quarter of 2016, the Company revised its methodology for allocating certain indirect costs to the segments. Prior period results have been updated to reflect this change in methodology. For a description of these methodologies, see Note 13 to our Consolidated Financial Statements included in Part I, Item 1. “Financial Statements” of this Form 10-Q.

Regional Bank

The Regional Bank offers a range of banking products and services to individuals, including high net worth individuals and institutional clients, and businesses generally with up to $500 million in annual revenue. Products and services are delivered generally through a network of branches, private banking offices, ATMs, broker mortgage referrals, relationship managers, telephone services, and web-based and mobile banking applications. These products and services include mortgages, home equity lines of credit, consumer and commercial loans, deposit accounts, financial planning and investments. The Regional Bank also provides a broad spectrum of commercial credit products including commercial loans, accounts receivable, inventory, and trade financing primarily to corporate customers based on the U.S. West Coast, and real estate financing to professional real estate investors and developers nationwide.

The following table sets forth the results for the Regional Bank segment:

Regional Bank
	For the Three Months Ended   June 30,					Increase (Decrease)						For the Six Months Ended June 30,					Increase (Decrease)
(Dollars in millions)	2016			2015		Amount			Percent			2016			2015		Amount			Percent
Results of operations - Market View
Net interest income	$	478		$	473	$	5		1		%	$	959		$	951	$	8		1		%
Noninterest income	112			106		6			6			226			217		9			4
Total revenue	590			579		11			2			1,185			1,168		17			1
Noninterest expense	420			467		(47		)	(10	)		856			928		(72		)	(8	)
(Reversal of) provision for credit losses	(5		)	6		(11		)	(183	)		(6		)	12		(18		)	(150	)
Income before income taxes and including noncontrolling interests	175			106		69			65			335			228		107			47
Income tax expense	51			26		25			96			97			45		52			116
Net income attributable to MUAH	$	124		$	80	$	44		55			$	238		$	183	$	55		30
Average balances - Market View
Total loans held for investment	$	58,356		$	57,165	$	1,191		2		%	$	57,661		$	57,377	$	284		—		%
Total assets	62,948			61,729		1,219			2			62,358			61,925		433			1
Total deposits	52,132			50,140		1,992			4			51,976			50,246		1,730			3

Noninterest expense decreased during the three and six months endedJune 30, 2016 due to the impact of expense reduction measures and a contract termination fee during the second quarter of 2015. The reversal of provision for credit losses in 2016 was due to payoffs of several criticized loans and a general improvement in portfolio credit quality.

34

U.S. Wholesale Banking

U.S. Wholesale Banking provides commercial lending products, including commercial loans, lines of credit and project financing, to corporate customers with revenues greater than $500 million. The segment employs an industry-focused strategy including dedicated coverage teams in General Industries, Power and Utilities, Oil and Gas, Telecom and Media, Technology, Healthcare and Nonprofit, Public Finance, and Financial Institutions (predominantly Insurance and Asset Managers). By working with the Company's other segments, U.S. Wholesale Banking offers its customers a range of noncredit services, which include global treasury management, capital market solutions, and various foreign exchange, interest rate risk and commodity risk management products.

The following table sets forth the results for the U.S. Wholesale Banking segment:

U.S. Wholesale Banking
	For the Three Months Ended   June 30,					Increase (Decrease)						For the Six Months Ended June 30,				Increase (Decrease)
(Dollars in millions)	2016			2015		Amount			Percent			2016		2015		Amount			Percent
Results of operations - Market View
Net interest income	$	114		$	106	$	8		8		%	$	223	$	207	$	16		8		%
Noninterest income	38			41		(3		)	(7	)		66		73		(7		)	(10	)
Total revenue	152			147		5			3			289		280		9			3
Noninterest expense	49			48		1			2			98		100		(2		)	(2	)
(Reversal of) provision for credit losses	(28		)	12		(40		)	(333	)		102		15		87			nm
Income before income taxes and including noncontrolling interests	131			87		44			51			89		165		(76		)	(46	)
Income tax expense (benefit)	52			35		17			49			35		63		(28		)	(44	)
Net income attributable to MUAH	$	79		$	52	$	27		52			$	54	$	102	$	(48	)	(47	)
Average balances - Market View
Total loans held for investment	$	14,024		$	12,344	$	1,680		14		%	$	13,910	$	12,399	$	1,511		12		%
Total assets	15,205			13,549		1,656			12			15,099		13,590		1,509			11
Total deposits	8,763			8,794		(31		)	—			8,681		8,828		(147		)	(2	)

nm = not meaningful

Net interest income increased as a result of higher average loan balances, partially offset by declining yields. Noninterest income was lower due largely to lower income from capital markets transactions. The reversal of provision for credit losses in the second quarter of 2016 reflected improving credit quality outside of the oil and gas sector and stabilization in the credit quality of the oil and gas sector. The provision for credit losses during the six months ended June 30, 2016 was primarily due to increased reserves for the oil and gas portfolio.

35

Transaction Banking

Transaction Banking works alongside the Company's other segments to provide working capital management and asset servicing solutions, including deposits and treasury management, trade finance, and institutional trust and custody, to the Company's customers. The client base consists of financial institutions, corporations, government agencies, insurance companies, mutual funds, investment managers and non-profit organizations.

The following table sets forth the results for the Transaction Banking segment:

Transaction Banking
	For the Three Months Ended   June 30,					Increase (Decrease)						For the Six Months Ended June 30,					Increase (Decrease)
(Dollars in millions)	2016			2015		Amount			Percent			2016			2015		Amount			Percent
Results of operations - Market View
Net interest income	$	120		$	111	$	9		8		%	$	241		$	227	$	14		6		%
Noninterest income	44			42		2			5			91			85		6			7
Total revenue	164			153		11			7			332			312		20			6
Noninterest expense	109			108		1			1			229			210		19			9
(Reversal of) provision for credit losses	(3		)	—		(3		)	(100	)		(1		)	1		(2		)	(200	)
Income before income taxes and including noncontrolling interests	58			45		13			29			104			101		3			3
Income tax expense	23			18		5			28			41			39		2			5
Net income attributable to MUAH	$	35		$	27	$	8		30			$	63		$	62	$	1		2
Average balances - Market View
Total loans held for investment	$	52		$	46	$	6		13		%	$	56		$	45	$	11		24		%
Total assets	1,828			1,795		33			2			1,876			1,754		122			7
Total deposits	35,094			35,477		(383		)	(1	)		35,181			36,248		(1,067		)	(3	)

Transaction Banking earns revenue primarily from a net interest income funds transfer pricing credit on deposit liabilities, as well as service charges on deposit accounts and trust management fees. Net interest income increased despite lower deposit balances due to an increase in the funds transfer pricing credit rate. Noninterest income increased due to an increase in trust and investment management fees. The increase in noninterest expense included the impact of customer product development activities and fixed asset impairments.     

36

Investment Banking & Markets

Investment Banking & Markets, which includes Global Capital Markets of the Americas, works with the Company's other segments to provide customers structured credit services, including project finance, leasing and equipment finance, commercial finance, funds finance and securitizations. Investment Banking & Markets also provides capital markets solutions, including syndicated loans, equity and debt underwriting, tax equity and merchant banking investments; risk management solutions, including foreign exchange, interest rate and energy risk management solutions; and facilitates merchant and investment banking-related transactions.

The following table sets forth the results for the Investment Banking & Markets segment:

Investment Banking & Markets
	For the Three Months Ended   June 30,					Increase (Decrease)						For the Six Months Ended June 30,						Increase (Decrease)
(Dollars in millions)	2016		2015			Amount			Percent			2016			2015			Amount			Percent
Results of operations - Market View
Net interest income	$	60	$	62		$	(2	)	(3	)	%	$	119		$	122		$	(3	)	(2	)	%
Noninterest income	65		60			5			8			90			91			(1		)	(1	)
Total revenue	125		122			3			2			209			213			(4		)	(2	)
Noninterest expense	42		43			(1		)	(2	)		83			77			6			8
(Reversal of) provision for credit losses	2		(12		)	14			117			32			(19		)	51			268
Income before income taxes and including noncontrolling interests	81		91			(10		)	(11	)		94			155			(61		)	(39	)
Income tax expense (benefit)	12		23			(11		)	(48	)		(2		)	35			(37		)	(106	)
Net income attributable to MUAH	$	69	$	68		$	1		1			$	96		$	120		$	(24	)	(20	)
Average balances - Market View
Total loans held for investment	$	8,726	$	8,489		$	237		3		%	$	8,778		$	8,495		$	283		3		%
Total assets	11,804		11,055			749			7			11,835			11,089			746			7
Total deposits	2,778		2,997			(219		)	(7	)		2,820			3,125			(305		)	(10	)

Noninterest income increased in the second quarter of 2016 due to a gain on sale of an investment and an increase in income from renewable energy investments. The provision for credit losses for the six months ended June 30, 2016 was due to the deterioration in credit quality of certain customers affected by low energy prices in the first quarter of 2016.

37

Other

"Other" includes the Asian Corporate Banking segment, which offers a range of credit, deposit, and investment management products and services to companies located primarily in the U.S. that are affiliated with companies headquartered in Japan and other Asian countries; Corporate Treasury, which is responsible for ALM, wholesale funding, and the ALM investment securities and derivatives hedging portfolios; and certain corporate activities of the Company.

In addition, "Other" includes the elimination of duplicative results from the internal management "market view" perspective; the funds transfer pricing center and credits allocated to the reportable segments; the residual costs of support groups; fees from affiliates and noninterest expenses associated with BTMU's U.S. branch banking operations; the unallocated allowance; goodwill, intangible assets, and the related amortization/accretion associated with the Company's privatization transaction; the elimination of the fully taxable-equivalent basis amount; the difference between the marginal tax rate and the consolidated effective tax rate; and the FDIC covered assets.

The following table sets forth the results for Other:

Other
	For the Three Months Ended   June 30,						Increase (Decrease)						For the Six Months Ended June 30,						Increase (Decrease)
(Dollars in millions)	2016			2015			Amount			Percent			2016			2015			Amount			Percent
Results of operations - Market View
Net interest income	$	(52	)	$	(33	)	$	(19	)	(58	)	%	$	(125	)	$	(105	)	$	(20	)	(19	)	%
Noninterest income	207			136			71			52			388			254			134			53
Total revenue	155			103			52			50			263			149			114			77
Noninterest expense	190			177			13			7			420			377			43			11
(Reversal of) provision for credit losses	(3		)	9			(12		)	(133	)		(2		)	9			(11		)	(122	)
Income before income taxes and including noncontrolling interests	(32		)	(83		)	51			61			(155		)	(237		)	82			35
Income tax expense (benefit)	(19		)	(31		)	12			39			(35		)	(77		)	42			55
Net income (loss) including noncontrolling interests	(13		)	(52		)	39			75			(120		)	(160		)	40			25
Deduct: net loss from noncontrolling interests	11			6			5			83			23			11			12			109
Net income attributable to MUAH	$	(2	)	$	(46	)	$	44		96			$	(97	)	$	(149	)	$	52		35
Average balances - Market View
Total loans held for investment	$	(1,224	)	$	(1,293	)	$	69		5		%	$	(1,213	)	$	(1,289	)	$	76		6		%
Total assets	24,495			24,779			(284		)	(1	)		24,905			24,661			244			1
Total deposits	(15,104		)	(15,261		)	157			1			(14,821		)	(15,335		)	514			3

38

Critical Accounting Estimates

MUAH’s consolidated financial statements are prepared in accordance with GAAP, which include management estimates and judgments. The financial information contained within our statements is, to a significant extent, financial information that is based on estimates used to measure the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability. For example, we use discount factors and other assumptions to measure certain assets and liabilities. A change in the discount factor or other important assumptions could significantly increase or decrease the reported amounts of those assets and liabilities and result in either a beneficial or an adverse impact to our financial results. We use historical loss factors, adjusted for current conditions, to estimate the credit losses inherent in our loan and lease portfolios held for investment and certain off-balance sheet commitments on the balance sheet date. Actual losses could differ significantly from the loss factors that we use. Other significant estimates that we use include the valuation of certain derivatives and securities, the assumptions used in measuring our transfer pricing revenue, pension obligations, goodwill impairment, and assumptions regarding our effective tax rates.

Management has reviewed and approved these critical accounting policies and has discussed these policies with the Audit & Finance Committee.

Understanding our accounting policies is fundamental to understanding our consolidated financial condition and consolidated results of operations. Accordingly, both our critical accounting estimates and our significant accounting policies are discussed in detail in our 2015 Form 10-K. There have been no material changes to these critical accounting estimates during the second quarter of 2016.

Disclosure of Iranian Activities under Section 13(r) of the Securities Exchange Act of 1934

We are disclosing the following information pursuant to Section 13(r) of the Exchange Act, which requires an issuer to disclose whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with natural persons or entities designated by the U.S. government under specified Executive Orders. The scope of activities that must be reported includes activities not prohibited by U.S. law and conducted outside the United States in compliance with applicable local law. Because we are indirectly wholly-owned by MUFG, a Japanese corporation, our disclosure includes activities, transactions or dealings conducted outside the United States by non-U.S. affiliates of MUFG which are not controlled by us. We have requested that MUFG provide us a description of reportable activity under Section 13(r) and have received the following information:

During the quarter ended June 30, 2016, a non-U.S. subsidiary of MUFG engaged in business activities with entities in, or affiliated with, Iran, including counterparties owned or controlled by the Iranian government. These activities were consistent with rules and regulations applicable to MUFG’s non-U.S. subsidiary. Specifically, MUFG’s non-U.S. banking subsidiary, BTMU, issued letters of credit and guarantees and provided remittance and other settlement services mainly in connection with customer transactions related to the purchase and exportation of Iranian crude oil to Japan, and in some cases, in connection with other petroleum-related transactions with Iran by its customers. These transactions did not involve U.S. dollars nor clearing services of U.S. banks for the settlement of payments, and were reviewed for compliance with applicable U.S. and non-U.S. laws and regulations. For the quarter ended June 30, 2016, the aggregate interest and fee income relating to these transactions was less than ¥25 million, representing less than 0.005 percent of MUFG’s total interest and fee income. Some of these transactions were conducted through the use of non-U.S. dollar correspondent accounts and other similar settlement accounts maintained with BTMU outside the United States by Iranian financial institutions and other entities in, or affiliated with, Iran. In addition to such accounts, BTMU receives deposits in Japan from, and provides settlement services in Japan to, fewer than ten Iranian government-related entities and fewer than 100 Iranian government-related individuals such as Iranian diplomats, and maintains settlement accounts outside the United States for certain other financial institutions specified in Executive Order 13382, which settlement accounts were frozen in accordance with applicable laws and regulations. For the quarter ended June 30, 2016, the average aggregate balance of deposits held in these accounts represented less than 0.05 percent of the average balance of MUFG’s total deposits. The fee income from the transactions attributable to these account holders was less than ¥2 million, representing less than 0.001 percent of MUFG’s total fee income. BTMU also holds loans that were arranged prior to changes in applicable laws and regulations to borrowers in, or affiliated with, Iran, including entities owned by the Iranian government, the outstanding

39

balance of which was less than ¥200 million, representing less than 0.001 percent of MUFG’s total loans, as of June 30, 2016. For the quarter ended June 30, 2016, the aggregate gross interest and fee income relating to these loan transactions was less than ¥20 million, representing less than 0.005 percent of MUFG’s total interest and fee income.

In addition, in accordance with the Joint Plan of Action agreed to among the P5+1 (the United States, United Kingdom, Germany, France, Russia and China) and Iran in November 2013 (which was subsequently finalized in July 2015), BTMU has been providing settlement services in connection with humanitarian trade to assist Iran in meeting its domestic needs, namely food, agricultural products, medicine and medical devices, since April 2014. The overall framework for these settlement services was based on an agreement between U.S. and Japanese authorities, and the relevant U.S. regulator has authorized the settlement services as compliant with applicable U.S. laws and regulations. The purchasers of the humanitarian goods were entities in, or affiliated with, Iran, including entities related to the Iranian government. The sellers of the humanitarian goods were entities permitted by U.S. and Japanese regulators. These transactions did not involve U.S. dollars nor clearing services of U.S. banks for the settlement of payments. These transactions were conducted through the use of special purpose yen accounts maintained with BTMU outside the United States by an Iranian financial institution which is affiliated with the Iranian government but through which these transactions were permitted to be settled. We understand that BTMU intends to continue to provide the settlement services in connection with the exports of humanitarian goods to Iran in close coordination with U.S. and Japanese authorities.

We understand that BTMU will continue to participate in these types of transactions. In addition, following Implementation Day under the Joint Comprehensive Plan of Action, we understand that BTMU has begun to participate in a broader range of banking transactions involving Iran, subject to remaining Japanese and international sanctions.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

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

Item 4.   Controls and Procedures

Disclosure Controls and Procedures. Our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) have concluded that the design and operation of our disclosure controls and procedures are effective as of June 30, 2016. This conclusion is based on an evaluation conducted under the supervision, and with the participation, of management. Disclosure controls and procedures are those controls and procedures that are designed to ensure that information required to be disclosed in this filing is recorded, processed, summarized and reported in a timely manner and in accordance with the SEC’s rules and regulations and to ensure that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting. During the second quarter of 2016, there were no changes in our internal control over financial reporting that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

40

PART I. FINANCIAL INFORMATION

Item 1.   Financial Statements

MUFG Americas Holdings Corporation and Subsidiaries

Consolidated Statements of Income

(Unaudited)

	For the Three Months Ended   June 30,					For the Six Months Ended June 30,
(Dollars in millions)	2016			2015		2016		2015
Interest Income
Loans	$	711		$	700	$	1,408	$	1,378
Securities	114			121		223		223
Other	5			2		11		5
Total interest income	830			823		1,642		1,606
Interest Expense
Deposits	49			50		98		102
Commercial paper and other short-term borrowings	4			2		5		3
Long-term debt	57			52		122		99
Total interest expense	110			104		225		204
Net Interest Income	720			719		1,417		1,402
(Reversal of) provision for credit losses	(37		)	15		125		18
Net interest income after provision for credit losses	757			704		1,292		1,384
Noninterest Income
Service charges on deposit accounts	46			49		95		98
Trust and investment management fees	30			26		61		54
Trading account activities	20			19		33		27
Securities gains, net	19			5		32		8
Credit facility fees	28			30		55		60
Merchant banking fees	23			20		37		40
Brokerage commissions and fees	13			14		26		27
Card processing fees, net	9			9		18		17
Fees from affiliates	239			192		439		358
Other, net	39			21		65		31
Total noninterest income	466			385		861		720
Noninterest Expense
Salaries and employee benefits	523			555		1,066		1,122
Net occupancy and equipment	75			75		151		155
Professional and outside services	75			64		177		141
Software	37			29		73		57
Regulatory assessments	13			14		27		27
Intangible asset amortization	6			10		13		20
Other	81			96		179		170
Total noninterest expense	810			843		1,686		1,692
Income before income taxes and including noncontrolling interests	413			246		467		412
Income tax expense	119			71		136		105
Net Income Including Noncontrolling Interests	294			175		331		307
Deduct: Net loss from noncontrolling interests	11			6		23		11
Net Income Attributable to MUAH	$	305		$	181	$	354	$	318

See accompanying notes to consolidated financial statements.

41

MUFG Americas Holdings Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(Dollars in millions)	2016			2015			2016			2015
Net Income Attributable to MUAH	$	305		$	181		$	354		$	318
Other Comprehensive Income (Loss), Net of Tax:
Net change in unrealized gains (losses) on cash flow hedges	61			(30		)	196			22
Net change in unrealized gains (losses) on investment securities	55			(54		)	146			19
Foreign currency translation adjustment	1			2			5			(5		)
Pension and other postretirement benefit adjustments	9			13			19			27
Other	1			—			—			—
Total other comprehensive income (loss)	127			(69		)	366			63
Comprehensive Income (Loss) Attributable to MUAH	432			112			720			381
Comprehensive loss from noncontrolling interests	(11		)	(6		)	(23		)	(11		)
Total Comprehensive Income (Loss)	$	421		$	106		$	697		$	370

See accompanying notes to consolidated financial statements.

42

MUFG Americas Holdings Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

(Dollars in millions, except per share amount)	June 30, 2016			December 31, 2015
Assets
Cash and due from banks	$	1,517		$	1,756
Interest bearing deposits in banks	2,306			2,749
Federal funds sold and securities purchased under resale agreements	42			24
Total cash and cash equivalents	3,865			4,529
Trading account assets	1,562			1,087
Securities available for sale	12,846			14,344
Securities held to maturity (Fair value $10,573 at June 30, 2016 and $10,207 at December 31, 2015)	10,259			10,158
Loans held for investment	79,392			77,599
Allowance for loan losses	(747		)	(721		)
Loans held for investment, net	78,645			76,878
Premises and equipment, net	566			608
Goodwill	3,225			3,225
Other assets	6,188			5,387
Total assets	$	117,156		$	116,216
Liabilities
Deposits:
Noninterest bearing	$	32,861		$	32,463
Interest bearing	49,831			51,877
Total deposits	82,692			84,340
Commercial paper and other short-term borrowings	4,703			1,038
Long-term debt	10,445			12,349
Trading account liabilities	676			796
Other liabilities	2,262			2,017
Total liabilities	100,778			100,540
Commitments, contingencies and guarantees—See Note 12
Equity
MUAH stockholder's equity:
Preferred stock:
Authorized 5,000,000 shares; no shares issued or outstanding	—			—
Common stock, par value $1 per share:
Authorized 300,000,000 shares, 136,330,831 shares issued and outstanding as of June 30, 2016 and December 31, 2015	136			136
Additional paid-in capital	7,240			7,241
Retained earnings	9,189			8,836
Accumulated other comprehensive loss	(386		)	(752		)
Total MUAH stockholder's equity	16,179			15,461
Noncontrolling interests	199			215
Total equity	16,378			15,676
Total liabilities and equity	$	117,156		$	116,216

See accompanying notes to consolidated financial statements.

43

MUFG Americas Holdings Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholder's Equity

(Unaudited)

	MUAH Stockholder's Equity
(Dollars in millions)	Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests			Total Equity
Balance December 31, 2014	$	136	$	7,232		$	8,265		$	(729	)	$	264		$	15,168
Net income (loss)	—		—			318			—			(11		)	307
Other comprehensive income (loss), net of tax	—		—			—			63			—			63
Compensation—restricted stock units	—		(24		)	(1		)	—			—			(25		)
Other	—		—			—			—			(13		)	(13		)
Net change	—		(24		)	317			63			(24		)	332
Balance June 30, 2015	$	136	$	7,208		$	8,582		$	(666	)	$	240		$	15,500
Balance December 31, 2015	$	136	$	7,241		$	8,836		$	(752	)	$	215		$	15,676
Net income (loss)	—		—			354			—			(23		)	331
Other comprehensive income (loss), net of tax	—		—			—			366			—			366
Compensation—restricted stock units	—		(1		)	(1		)	—			—			(2		)
Other	—		—			—			—			7			7
Net change	—		(1		)	353			366			(16		)	702
Balance June 30, 2016	$	136	$	7,240		$	9,189		$	(386	)	$	199		$	16,378

See accompanying notes to consolidated financial statements.

44

MUFG Americas Holdings Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

	For the Six Months Ended June 30,
(Dollars in millions)	2016			2015
Cash Flows from Operating Activities:
Net income including noncontrolling interests	$	331		$	307
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for credit losses	125			18
Depreciation, amortization and accretion, net	160			202
Stock-based compensation—restricted stock units	29			16
Deferred income taxes	195			126
Net gains on sales of securities	(32		)	(8		)
Net decrease (increase) in trading account assets	(475		)	25
Net decrease (increase) in other assets	89			(173		)
Net increase (decrease) in trading account liabilities	(120		)	(160		)
Net increase (decrease) in other liabilities	(264		)	(172		)
Loans originated for sale	(793		)	(678		)
Net proceeds from sale of loans originated for sale	829			651
Pension and other benefits adjustment	(145		)	(144		)
Other, net	12			5
Total adjustments	(390		)	(292		)
Net cash provided by (used in) operating activities	(59		)	15
Cash Flows from Investing Activities:
Proceeds from sales of securities available for sale	2,719			895
Proceeds from paydowns and maturities of securities available for sale	735			978
Purchases of securities available for sale	(1,706		)	(2,228		)
Proceeds from paydowns and maturities of securities held to maturity	1,037			831
Purchases of securities held to maturity	(1,204		)	(2,344		)
Proceeds from sales of loans	112			198
Net decrease (increase) in loans	(2,072		)	172
Purchases of other investments	(186		)	(249		)
Other, net	(116		)	(44		)
Net cash provided by (used in) investing activities	(681		)	(1,791		)
Cash Flows from Financing Activities:
Net increase (decrease) in deposits	(1,668		)	(4,302		)
Net increase (decrease) in commercial paper and other short-term borrowings	3,665			2,558
Proceeds from issuance of long-term debt	—			2,697
Repayment of long-term debt	(1,900		)	(816		)
Other, net	(28		)	(56		)
Change in noncontrolling interests	7			(13		)
Net cash provided by (used in) financing activities	76			68
Net change in cash and cash equivalents	(664		)	(1,708		)
Cash and cash equivalents at beginning of period	4,529			5,751
Cash and cash equivalents at end of period	$	3,865		$	4,043
Cash Paid During the Period For:
Interest	$	216		$	183
Income taxes, net	117			61
Supplemental Schedule of Noncash Investing and Financing Activities:
Net transfer of loans held for investment to (from) loans held for sale	179			202
Transfer of loans held for investment to OREO	3			10

See accompanying notes to consolidated financial statements.

45

Note 1—Summary of Significant Accounting Policies and Nature of Operations

MUFG Americas Holdings Corporation (MUAH) is a financial holding company and a bank holding company whose principal subsidiary is MUFG Union Bank, N.A. (MUB). MUAH provides a wide range of financial services to consumers, small businesses, middle-market companies and major corporations nationally and internationally. The unaudited Consolidated Financial Statements of MUFG Americas Holdings Corporation, its subsidiaries, and its consolidated variable interest entities (the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Rules and Regulations of the SEC. However, they do not include all of the disclosures necessary for annual financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. The results of operations for the second quarter of 2016 are not necessarily indicative of the operating results anticipated for the full year. These unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2015 (2015 Form 10-K).

The preparation of financial statements in conformity with GAAP also requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Although such estimates contemplate current conditions and management’s expectations of how they may change in the future, it is reasonably possible that actual results could differ significantly from those estimates. This could materially affect the Company’s results of operations and financial condition in the near term. Significant estimates made by management in the preparation of the Company’s financial statements include, but are not limited to, the evaluation of other-than-temporary impairment on investment securities (Note 3), the allowance for credit losses (Note 4), goodwill impairment, fair value of financial instruments (Note 8), hedge accounting (Note 9), pension accounting (Note 11), income taxes, and transfer pricing.

Recently Issued Accounting Pronouncements

Revenue from Contracts with Customers

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which provides guidance on the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU applies to all contracts with customers, except financial instruments, guarantees, lease contracts, insurance contracts and certain non-monetary exchanges. It provides the following five-step revenue recognition model: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. In addition, the ASU requires additional disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015 the FASB issued ASU 2015-14, Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 to interim and annual periods beginning on January 1, 2018, with early adoption permitted in 2017. Management does not expect the adoption of this guidance to significantly impact the Company’s financial position or results of operations.

Recognition and Measurement of Financial Assets and Financial Liabilities

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which amends the accounting, presentation, and disclosure requirements for certain financial instruments. The ASU requires that all equity investments be recorded at fair value through net income (other than those accounted for under equity method or result in consolidation of the investee); however, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The ASU also requires an entity to present separately in other comprehensive income the portion of the total change in fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability under the fair value option. The ASU also clarifies that an entity must evaluate the need for a valuation allowance on a deferred tax

46

Note 1—Summary of Significant Accounting Policies and Nature of Operations (Continued)

asset related to available for sale securities in combination with the entity’s other deferred tax assets. In addition, the ASU amends the presentation and disclosure requirements for financial instruments and now requires the use of an exit price notion when measuring the fair value of financial instruments for disclosure purposes. This guidance is effective for interim and annual periods beginning on January 1, 2018, with early adoption permitted for the amendments to the accounting for financial liabilities under the fair value option. Management is currently assessing the impact of this guidance on the Company’s financial position and results of operations.

Accounting for Leases

In February 2016, the FASB issued ASU 2016-02, Leases, which will require entities that lease assets (i.e., lessees) to recognize assets and liabilities on their balance sheet for the rights and obligations created by those leases (where lease terms are greater than twelve months).  The accounting by entities that own the assets leased (i.e., lessors) will remain largely unchanged; however, leveraged lease accounting will no longer be permitted for leases that commence after the effective date. The ASU will also require qualitative and quantitative disclosures about the amount, timing and uncertainty of cash flows arising from leases.  This guidance is effective for interim and annual periods beginning on January 1, 2019 and requires a modified retrospective approach, with early adoption permitted. Management is currently assessing the impact of this guidance on the Company’s financial position and results of operations.

Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships

In March 2016, the FASB issued ASU 2016-05, Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships, which clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument does not, in and of itself, require dedesignation of that hedging relationship. However, entities will still need to evaluate whether all other hedge accounting criteria continue to be met. This ASU is effective for interim and annual periods beginning on January 1, 2017, with early adoption permitted. Entities have the option to adopt the new guidance on a prospective basis to new derivative contract novations or on a modified retrospective basis. Management does not expect the adoption of this guidance to significantly impact the Company’s financial position or results of operations.

Contingent Put and Call Options in Debt Instruments

In March 2016, the FASB issued ASU 2016-06, Contingent Put and Call Options in Debt Instruments, which clarifies the requirements for assessing whether contingent put or call options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. Current guidance indicates that a contingently exercisable put or call option is clearly and closely related to the debt host if it is indexed only to interest rates or credit risk, but was unclear whether the nature of the exercise contingency itself should be considered in this evaluation. The ASU clarifies that an entity would not separately assess whether the contingency itself is indexed only to interest rates or the credit risk of the entity to conclude the option is clearly and closely related. This guidance is effective for interim and annual periods beginning on January 1, 2017, with early adoption permitted. The new guidance is required to be applied on a modified retrospective basis to all existing and future debt instruments and an entity will be able to elect the fair value option at transition for the entire debt instrument. Management does not expect the adoption of this guidance to significantly impact the Company’s financial position or results of operations.

Simplifying the Transition to the Equity Method of Accounting

In March 2016, the FASB issued ASU 2016-07, Simplifying the Transition to the Equity Method of Accounting, which eliminates the requirement to apply the equity method of accounting retrospectively when an investor obtains significant influence over an existing investee.   The ASU requires that (1) the equity method be applied prospectively from the date significant influence is obtained, and (2) investors add the cost of acquiring the additional interest in the investee to the current basis of their previously held interest. The ASU also provides specific guidance for available-for-sale securities that become eligible for the equity method whereby any unrealized gain or loss recorded within accumulated other comprehensive income must be recognized in earnings on the date the investment initially qualifies for the equity method. The ASU is effective for interim and annual periods beginning on January 1, 2017, with early adoption permitted.  Adoption of this guidance will not significantly impact the Company’s financial position or results of operations.

47

Note 1—Summary of Significant Accounting Policies and Nature of Operations (Continued)

Principal versus Agent Considerations (Reporting Revenue Gross versus Net)

In March 2016, the FASB issued ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net). The ASU amends ASU 2014-09, Revenue from Contracts with Customers, with respect to assessing whether an entity is a principal (and thus presents revenue gross) or an agent (and thus presents revenue net). The amendments retain the guidance that the principal in an arrangement controls a good or service before it is transferred to a customer and clarify: (1) that an entity must first identify the specified good or service being provided to the customer; (2) that the unit of account for the principal versus agent assessment is each specified good or service promised in a contract; (3) indicators and examples to help an entity evaluate whether it is the principal; and (4) how to assess whether an entity controls services performed by another party. The ASU is effective upon the adoption of ASU 2014-09, which is effective for periods beginning January 1, 2018, with early adoption permitted in 2017. Management does not expect the adoption of this guidance to significantly impact the Company’s financial position or results of operations.

Accounting for Share-Based Payments

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. The ASU requires recognition of any difference between the deduction for tax purposes and compensation cost recognized for financial reporting purposes as income tax expense or benefit in the income statement (as opposed to recognizing certain excess tax benefits in additional paid-in capital).  The tax effects of exercised or vested awards are now also required to be treated as discrete items in the reporting period in which they occur (rather than through the annual estimated effective tax rate) and excess tax benefits must be recognized regardless of whether the benefit reduces taxes payable in the current period. Excess tax benefits are now classified along with other income tax cash flows as an operating activity, as opposed to a financing activity.  With respect to accounting for forfeitures, an entity can now make an accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur.  Additionally, entities may now partially settle awards in cash up to the maximum statutory tax rates in the applicable jurisdictions, without precluding equity classification of the award (current GAAP allows only up to the minimum statutory withholding requirements). The ASU is effective for interim and annual periods beginning on January 1, 2017, with early adoption permitted. Management is currently assessing the impact of this guidance on the Company’s financial position and results of operations.

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which provides new guidance on the accounting for credit losses for instruments that are within its scope. For loans and debt securities accounted for at amortized cost, certain off-balance sheet credit exposures, net investments in leases, and trade receivables, the ASU requires an entity to recognize its estimate of credit losses expected over the life of the financial instrument or exposure.  Lifetime expected credit losses on purchased financial assets with credit deterioration will be recognized as an allowance with an offset to the cost basis of the asset.  For available for sale debt securities, the new standard will require recognition of expected credit losses by recognizing an allowance for credit losses when the fair value of the security is below amortized cost and the recognition of this allowance is limited to the difference between the security’s amortized cost basis and fair value.  The ASU is effective for interim and annual periods beginning on January 1, 2020, with early adoption permitted in 2019. Management is currently assessing the impact of the ASU on the Company’s financial position and results of operations.

48

Note 2—Correction of Prior Period Amounts

During the first quarter of 2016, the Company corrected a prior period error related to the recognition of income associated with two LIHC investment fund structures. This error affected historical periods beginning in 2010 through December 31, 2015. The Company recognized certain noninterest income amounts related to transactions with the two LIHC investment fund structures. These amounts should not have been recorded in earnings until the investments were liquidated or deconsolidated. This error was not material to any of the Company's previously issued financial statements. In accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108), the consolidated balance sheets as of December 31, 2015 and December 31, 2014 and the consolidated statements of changes in stockholder's equity for the six months ended June 30, 2016 and 2015 have been adjusted to reflect the correction of this error.

The following tables show the affected line items within the consolidated financial statements:

	December 31, 2015
(Dollars in millions)	As Previously Reported		Adjustment			As Corrected
Other assets	$	5,377	$	10		$	5,387
Other liabilities	2,023		(6		)	2,017
Retained earnings	8,854		(18		)	8,836
Noncontrolling interests	181		34			215

	December 31, 2014
(Dollars in millions)	As Previously Reported		Adjustment			As Corrected
Other assets	$	4,630	$	10		$	4,640
Other liabilities	1,897		(6		)	1,891
Retained earnings	8,283		(18		)	8,265
Noncontrolling interests	230		34			264

49

Note 3—Securities

Securities Available for Sale

At June 30, 2016 and December 31, 2015, the amortized cost, gross unrealized gains, gross unrealized losses and fair values of securities available for sale are presented below.

	June 30, 2016
(Dollars in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Asset Liability Management securities:
U.S. Treasury	$	155	$	4	$	—	$	159
Residential mortgage-backed securities:
U.S. government agency and government-sponsored agencies	6,009		47		4		6,052
Privately issued	245		3		—		248
Privately issued - commercial mortgage-backed securities	1,474		54		1		1,527
Collateralized loan obligations	3,267		1		30		3,238
Other	7		—		—		7
Asset Liability Management securities	11,157		109		35		11,231
Other debt securities:
Direct bank purchase bonds	1,547		50		22		1,575
Other	32		1		—		33
Equity securities	6		1		—		7
Total securities available for sale	$	12,742	$	161	$	57	$	12,846

	December 31, 2015
(Dollars in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Asset Liability Management securities:
U.S. Treasury	$	596	$	1	$	3	$	594
Residential mortgage-backed securities:
U.S. government agency and government-sponsored agencies	7,298		1		98		7,201
Privately issued	150		2		1		151
Privately issued - commercial mortgage-backed securities	1,566		5		25		1,546
Collateralized loan obligations	3,266		1		34		3,233
Other	7		—		—		7
Asset Liability Management securities	12,883		10		161		12,732
Other debt securities:
Direct bank purchase bonds	1,549		45		22		1,572
Other	32		—		—		32
Equity securities	6		2		—		8
Total securities available for sale	$	14,470	$	57	$	183	$	14,344

50

Note 3—Securities (Continued)

The Company’s securities available for sale with a continuous unrealized loss position at June 30, 2016 and December 31, 2015 are shown below, identified for periods less than 12 months and 12 months or more.

	June 30, 2016
	Less than 12 months				12 months or more				Total
(Dollars in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Asset Liability Management securities:
Residential mortgage-backed securities:
U.S. government agency and government-sponsored agencies	$	104	$	1	$	873	$	3	$	977	$	4
Privately issued	11		—		38		—		49		—
Privately issued - commercial mortgage-backed securities	10		—		58		1		68		1
Collateralized loan obligations	1,652		8		1,315		22		2,967		30
Other	—		—		1		—		1		—
Asset Liability Management securities	1,777		9		2,285		26		4,062		35
Other debt securities:
Direct bank purchase bonds	248		7		483		15		731		22
Equity securities	—		—		5		—		5		—
Total securities available for sale	$	2,025	$	16	$	2,773	$	41	$	4,798	$	57

	December 31, 2015
	Less than 12 months				12 months or more				Total
(Dollars in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Asset Liability Management securities:
U.S. Treasury	$	295	$	3	$	—	$	—	$	295	$	3
Residential mortgage-backed securities:
U.S. government agency and government-sponsored agencies	4,692		57		2,278		41		6,970		98
Privately issued	39		—		38		1		77		1
Privately issued - commercial mortgage-backed securities	1,154		24		65		1		1,219		25
Collateralized loan obligations	1,497		11		1,290		23		2,787		34
Asset Liability Management securities	7,677		95		3,671		66		11,348		161
Other debt securities:
Direct bank purchase bonds	157		4		686		18		843		22
Other	2		—		—		—		2		—
Equity securities	—		—		5		—		5		—
Total securities available for sale	$	7,836	$	99	$	4,362	$	84	$	12,198	$	183

At June 30, 2016, the Company did not have the intent to sell any securities in an unrealized loss position before a recovery of the amortized cost, which may be at maturity. The Company also believes that it is more likely than not that it will not be required to sell the securities prior to recovery of amortized cost.

Agency residential mortgage-backed securities consist of securities guaranteed by a U.S. government agency or a government-sponsored agency such as Fannie Mae, Freddie Mac or Ginnie Mae. These securities are collateralized by residential mortgage loans and may be prepaid at par prior to maturity. The unrealized losses on agency residential mortgage-backed securities resulted from changes in interest rates and not from changes in credit quality. At June 30, 2016, the Company expects to recover the entire amortized cost basis of these securities because the Company determined that the strength of the issuers’ guarantees through direct obligations or support from the U.S. government is sufficient to protect the Company from losses.

Commercial mortgage-backed securities are collateralized by commercial mortgage loans and are generally subject to prepayment penalties. The unrealized losses on commercial mortgage-backed securities

51

Note 3—Securities (Continued)

resulted from higher market yields since purchase. Cash flow analysis of the underlying collateral provides an estimate of other-than-temporary impairment, which is performed quarterly when the fair value of a security is lower than its amortized cost. Based on the analysis performed as of June 30, 2016, the Company expects to recover the entire amortized cost basis of these securities.

The Company’s CLOs consist of Cash Flow CLOs. A Cash Flow CLO is a structured finance product that securitizes a diversified pool of loan assets into multiple classes of notes. Cash Flow CLOs pay the note holders through the receipt of interest and principal repayments from the underlying loans unlike other types of CLOs that pay note holders through the trading and sale of underlying collateral. Unrealized losses typically arise from widening credit spreads and deteriorating credit quality of the underlying collateral. Cash flow analysis of the underlying collateral provides an estimate of other-than-temporary impairment, which is performed quarterly when the fair value of a security is lower than its amortized cost. Based on the analysis performed as of June 30, 2016, the Company expects to recover the entire amortized cost basis of these securities.

Other debt securities primarily consist of direct bank purchase bonds, which are not rated by external credit rating agencies. The unrealized losses on these bonds resulted from a higher return on capital expected by the secondary market compared with the return on capital required at the time of origination when the bonds were purchased. The Company estimates the unrealized loss for each security by assessing the underlying collateral of each security. The Company estimates the portion of loss attributable to credit based on the expected cash flows of the underlying collateral using estimates of current key assumptions, such as probability of default and loss severity. Cash flow analysis of the underlying collateral provides an estimate of other-than-temporary impairment, which is performed quarterly when the fair value of a security is lower than its amortized cost and potential impairment is identified. Based on the analysis performed as of June 30, 2016, the Company expects to recover the entire amortized cost basis of these securities.

The fair value of debt securities available for sale by contractual maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties.

	June 30, 2016
(Dollars in millions)	One Year or Less		Over One Year Through Five Years		Over Five Years Through Ten Years		Over Ten Years		Total Fair Value
Asset Liability Management securities:
U.S. Treasury	$	—	$	—	$	159	$	—	$	159
Residential mortgage-backed securities:
U.S. government agency and government-sponsored agencies	—		14		351		5,687		6,052
Privately issued	—		3		—		245		248
Privately issued - commercial mortgage-backed securities	—		—		37		1,490		1,527
Collateralized loan obligations	—		16		1,883		1,339		3,238
Other	—		2		5		—		7
Asset Liability Management securities	—		35		2,435		8,761		11,231
Other debt securities:
Direct bank purchase bonds	6		344		770		455		1,575
Other	—		1		—		32		33
Total debt securities available for sale	$	6	$	380	$	3,205	$	9,248	$	12,839

The gross realized gains and losses from sales of available for sale securities for the three and six months endedJune 30, 2016 and 2015 are shown below. The specific identification method is used to calculate realized gains and losses on sales.

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(Dollars in millions)	2016		2015		2016		2015
Gross realized gains	$	19	$	6	$	32	$	11
Gross realized losses	—		1		—		1

52

Note 3—Securities (Continued)

Securities Held to Maturity

At June 30, 2016 and December 31, 2015, the amortized cost, gross unrealized gains and losses recognized in OCI, carrying amount, gross unrealized gains and losses not recognized in OCI, and fair values of securities held to maturity are presented below. Management has asserted the positive intent and ability to hold these securities to maturity.

	June 30, 2016
			Recognized in OCI						Not Recognized in OCI
(Dollars in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Carrying Amount		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasury	$	490	$	—	$	—	$	490	$	15	$	—	$	505
U.S. government agency and government-sponsored agencies - residential mortgage-backed securities	8,170		3		47		8,126		204		1		8,329
U.S. government agency and government-sponsored agencies - commercial mortgage-backed securities	1,711		—		68		1,643		96		—		1,739
Total securities held to maturity	$	10,371	$	3	$	115	$	10,259	$	315	$	1	$	10,573

	December 31, 2015
			Recognized in OCI						Not Recognized in OCI
(Dollars in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Carrying Amount		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasury	$	489	$	—	$	—	$	489	$	4	$	—	$	493
U.S. government-sponsored agencies	220		—		—		220		—		4		216
U.S. government agency and government-sponsored agencies - residential mortgage-backed securities	7,831		4		53		7,782		49		41		7,790
U.S. government agency and government-sponsored agencies - commercial mortgage-backed securities	1,740		—		73		1,667		46		5		1,708
Total securities held to maturity	$	10,280	$	4	$	126	$	10,158	$	99	$	50	$	10,207

Amortized cost is defined as the original purchase cost, adjusted for any accretion or amortization of a purchase discount or premium, less principal payments and any impairment previously recognized in earnings. The carrying amount is the difference between the amortized cost and the amount recognized in OCI. The amount recognized in OCI primarily reflects the unrealized gain or loss at date of transfer from available for sale to the held to maturity classification, net of amortization, which is recorded in interest income on securities.

53

Note 3—Securities (Continued)

The Company’s securities held to maturity with a continuous unrealized loss position at June 30, 2016 and December 31, 2015 are shown below, separately for periods less than 12 months and 12 months or more.

	June 30, 2016
	Less than 12 months						12 months or more						Total
			Unrealized Losses						Unrealized Losses						Unrealized Losses
(Dollars in millions)	Fair Value		Recognized in OCI		Not Recognized in OCI		Fair Value		Recognized in OCI		Not Recognized in OCI		Fair Value		Recognized in OCI		Not Recognized in OCI
U.S. government agency and government-sponsored agencies - residential mortgage-backed securities	$	98	$	—	$	1	$	1,572	$	47	$	—	$	1,670	$	47	$	1
U.S. government agency and government-sponsored agencies - commercial mortgage-backed securities	53		—		—		1,466		68		—		1,519		68		—
Total securities held to maturity	$	151	$	—	$	1	$	3,038	$	115	$	—	$	3,189	$	115	$	1

	December 31, 2015
	Less than 12 months						12 months or more						Total
			Unrealized Losses						Unrealized Losses						Unrealized Losses
(Dollars in millions)	Fair Value		Recognized in OCI		Not Recognized in OCI		Fair Value		Recognized in OCI		Not Recognized in OCI		Fair Value		Recognized in OCI		Not Recognized in OCI
U.S. government-sponsored agencies	$	196	$	—	$	4	$	—	$	—	$	—	$	196	$	—	$	4
U.S. government agency and government-sponsored agencies - residential mortgage-backed securities	3,297		—		39		1,705		53		2		5,002		53		41
U.S. government agency and government-sponsored agencies - commercial mortgage-backed securities	197		—		1		1,428		73		4		1,625		73		5
Total securities held to maturity	$	3,690	$	—	$	44	$	3,133	$	126	$	6	$	6,823	$	126	$	50

54

Note 3—Securities (Continued)

The carrying amount and fair value of securities held to maturity by contractual maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties.

	June 30, 2016
	Over One Year Through Five Years				Over Five Years Through Ten Years				Over Ten Years				Total
(Dollars in millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
U.S. Treasury	$	490	$	505	$	—	$	—	$	—	$	—	$	490	$	505
U.S. government agency and government-sponsored agencies - residential mortgage-backed securities	—		—		86		88		8,040		8,241		8,126		8,329
U.S. government agency and government-sponsored agencies - commercial mortgage-backed securities	49		51		802		875		792		813		1,643		1,739
Total securities held to maturity	$	539	$	556	$	888	$	963	$	8,832	$	9,054	$	10,259	$	10,573

Securities Pledged as Collateral

At June 30, 2016, the Company had $0.7 billion of securities available for sale pledged as collateral to secure public and trust department deposits, where the secured party cannot resell or repledge such securities. At June 30, 2016 and December 31, 2015, the Company accepted securities as collateral for reverse repurchase agreements that it is permitted by contract to sell or repledge of $31 million and $24 million, respectively, all of which has been sold or repledged. These securities received as collateral are not recognized on the Company's balance sheet. For further information related to the Company's significant accounting policies on securities pledged as collateral, see Note 1 to the Consolidated Financial Statements in Part II, Item 8. "Financial Statements and Supplementary Data" in our 2015 Form 10-K.

55

Note 4—Loans and Allowance for Loan Losses

The following table provides the outstanding balances of loans at June 30, 2016 and December 31, 2015:

(Dollars in millions)	June 30, 2016			December 31, 2015
Loans held for investment:
Commercial and industrial	$	29,291		$	29,730
Commercial mortgage	15,144			13,904
Construction	2,255			2,297
Lease financing	723			737
Total commercial portfolio	47,413			46,668
Residential mortgage	28,244			27,344
Home equity and other consumer loans	3,459			3,251
Total consumer portfolio	31,703			30,595
Total loans held for investment, before purchased credit-impaired loans	79,116			77,263
Purchased credit-impaired loans(1)	276			336
Total loans held for investment(2)	79,392			77,599
Allowance for loan losses	(747		)	(721		)
Loans held for investment, net	$	78,645		$	76,878

(1) Includes $14 million and $19 million as of June 30, 2016 and December 31, 2015, respectively, of loans for which the Company will be reimbursed a portion of any future losses under the terms of the FDIC loss share agreements.

(2) Includes $121 million and $100 million at June 30, 2016 and December 31, 2015, respectively, for net unamortized (discounts) and premiums and deferred (fees) and costs.

Allowance for Loan Losses

The following tables provide a reconciliation of changes in the allowance for loan losses by portfolio segment:

	For the Three Months Ended June 30, 2016
(Dollars in millions)	Commercial			Consumer			Purchased Credit- Impaired		Unallocated		Total
Allowance for loan losses, beginning of period	$	822		$	57		$	—	$	—	$	879
(Reversal of) provision for loan losses	(44		)	10			—		—		(34		)
Loans charged-off	(97		)	(2		)	—		—		(99		)
Recoveries of loans previously charged-off	1			—			—		—		1
Allowance for loan losses, end of period	$	682		$	65		$	—	$	—	$	747

	For the Three Months Ended June 30, 2015
(Dollars in millions)	Commercial			Consumer			Purchased Credit- Impaired			Unallocated		Total
Allowance for loan losses, beginning of period	$	459		$	48		$	3		$	20	$	530
(Reversal of) provision for loan losses	12			5			9			—		26
Loans charged-off	(13		)	(3		)	(8		)	—		(24		)
Recoveries of loans previously charged-off	3			1			—			—		4
Allowance for loan losses, end of period	$	461		$	51		$	4		$	20	$	536

56

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

	For the Six Months Ended June 30, 2016
(Dollars in millions)	Commercial			Consumer			Purchased Credit- Impaired			Unallocated			Total
Allowance for loan losses, beginning of period	$	651		$	49		$	1		$	20		$	721
(Reversal of) provision for loan losses	127			18			(1		)	(20		)	124
Other	4			—			—			—			4
Loans charged-off	(105		)	(3		)	—			—			(108		)
Recoveries of loans previously charged-off	5			1			—			—			6
Allowance for loan losses, end of period	$	682		$	65		$	—		$	—		$	747

	For the Six Months Ended June 30, 2015
(Dollars in millions)	Commercial			Consumer			Purchased Credit- Impaired			Unallocated		Total
Allowance for loan losses, beginning of period	$	465		$	49		$	3		$	20	$	537
(Reversal of) provision for loan losses	7			7			9			—		23
Other	(1		)	—			—			—		(1		)
Loans charged-off	(17		)	(6		)	(8		)	—		(31		)
Recoveries of loans previously charged-off	7			1			—			—		8
Allowance for loan losses, end of period	$	461		$	51		$	4		$	20	$	536

The following tables show the allowance for loan losses and related loan balances by portfolio segment as of June 30, 2016 and December 31, 2015:

	June 30, 2016
(Dollars in millions)	Commercial		Consumer		Purchased Credit- Impaired		Unallocated		Total
Allowance for loan losses:
Individually evaluated for impairment	$	186	$	18	$	—	$	—	$	204
Collectively evaluated for impairment	496		47		—		—		543
Total allowance for loan losses	$	682	$	65	$	—	$	—	$	747
Loans held for investment:
Individually evaluated for impairment	$	467	$	287	$	1	$	—	$	755
Collectively evaluated for impairment	46,946		31,416		—		—		78,362
Purchased credit-impaired loans	—		—		275		—		275
Total loans held for investment	$	47,413	$	31,703	$	276	$	—	$	79,392

	December 31, 2015
(Dollars in millions)	Commercial		Consumer		Purchased Credit- Impaired		Unallocated		Total
Allowance for loan losses:
Individually evaluated for impairment	$	101	$	13	$	—	$	—	$	114
Collectively evaluated for impairment	550		36		—		20		606
Purchased credit-impaired loans	—		—		1		—		1
Total allowance for loan losses	$	651	$	49	$	1	$	20	$	721
Loans held for investment:
Individually evaluated for impairment	$	525	$	307	$	1	$	—	$	833
Collectively evaluated for impairment	46,143		30,288		—		—		76,431
Purchased credit-impaired loans	—		—		335		—		335
Total loans held for investment	$	46,668	$	30,595	$	336	$	—	$	77,599

57

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

Nonaccrual and Past Due Loans

The following table presents nonaccrual loans as of June 30, 2016 and December 31, 2015:

(Dollars in millions)	June 30, 2016		December 31, 2015
Commercial and industrial	$	396	$	284
Commercial mortgage	26		37
Total commercial portfolio	422		321
Residential mortgage	177		190
Home equity and other consumer loans	28		35
Total consumer portfolio	205		225
Total nonaccrual loans, before purchased credit-impaired loans	627		546
Purchased credit-impaired loans	5		6
Total nonaccrual loans	$	632	$	552
Troubled debt restructured loans that continue to accrue interest	$	245	$	413
Troubled debt restructured nonaccrual loans (included in total nonaccrual loans above)	$	390	$	409

The following tables show an aging of the balance of loans held for investment, excluding PCI loans, by class as of June 30, 2016 and December 31, 2015:

	June 30, 2016
	Aging Analysis of Loans
(Dollars in millions)	Current		30 to 89 Days Past Due		90 Days or More Past Due		Total Past Due		Total
Commercial and industrial	$	29,944	$	22	$	48	$	70	$	30,014
Commercial mortgage	15,125		12		7		19		15,144
Construction	2,250		5		—		5		2,255
Total commercial portfolio	47,319		39		55		94		47,413
Residential mortgage	28,104		94		46		140		28,244
Home equity and other consumer loans	3,433		15		11		26		3,459
Total consumer portfolio	31,537		109		57		166		31,703
Total loans held for investment, excluding purchased credit-impaired loans	$	78,856	$	148	$	112	$	260	$	79,116

	December 31, 2015
	Aging Analysis of Loans
(Dollars in millions)	Current		30 to 89 Days Past Due		90 Days or More Past Due		Total Past Due		Total
Commercial and industrial	$	30,446	$	15	$	6	$	21	$	30,467
Commercial mortgage	13,880		17		7		24		13,904
Construction	2,292		5		—		5		2,297
Total commercial portfolio	46,618		37		13		50		46,668
Residential mortgage	27,206		92		46		138		27,344
Home equity and other consumer loans	3,225		14		12		26		3,251
Total consumer portfolio	30,431		106		58		164		30,595
Total loans held for investment, excluding purchased credit-impaired loans	$	77,049	$	143	$	71	$	214	$	77,263

Loans 90 days or more past due and still accruing totaled $2 million at June 30, 2016 and December 31, 2015. PCI loans that were 90 days or more past due and still accruing totaled $16 million at June 30, 2016 and December 31, 2015.

58

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

Credit Quality Indicators

Management analyzes the Company’s loan portfolios by applying specific monitoring policies and procedures that vary according to the relative risk profile and other characteristics within the various loan portfolios. For further information related to the credit quality indicators the Company uses to monitor the portfolio, see Note 3 to the Consolidated Financial Statements in Part II, Item 8. “Financial Statements and Supplementary Data” in our 2015 Form 10-K.

The following tables summarize the loans in the commercial portfolio segment and commercial loans outstanding within the PCI loans segment monitored for credit quality based on internal ratings. The amounts presented reflect unpaid principal balances less charge-offs.

	June 30, 2016
			Criticized
(Dollars in millions)	Pass		Special Mention		Classified		Total
Commercial and industrial	$	27,378	$	783	$	1,725	$	29,886
Commercial mortgage	14,723		135		161		15,019
Construction	2,200		55		—		2,255
Total commercial portfolio	44,301		973		1,886		47,160
Purchased credit-impaired loans	31		6		50		87
Total	$	44,332	$	979	$	1,936	$	47,247

	December 31, 2015
			Criticized
(Dollars in millions)	Pass		Special Mention		Classified		Total
Commercial and industrial	$	28,228	$	844	$	1,265	$	30,337
Commercial mortgage	13,470		139		149		13,758
Construction	2,240		57		—		2,297
Total commercial portfolio	43,938		1,040		1,414		46,392
Purchased credit-impaired loans	40		12		61		113
Total	$	43,978	$	1,052	$	1,475	$	46,505

At June 30, 2016 and December 31, 2015, the commercial portfolio included $1.6 billion and $1.2 billion, respectively, in criticized loans within the oil and gas industry sector of the portfolio. Criticized loans include both special mention and classified loans.

59

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

The Company monitors the credit quality of its consumer portfolio segment and consumer loans within the PCI loans segment based primarily on payment status. The following tables summarize the loans in the consumer portfolio segment and PCI loans segment, which excludes $13 million and $18 million of loans covered by FDIC loss share agreements, at June 30, 2016 and December 31, 2015, respectively:

	June 30, 2016
(Dollars in millions)	Accrual		Nonaccrual		Total
Residential mortgage	$	28,067	$	177	$	28,244
Home equity and other consumer loans	3,431		28		3,459
Total consumer portfolio	31,498		205		31,703
Purchased credit-impaired loans	126		—		126
Total	$	31,624	$	205	$	31,829

	December 31, 2015
(Dollars in millions)	Accrual		Nonaccrual		Total
Residential mortgage	$	27,154	$	190	$	27,344
Home equity and other consumer loans	3,216		35		3,251
Total consumer portfolio	30,370		225		30,595
Purchased credit-impaired loans	148		—		148
Total	$	30,518	$	225	$	30,743

The Company also monitors the credit quality for substantially all of its consumer portfolio segment using credit scores provided by FICO and refreshed LTV ratios. FICO credit scores are refreshed at least quarterly to monitor the quality of the portfolio. Refreshed LTV measures the principal balance of the loan as a percentage of the estimated current value of the property securing the loan. Home equity loans are evaluated using combined LTV, which measures the principal balance of the combined loans that have liens against the property (including unused credit lines for home equity products) as a percentage of the estimated current value of the property securing the loans. The LTV ratios are refreshed on a quarterly basis, using the most recent home pricing index data available for the property location. 

The following tables summarize the loans in the consumer portfolio segment and consumer loans within the PCI loans segment monitored for credit quality based on refreshed FICO scores and refreshed LTV ratios at June 30, 2016 and December 31, 2015. These tables exclude loans covered by FDIC loss share agreements, as discussed above. The amounts presented reflect unpaid principal balances less partial charge-offs.

	June 30, 2016
	FICO scores
(Dollars in millions)	720 and above			Below 720			No FICO Available(1)			Total
Residential mortgage	$	22,078		$	5,409		$	513		$	28,000
Home equity and other consumer loans	2,443			878			80			3,401
Total consumer portfolio	24,521			6,287			593			31,401
Purchased credit-impaired loans	50			66			11			127
Total	$	24,571		$	6,353		$	604		$	31,528
Percentage of total	78		%	20		%	2		%	100		%

(1) Represents loans for which management was not able to obtain an updated FICO score (e.g., due to recent profile changes).

60

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

	December 31, 2015
	FICO scores
(Dollars in millions)	720 and above			Below 720			No FICO Available(1)			Total
Residential mortgage	$	21,209		$	5,412		$	488		$	27,109
Home equity and other consumer loans	2,276			818			85			3,179
Total consumer portfolio	23,485			6,230			573			30,288
Purchased credit-impaired loans	60			76			12			148
Total	$	23,545		$	6,306		$	585		$	30,436
Percentage of total	77		%	21		%	2		%	100		%

(1) Represents loans for which management was not able to obtain an updated FICO score (e.g., due to recent profile changes).

	June 30, 2016
	LTV ratios
(Dollars in millions)	Less than or Equal to 80 Percent			Greater than 80 and Less than 100 Percent			Greater than or Equal to 100 Percent			No LTV Available(1)			Total
Residential mortgage	$	27,171		$	706		$	40		$	83		$	28,000
Home equity loans	2,155			216			75			46			2,492
Total consumer portfolio	29,326			922			115			129			30,492
Purchased credit-impaired loans	94			24			6			1			125
Total	$	29,420		$	946		$	121		$	130		$	30,617
Percentage of total	96		%	3		%	—		%	1		%	100		%

(1) Represents loans for which management was not able to obtain refreshed property values.

	December 31, 2015
	LTV ratios
(Dollars in millions)	Less than or Equal to 80 Percent			Greater than 80 and Less than 100 Percent			Greater than or Equal to 100 Percent			No LTV Available(1)			Total
Residential mortgage	$	26,143		$	804		$	52		$	110		$	27,109
Home equity loans	2,190			217			83			55			2,545
Total consumer portfolio	28,333			1,021			135			165			29,654
Purchased credit-impaired loans	106			32			9			—			147
Total	$	28,439		$	1,053		$	144		$	165		$	29,801
Percentage of total	95		%	4		%	—		%	1		%	100		%

(1) Represents loans for which management was not able to obtain refreshed property values.

61

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

Troubled Debt Restructurings

The following table provides a summary of the Company’s recorded investment in TDRs as of June 30, 2016 and December 31, 2015. The summary includes those TDRs that are on nonaccrual status and those that continue to accrue interest. The Company had $57 million and $98 million in commitments to lend additional funds to borrowers with loan modifications classified as TDRs as of June 30, 2016 and December 31, 2015, respectively.

(Dollars in millions)	June 30, 2016		December 31, 2015
Commercial and industrial	$	333	$	499
Commercial mortgage	15		16
Total commercial portfolio	348		515
Residential mortgage	256		276
Home equity and other consumer loans	31		31
Total consumer portfolio	287		307
Total restructured loans, excluding purchased credit-impaired loans	$	635	$	822

For the second quarter of 2016, TDR modifications in the commercial portfolio segment were primarily composed of interest rate changes, maturity extensions, covenant waivers, conversions from revolving lines of credit to term loans, or some combination thereof. In the consumer portfolio segment, primarily all of the modifications were composed of interest rate reductions and maturity extensions. Charge-offs related to TDR modifications for the six months ended June 30, 2016 and June 30, 2015 were de minimis. For the commercial and consumer portfolio segments, the allowance for loan losses for TDRs is measured on an individual loan basis or in pools with similar risk characteristics.

62

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

The following table provides the pre- and post-modification outstanding recorded investment amounts of TDRs as of the date of the restructuring that occurred during the three and six months ended June 30, 2016 and 2015:

	For the Three Months Ended June 30, 2016				For the Six Months Ended June 30, 2016
(Dollars in millions)	Pre-Modification Outstanding Recorded Investment(1)		Post-Modification Outstanding Recorded Investment(2)		Pre-Modification Outstanding Recorded Investment(1)		Post-Modification Outstanding Recorded Investment(2)
Commercial and industrial	$	126	$	125	$	176	$	175
Commercial mortgage	3		3		8		8
Total commercial portfolio	129		128		184		183
Residential mortgage	2		2		6		6
Home equity and other consumer loans	2		2		3		3
Total consumer portfolio	4		4		9		9
Total	$	133	$	132	$	193	$	192

(1) Represents the recorded investment in the loan immediately prior to the restructuring event.

(2) Represents the recorded investment in the loan immediately following the restructuring event. It includes the effect of paydowns that were required as part of the restructuring terms.

	For the Three Months Ended June 30, 2015				For the Six Months Ended June 30, 2015
(Dollars in millions)	Pre-Modification Outstanding Recorded Investment(1)		Post-Modification Outstanding Recorded Investment(2)		Pre-Modification Outstanding Recorded Investment(1)		Post-Modification Outstanding Recorded Investment(2)
Commercial and industrial	$	34	$	34	$	106	$	106
Commercial mortgage	6		6		8		8
Total commercial portfolio	40		40		114		114
Residential mortgage	6		6		10		10
Home equity and other consumer loans	1		1		2		2
Total consumer portfolio	7		7		12		12
Total	$	47	$	47	$	126	$	126

(1) Represents the recorded investment in the loan immediately prior to the restructuring event.

(2) Represents the recorded investment in the loan immediately following the restructuring event. It includes the effect of paydowns that were required as part of the restructuring terms.

63

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

The following table provides the recorded investment amounts of TDRs at the date of default, for which there was a payment default during the three and six months ended June 30, 2016 and 2015, and where the default occurred within the first twelve months after modification into a TDR. A payment default is defined as the loan being 60 days or more past due.

(Dollars in millions)	For the Three Months Ended June 30, 2016		For the Six Months Ended June 30, 2016
Commercial and industrial	$	10	$	11
Total commercial portfolio	10		11
Residential mortgage	1		3
Home equity and other consumer loans	1		1
Total consumer portfolio	2		4
Total	$	12	$	15

(Dollars in millions)	For the Three Months Ended June 30, 2015		For the Six Months Ended June 30, 2015
Commercial and industrial	$	21	$	25
Commercial mortgage	2		3
Total commercial portfolio	23		28
Total	$	23	$	28

For loans in the consumer portfolio in which impairment is measured using the present value of expected future cash flows discounted at the loan’s effective interest rate, historical payment defaults and the propensity to redefault are some of the factors considered when determining the allowance for loan losses.

Loan Impairment

Loans that are individually evaluated for impairment include larger nonaccruing loans within the commercial and industrial, construction, and commercial mortgage loan portfolios and loans modified in a TDR. The Company records an impairment allowance when the value of an impaired loan is less than the recorded investment in the loan.

The following tables show information about impaired loans by class as of June 30, 2016 and December 31, 2015:

	June 30, 2016
	Recorded Investment								Unpaid Principal Balance
(Dollars in millions)	With an Allowance		Without an Allowance		Total		Allowance for Impaired Loans		With an Allowance		Without an Allowance
Commercial and industrial	$	444	$	10	$	454	$	185	$	498	$	10
Commercial mortgage	13		—		13		1		14		—
Total commercial portfolio	457		10		467		186		512		10
Residential mortgage	172		84		256		18		187		99
Home equity and other consumer loans	10		21		31		—		11		32
Total consumer portfolio	182		105		287		18		198		131
Total, excluding purchased credit-impaired loans	639		115		754		204		710		141
Purchased credit-impaired loans	1		—		1		—		1		—
Total	$	640	$	115	$	755	$	204	$	711	$	141

64

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

	December 31, 2015
	Recorded Investment								Unpaid Principal Balance
(Dollars in millions)	With an Allowance		Without an Allowance		Total		Allowance for Impaired Loans		With an Allowance		Without an Allowance
Commercial and industrial	$	363	$	142	$	505	$	100	$	377	$	144
Commercial mortgage	14		6		20		1		15		9
Total commercial portfolio	377		148		525		101		392		153
Residential mortgage	183		93		276		13		199		109
Home equity and other consumer loans	9		22		31		—		10		35
Total consumer portfolio	192		115		307		13		209		144
Total, excluding purchased credit-impaired loans	569		263		832		114		601		297
Purchased credit-impaired loans	1		—		1		—		1		—
Total	$	570	$	263	$	833	$	114	$	602	$	297

The following table presents the average recorded investment in impaired loans and the amount of interest income recognized for impaired loans during the three and six months ended June 30, 2016 and 2015 for the commercial, consumer and PCI loans portfolio segments.

	For the Three Months Ended June 30,								For the Six Months Ended June 30,
	2016				2015				2016				2015
(Dollars in millions)	Average Recorded Investment		Recognized Interest Income		Average Recorded Investment		Recognized Interest Income		Average Recorded Investment		Recognized Interest Income		Average Recorded Investment		Recognized Interest Income
Commercial and industrial	$	138	$	—	$	183	$	1	$	73	$	2	$	164	$	3
Commercial mortgage	15		—		29		1		14		—		32		1
Total commercial portfolio	153		—		212		2		87		2		196		4
Residential mortgage	263		2		298		2		267		4		301		5
Home equity and other consumer loans	31		—		30		—		31		1		30		1
Total consumer portfolio	294		2		328		2		298		5		331		6
Total, excluding purchased credit-impaired loans	447		2		540		4		385		7		527		10
Purchased credit-impaired loans	1		—		2		—		1		—		2		—
Total	$	448	$	2	$	542	$	4	$	386	$	7	$	529	$	10

The Company transferred a net $179 million of commercial loans from held for investment to held for sale during the six months endedJune 30, 2016 and a net $207 million of commercial loans from held for investment to held for sale during the six months endedJune 30, 2015. Proceeds from the sale of commercial loans were $112 million and $198 million during the six months endedJune 30, 2016 and June 30, 2015, respectively. No consumer loans were sold or transferred from held for investment to held for sale during the six months endedJune 30, 2016 or June 30, 2015.

Note 5—Variable Interest Entities

In the normal course of business, the Company has certain financial interests in entities which have been determined to be VIEs. Generally, a VIE is a corporation, partnership, trust or other legal structure where the equity investors do not have substantive voting rights, an obligation to absorb the entity’s losses or the right to receive the entity’s returns, or the ability to direct the significant activities of the entity. The following discusses the Company’s consolidated and unconsolidated VIEs.

65

Note 5—Variable Interest Entities (Continued)

Consolidated VIEs

The following tables present the assets and liabilities of consolidated VIEs recorded on the Company’s consolidated balance sheets at June 30, 2016 and December 31, 2015:

	June 30, 2016
	Consolidated Assets								Consolidated Liabilities
(Dollars in millions)	Interest Bearing Deposits in Banks		Loans Held for Investment, net		Other Assets		Total Assets		Other Liabilities		Total Liabilities
LIHC investments	$	7	$	—	$	158	$	165	$	—	$	—
Leasing investments	—		563		145		708		58		58
Total consolidated VIEs	$	7	$	563	$	303	$	873	$	58	$	58

	December 31, 2015
	Consolidated Assets								Consolidated Liabilities
(Dollars in millions)	Interest Bearing Deposits in Banks		Loans Held for Investment, net		Other Assets		Total Assets			Other Liabilities		Total Liabilities
LIHC investments	$	9	$	—	$	178	$	187		$	—	$	—
Leasing investments	21		588		156		765			59		59
Total consolidated VIEs	$	30	$	588	$	334	$	952		$	59	$	59

LIHC Investments

The Company sponsors, manages and syndicates two LIHC investment fund structures. These investments are designed to generate a return primarily through the realization of U.S. federal tax credits and deductions. The Company is considered the primary beneficiary and has consolidated these investments because the Company has the power to direct activities that most significantly impact the funds’ economic performances and also has the obligation to absorb losses of the funds that could potentially be significant to the funds. Neither creditors nor equity investors in the LIHC investments have any recourse to the general credit of the Company, and the Company’s creditors do not have any recourse to the assets of the consolidated LIHC investments.

Leasing Investments

The Company has leasing investments primarily in the wind, rail and coal industries. The Company is considered the primary beneficiary and has consolidated these investments because the Company has the power to direct the activities of these entities that significantly impact the entities’ economic performances. The Company also has the right to receive potentially significant benefits or the obligation to absorb potentially significant losses of these investments.

66

Note 5—Variable Interest Entities (Continued)

Unconsolidated VIEs

The following tables present the Company’s carrying amounts related to the unconsolidated VIEs at June 30, 2016 and December 31, 2015. The tables also present the Company’s maximum exposure to loss resulting from its involvement with these VIEs. The maximum exposure to loss represents the carrying amount of the Company’s involvement plus any legally binding unfunded commitments in the unlikely event that all of the assets in the VIEs become worthless. During the six months endedJune 30, 2016 and June 30, 2015, the Company had noncash increases in unfunded commitments on LIHC investments of $48 million and $60 million, respectively, included within other liabilities.

	June 30, 2016
	Unconsolidated Assets										Unconsolidated Liabilities
(Dollars in millions)	Interest Bearing Deposits in Banks		Securities Available for Sale		Loans Held for Investment		Other Assets		Total Assets		Other Liabilities		Total Liabilities		Maximum Exposure to Loss
LIHC investments	$	—	$	25	$	179	$	1,149	$	1,353	$	401	$	401	$	1,353
Leasing investments	1		—		19		1,290		1,310		61		61		1,329
Other investments	—		—		34		27		61		—		—		89
Total unconsolidated VIEs	$	1	$	25	$	232	$	2,466	$	2,724	$	462	$	462	$	2,771

			December 31, 2015
			Unconsolidated Assets								Unconsolidated Liabilities
(Dollars in millions)	Interest Bearing Deposits in Banks		Securities Available for Sale		Loans Held for Investment		Other Assets		Total Assets		Other Liabilities		Total Liabilities		Maximum Exposure to Loss
LIHC investments	$	—	$	25	$	220	$	1,166	$	1,411	$	424	$	424	$	1,411
Leasing investments	5		—		20		1,200		1,225		61		61		1,245
Other investments	—		—		49		10		59		—		—		60
Total unconsolidated VIEs	$	5	$	25	$	289	$	2,376	$	2,695	$	485	$	485	$	2,716

LIHC Investments

The Company makes investments in partnerships and funds formed by third parties. The primary purpose of the partnerships and funds is to invest in low-income housing units and distribute tax credits and tax benefits associated with the underlying properties to investors. The Company is a limited partner investor and is allocated tax credits and deductions, but has no voting or other rights to direct the activities of the funds or partnerships, and therefore is not considered the primary beneficiary and does not consolidate these investments.

The following table presents the impact of the unconsolidated LIHC investments on our consolidated statements of income for the three and six months endedJune 30, 2016 and 2015:

	For the Three Months Ended				For the Six Months Ended
	June 30, 2016		June 30, 2015		June 30, 2016		June 30, 2015
(Dollars in millions)
Losses from LIHC investments included in other noninterest expense	$	1	$	2	$	3	$	4
Amortization of LIHC investments included in income tax expense	32		29		62		56
Tax credits and other tax benefits from LIHC investments included in income tax expense	47		44		92		90

67

Note 5—Variable Interest Entities (Continued)

Leasing Investments

The unconsolidated VIEs related to leasing investments are primarily renewable energy investments. Through its subsidiaries, the Company makes equity investments in LLCs established by third party sponsors. The LLCs are created to operate and manage wind, solar, hydroelectric and cogeneration power plant projects. Power generated by the projects is sold to third parties through long-term purchase power agreements. As a limited investor member, the Company is allocated production tax credits and taxable income or losses associated with the projects. The Company has no voting or other rights to direct the significant activities of the LLCs, and therefore is not considered the primary beneficiary and does not consolidate these investments.

Other Investments

The Company has other investments in structures formed by third parties. The Company has no voting or other rights to direct the activities of the investments that would most significantly impact the entities’ performance, and therefore is not considered the primary beneficiary and does not consolidate these investments.

Note 6—Commercial Paper and Other Short-Term Borrowings

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

(Dollars in millions)	June 30, 2016		December 31, 2015
Federal funds purchased and securities sold under repurchase agreements, with weighted average interest rates of 0.41% and 0.30% at June 30, 2016 and December 31, 2015, respectively	$	35	$	44
Commercial paper, with a weighted average interest rate of 0.44% and 0.23% at June 30, 2016 and December 31, 2015, respectively	618		994
Federal Home Loan Bank advances, with a weighted average interest rate of 0.67% at June 30, 2016	4,050		—
Total commercial paper and other short-term borrowings	$	4,703	$	1,038

68

Note 7—Long-Term Debt

Long-term debt consists of borrowings having an original maturity of one year or more. The following is a summary of the Company's long-term debt:

(Dollars in millions)	June 30, 2016		December 31, 2015
Debt issued by MUAH
Senior debt:
Floating rate senior notes due February 2018. These notes, which bear interest at 0.57% above 3-month LIBOR, had a rate of 1.20% at June 30, 2016 and 0.91% at December 31, 2015	$	250	$	250
Fixed rate 1.625% notes due February 2018	449		450
Fixed rate 2.25% notes due February 2020	996		1,000
Fixed rate 3.50% notes due June 2022	397		398
Fixed rate 3.00% notes due February 2025	495		498
Subordinated debt due to BTMU:
Floating rate subordinated debt due December 2023. This note, which bears interest at 1.38% above 3-month LIBOR, had a rate of 2.02% at June 30, 2016 and 1.98% at December 31, 2015	300		300
Junior subordinated debt payable to trusts:
Floating rate note due September 2036. This note had an interest rate of 2.35% at June 30, 2016 and 2.21% at December 31, 2015	36		36
Total debt issued by MUAH	2,923		2,932
Debt issued by MUB and other subsidiaries
Senior debt:
Fixed rate FHLB of San Francisco advances due February 2016. These notes bear a combined weighted-average rate of 2.50% at December 31, 2015	—		500
Fixed rate 3.00% notes due June 2016	—		700
Fixed rate 1.50% notes due September 2016	500		499
Floating rate notes due September 2016. These notes, which bear interest at 0.75% above 3-month LIBOR, had a rate of 1.39% at June 30, 2016 and 1.35% at December 31, 2015	500		500
Floating rate notes due May 2017. These notes, which bear interest at 0.40% above 3-month LIBOR, had a rate of 1.03% at June 30, 2016 and 0.73% at December 31, 2015	250		250
Fixed rate 2.125% notes due June 2017	499		499
Fixed rate 2.625% notes due September 2018	999		1,000
Fixed rate 2.250% notes due May 2019	510		502
Senior debt due to BTMU:
Floating rate debt due January 2018. This note, which bears interest at 0.85% above 1-month LIBOR, had a rate of 1.31% at June 30, 2016 and 1.09% at December 31, 2015	1,000		1,000
Floating rate debt due January 2018. This note, which bears interest at 0.87% above 1-month LIBOR, had a rate of 1.33% at June 30, 2016 and 1.11% at December 31, 2015	1,500		1,500
Floating rate debt due January 2018. This note, which bears interest at 1.03% above 1-month LIBOR, had a rate of 1.49% at June 30, 2016 and 1.27% at December 31, 2015	1,000		1,000
Subordinated debt:
Fixed rate 5.95% notes due May 2016	—		703
Subordinated debt due to BTMU:
Floating rate subordinated debt due June 2023. This note, which bears interest at 1.20% above 3-month LIBOR, had a rate of 1.82% at June 30, 2016 and 1.80% at December 31, 2015	750		750
Capital lease obligations with a combined weighted-average interest rate of 4.92% at June 30, 2016 and December 31, 2015	14		14
Total debt issued by MUB and other subsidiaries	7,522		9,417
Total long-term debt	$	10,445	$	12,349

69

Note 8—Fair Value Measurement and Fair Value of Financial Instruments

Valuation Methodologies

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., an exit price) in an orderly transaction between willing market participants at the measurement date. The Company has an established and documented process for determining fair value for financial assets and liabilities that are measured at fair value on either a recurring or nonrecurring basis. When available, quoted market prices are used to determine fair value. If quoted market prices are not available, fair value is based upon valuation techniques that use, where possible, current market-based or independently sourced parameters, such as yield curves, foreign exchange rates, credit spreads, commodity prices and implied volatilities. Valuation adjustments may be made to ensure the financial instruments are recorded at fair value. These adjustments include amounts that reflect counterparty credit quality and that consider the Company's own creditworthiness in determining the fair value of its trading assets and liabilities. For further information related to the valuation methodologies used for certain financial assets and financial liabilities measured at fair value, see Note 10 to the Consolidated Financial Statements in Part II, Item 8. “Financial Statements and Supplementary Data” in our 2015 Form 10-K.

Fair Value Hierarchy

In determining fair value, the Company maximizes the use of observable market inputs and minimizes the use of unobservable inputs. Observable inputs reflect market-derived or market-based information obtained from independent sources, while unobservable inputs reflect the Company’s estimate about market data. Based on the observability of the significant inputs used, the Company classifies its fair value measurements in accordance with the three-level hierarchy as defined by GAAP. This hierarchy is based on the quality, observability and reliability of the information used to determine fair value. For further information related to the fair value hierarchy, see Note 10 to the Consolidated Financial Statements in Part II, Item 8. “Financial Statements and Supplementary Data” in our 2015 Form 10-K.

Valuation Processes

The Company has established a valuation committee to oversee its valuation framework for measuring fair value and to establish valuation policies and procedures. The valuation committee’s responsibilities include reviewing fair value measurements and categorizations within the fair value hierarchy and monitoring the use of pricing sources, mark-to-model valuations, dealer quotes and other valuation processes. The valuation committee reports to the Company’s Disclosure & Accounting Committee and meets at least quarterly.

Independent price verification is performed periodically by the Company to test the market data and valuations of substantially all instruments measured at fair value on a recurring basis. As part of its independent price verification procedures, the Company compares pricing sources, tests data variances within certain thresholds and performs variance analysis, utilizing third party valuations and both internal and external models. Results are formally reported on a quarterly basis to the valuation committee. For further information related to valuation processes, see Note 10 to the Consolidated Financial Statements in Part II, Item 8. “Financial Statements and Supplementary Data” in our 2015 Form 10-K.

70

Note 8—Fair Value Measurement and Fair Value of Financial Instruments (Continued)

Fair Value Measurements on a Recurring Basis

The following tables present financial assets and financial liabilities measured at fair value on a recurring basis as of June 30, 2016 and December 31, 2015, by major category and by valuation hierarchy level:

	June 30, 2016
(Dollars in millions)	Level 1			Level 2			Level 3			Netting Adjustment(1)			Fair Value
Assets
Trading account assets:
U.S. Treasury securities	$	—		$	30		$	—		$	—		$	30
U.S. government-sponsored agency securities	—			121			—			—			121
State and municipal securities	—			5			—			—			5
Interest rate derivative contracts	1			1,626			2			(344		)	1,285
Commodity derivative contracts	—			226			3			(191		)	38
Foreign exchange derivative contracts	1			218			2			(151		)	70
Equity derivative contracts	—			—			180			(167		)	13
Total trading account assets	2			2,226			187			(853		)	1,562
Securities available for sale:
U.S. Treasury	—			159			—			—			159
Residential mortgage-backed securities:
U.S government and government-sponsored agencies	—			6,052			—			—			6,052
Privately issued	—			248			—			—			248
Privately issued - commercial mortgage-backed securities	—			1,527			—			—			1,527
Collateralized loan obligations	—			3,238			—			—			3,238
Other	—			7			—			—			7
Other debt securities:
Direct bank purchase bonds	—			—			1,575			—			1,575
Other	—			1			32			—			33
Equity securities	7			—			—			—			7
Total securities available for sale	7			11,232			1,607			—			12,846
Other assets:
Mortgage servicing rights	—			—			13			—			13
Interest rate hedging contracts	—			344			—			(317		)	27
Other derivative contracts	—			1			2			—			3
Total other assets	—			345			15			(317		)	43
Total assets	$	9		$	13,803		$	1,809		$	(1,170	)	$	14,451
Percentage of total	—		%	95		%	13		%	(8		)%	100		%
Percentage of total Company assets	—		%	12		%	2		%	(1		)%	13		%
Liabilities
Trading account liabilities:
Interest rate derivative contracts	$	2		$	1,574		$	—		$	(1,344	)	$	232
Commodity derivative contracts	—			184			4			(81		)	107
Foreign exchange derivative contracts	1			148			1			(25		)	125
Equity derivative contracts	—			—			181			—			181
Securities sold, not yet purchased	—			31			—			—			31
Total trading account liabilities	3			1,937			186			(1,450		)	676
Other liabilities:
FDIC clawback liability	—			—			117			—			117
Other derivative contracts	—			1			7			—			8
Total other liabilities	—			1			124			—			125
Total liabilities	$	3		$	1,938		$	310		$	(1,450	)	$	801
Percentage of total	—		%	242		%	39		%	(181		)%	100		%
Percentage of total Company liabilities	—		%	2		%	—		%	(1		)%	1		%

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

71

Note 8—Fair Value Measurement and Fair Value of Financial Instruments (Continued)

	December 31, 2015
(Dollars in millions)	Level 1			Level 2			Level 3			Netting Adjustment(1)			Fair Value
Assets
Trading account assets:
U.S. Treasury securities	$	—		$	37		$	—		$	—		$	37
U.S. government-sponsored agency securities	—			106			—			—			106
State and municipal securities	—			3			—			—			3
Commercial paper	—			25			—			—			25
Interest rate derivative contracts	—			998			4			(163		)	839
Commodity derivative contracts	—			408			1			(384		)	25
Foreign exchange derivative contracts	1			115			1			(70		)	47
Equity derivative contracts	—			—			222			(217		)	5
Total trading account assets	1			1,692			228			(834		)	1,087
Securities available for sale:
U.S. Treasury	—			594			—			—			594
Residential mortgage-backed securities:
U.S government and government-sponsored agencies	—			7,201			—			—			7,201
Privately issued	—			151			—			—			151
Privately issued - commercial mortgage-backed securities	—			1,546			—			—			1,546
Collateralized loan obligations	—			3,233			—			—			3,233
Other	—			7			—			—			7
Other debt securities:
Direct bank purchase bonds	—			—			1,572			—			1,572
Other	—			1			31			—			32
Equity securities	8			—			—			—			8
Total securities available for sale	8			12,733			1,603			—			14,344
Other assets:
Interest rate hedging contracts	—			73			—			(71		)	2
Other derivative contracts	—			4			1			(4		)	1
Total other assets	—			77			1			(75		)	3
Total assets	$	9		$	14,502		$	1,832		$	(909	)	$	15,434
Percentage of total	—		%	94		%	12		%	(6		)%	100		%
Percentage of total Company assets	—		%	12		%	2		%	(1		)%	13		%
Liabilities
Trading account liabilities:
Interest rate derivative contracts	$	1		$	947		$	—		$	(775	)	$	173
Commodity derivative contracts	—			368			1			(61		)	308
Foreign exchange derivative contracts	1			91			1			(22		)	71
Equity derivative contracts	—			—			221			—			221
Securities sold, not yet purchased	—			23			—			—			23
Total trading account liabilities	2			1,429			223			(858		)	796
Other liabilities:
FDIC clawback liability	—			—			112			—			112
Interest rate hedging contracts	—			14			—			(14		)	—
Other derivative contracts	—			—			2			—			2
Total other liabilities	—			14			114			(14		)	114
Total liabilities	$	2		$	1,443		$	337		$	(872	)	$	910
Percentage of total	—		%	159		%	37		%	(96		)%	100		%
Percentage of total Company liabilities	—		%	1		%	—		%	(1		)%	—		%

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

72

Note 8—Fair Value Measurement and Fair Value of Financial Instruments (Continued)

The following tables present a reconciliation of the assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2016 and 2015. Level 3 available for sale securities at June 30, 2016 and 2015 primarily consist of direct bank purchase bonds. The Company’s policy is to recognize transfers in and out of Level 1, 2 and 3 as of the end of a reporting period.

	For the Three Months Ended
	June 30, 2016															June 30, 2015
(Dollars in millions)	Trading Assets			Securities Available for Sale			Other Assets			Trading Liabilities			Other Liabilities			Trading Assets			Securities Available for Sale			Other Assets			Trading Liabilities			Other Liabilities
Asset (liability) balance, beginning of period	$	189		$	1,613		$	15		$	(187	)	$	(116	)	$	306		$	1,694		$	3		$	(301	)	$	(109	)
Total gains (losses) (realized/unrealized):
Included in income before taxes	19			—			(1		)	(19		)	(8		)	(12		)	—			(2		)	12			—
Included in other comprehensive income	—			7			—			—			—			—			(5		)	—			—			—
Purchases/additions	—			2			1			—			—			1			8			—			—			—
Sales	—			—			—			—			—			—			—			—			(1		)	—
Settlements	(21		)	(15		)	—			20			—			(12		)	(9		)	—			12			—
Asset (liability) balance, end of period	$	187		$	1,607		$	15		$	(186	)	$	(124	)	$	283		$	1,688		$	1		$	(278	)	$	(109	)
Changes in unrealized gains (losses) included in income before taxes for assets and liabilities still held at end of period	$	19		$	—		$	(1	)	$	(19	)	$	(8	)	$	(12	)	$	—		$	(2	)	$	12		$	—

73

Note 8—Fair Value Measurement and Fair Value of Financial Instruments (Continued)

	For the Six Months Ended
	June 30, 2016														June 30, 2015
(Dollars in millions)	Trading Assets			Securities Available for Sale			Other Assets		Trading Liabilities			Other Liabilities			Trading Assets			Securities Available for Sale			Other Assets			Trading Liabilities			Other Liabilities
Asset (liability) balance, beginning of period	$	228		$	1,603		$	1	$	(223	)	$	(114	)	$	311		$	1,790		$	2		$	(305	)	$	(107	)
Total gains (losses) (realized/unrealized):
Included in income before taxes	1			—			—		(2		)	(10		)	(4		)	—			(1		)	2			(2		)
Included in other comprehensive income	—			5			—		—			—			—			(8		)	—			—			—
Purchases/additions	—			80			1		—			—			1			17			—			—			—
Sales	—			—			—		—			—			—			—			—			(1		)	—
Settlements	(42		)	(81		)	—		39			—			(25		)	(111		)	—			26			—
Transfers in (out) of level 3	—			—			13		—			—			—			—			—			—			—
Asset (liability) balance, end of period	$	187		$	1,607		$	15	$	(186	)	$	(124	)	$	283		$	1,688		$	1		$	(278	)	$	(109	)
Changes in unrealized gains (losses) included in income before taxes for assets and liabilities still held at end of period	$	1		$	—		$	—	$	(2	)	$	(10	)	$	(4	)	$	—		$	(1	)	$	2		$	(2	)

The following table presents information about significant unobservable inputs related to the Company’s significant Level 3 assets and liabilities at June 30, 2016.

	June 30, 2016
(Dollars in millions)	Level 3 Fair Value		Valuation Technique	Significant Unobservable Input(s)	Range of Inputs		Weighted Average
Securities available for sale:
Direct bank purchase bonds	$	1,575	Return on equity	Market-required return on capital	8.0 - 10.0	%	9.8	%
				Probability of default	0.0 - 25.0	%	0.4	%
				Loss severity	10.0 - 60.0	%	28.9	%
Other liabilities:
FDIC clawback liability	$	117	Discounted cash flow	Probability of default	0.2 - 100.0	%	57.2	%
				Loss severity	0.0 - 100.0	%	38.1	%

The direct bank purchase bonds use a return on equity valuation technique. This technique uses significant unobservable inputs such as market-required return on capital, probability of default and loss severity. Increases (decreases) in any of these inputs in isolation would result in a lower (higher) fair value measurement.

The FDIC clawback liability uses a discounted cash flow valuation technique. This technique uses significant unobservable inputs such as probability of default and loss severity. Increases (decreases) in probability of default and loss severity would result in a lower (higher) liability.

74

Note 8—Fair Value Measurement and Fair Value of Financial Instruments (Continued)

Fair Value Measurement on a Nonrecurring Basis

Certain assets may be measured at fair value on a nonrecurring basis. These assets are subject to fair value adjustments that result from the application of the lower of cost or fair value accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis during the three and six months ended June 30, 2016 and 2015 that were still held on the consolidated balance sheet as of the respective periods ended, the following tables present the fair value of such assets by the level of valuation assumptions used to determine each fair value adjustment.

	June 30, 2016								Gain (Loss) For the Three Months Ended June 30, 2016			Gain (Loss) For the Six Months Ended June 30, 2016
(Dollars in millions)	Fair Value		Level 1		Level 2		Level 3
Loans:
Loans held for sale	$	—	$	—	$	—	$	—	$	—		$	(3	)
Impaired loans	180		—		—		180		(16		)	(143		)
Other assets:
OREO	2		—		—		2		—			(1		)
Private equity investments	10		—		—		10		—			(12		)
Software	13		—		—		13		(1		)	(5		)
Intangible assets	—		—		—		—		—			(1		)
Total	$	205	$	—	$	—	$	205	$	(17	)	$	(165	)

	June 30, 2015								Gain (Loss) For the Three Months Ended June 30, 2015			Gain (Loss) For the Six Months Ended June 30, 2015
(Dollars in millions)	Fair Value		Level 1		Level 2		Level 3
Loans:
Impaired loans	$	35	$	—	$	—	$	35	$	(7	)	$	(13	)
Other assets:
OREO	5		—		—		5		(1		)	(1		)
Private equity investments	7		—		—		7		—			(5		)
Total	$	47	$	—	$	—	$	47	$	(8	)	$	(19	)

Loans include individually impaired loans that are measured based on the fair value of the underlying collateral or the fair value of the loan. The fair value of impaired loans was determined based on appraised values of the underlying collateral or market pricing for the loan, adjusted for management judgment, as of the measurement date. The fair value of OREO was primarily based on independent appraisals. The fair value of private equity investments was determined using a discounted cash flow analysis and market pricing, adjusted for management judgment, as of the measurement date. The fair value of software and intangible assets was determined using appraised value and market pricing, adjusted for management judgment, as of the measurement date.

75

Note 8—Fair Value Measurement and Fair Value of Financial Instruments (Continued)

Fair Value of Financial Instruments Disclosures

The tables below present the carrying amount and estimated fair value of certain financial instruments, classified by valuation hierarchy level as of June 30, 2016 and as of December 31, 2015:

	June 30, 2016
(Dollars in millions)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	3,865	$	3,865	$	3,865	$	—	$	—
Securities held to maturity	10,259		10,573		—		10,573		—
Loans held for investment (1)	77,931		79,833		—		—		79,833
Liabilities
Deposits	$	82,692	$	82,739	$	—	$	82,739	$	—
Commercial paper and other short-term borrowings	4,703		4,703		—		4,703		—
Long-term debt	10,445		10,523		—		10,523		—
Off-Balance Sheet Instruments
Commitments to extend credit and standby and commercial letters of credit	$	238	$	238	$	—	$	—	$	238

(1) Excludes lease financing. The carrying amount is net of the allowance for loan and lease losses.

	December 31, 2015
(Dollars in millions)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	4,529	$	4,529	$	4,529	$	—	$	—
Securities held to maturity	10,158		10,207		—		10,207		—
Loans held for investment (1)	76,150		77,640		—		—		77,640
Other assets	16		17		—		—		17
Liabilities
Deposits	$	84,340	$	84,375	$	—	$	84,375	$	—
Commercial paper and other short-term borrowings	1,038		1,038		—		1,038		—
Long-term debt	12,349		12,351		—		12,351		—
Off-Balance Sheet Instruments
Commitments to extend credit and standby and commercial letters of credit	$	243	$	243	$	—	$	—	$	243

(1) Excludes lease financing. The carrying amount is net of the allowance for loan and lease losses.

For further information on methodologies for approximating fair values, see Note 10 to the Consolidated Financial Statements in Part II, Item 8. “Financial Statements and Supplementary Data” in our 2015 Form 10-K.

76

Note 9—Derivative Instruments and Other Financial Instruments Used For Hedging

The Company enters into certain derivative and other financial instruments primarily to assist customers with their risk management objectives and to manage the Company’s exposure to interest rate risk. When entering into derivatives on behalf of customers the Company generally acts as a financial intermediary by offsetting a significant portion of the market risk for these derivatives with third parties. The Company may also enter into derivatives for other risk management purposes. All derivative instruments are recognized as assets or liabilities on the consolidated balance sheets at fair value.

Counterparty credit risk is inherent in derivative instruments. In order to reduce its exposure to counterparty credit risk, the Company utilizes credit approvals, limits, monitoring procedures and master netting and credit support annex agreements. Additionally, the Company considers counterparty credit quality and the creditworthiness of the Company in estimating the fair value of derivative instruments.

The table below presents the notional amounts and fair value amounts of the Company's derivative instruments reported on the consolidated balance sheets, segregated between derivative instruments designated and qualifying as hedging instruments and derivative instruments not designated as hedging instruments as of June 30, 2016 and December 31, 2015, respectively. Asset and liability values are presented gross, excluding the impact of legally enforceable master netting and credit support annex agreements. The fair value of asset and liability derivatives designated and qualifying as hedging instruments and derivatives designated as other risk management are included in other assets and other liabilities, respectively. The fair value of asset and liability trading derivatives are included in trading account assets and trading account liabilities, respectively.

	June 30, 2016						December 31, 2015
			Fair Value						Fair Value
	Notional		Asset		Liability		Notional		Asset		Liability
(Dollars in millions)	Amount		Derivatives		Derivatives		Amount		Derivatives		Derivatives
Cash flow hedges
Interest rate contracts	$	14,200	$	330	$	—	$	15,250	$	68	$	14
Fair value hedges
Interest rate contracts	500		14		—		500		5		—
Not designated as hedging instruments:
Trading
Interest rate contracts	117,067		1,629		1,576		100,932		1,002		948
Commodity contracts	3,482		229		188		3,775		409		369
Foreign exchange contracts	7,472		221		150		5,541		117		93
Equity contracts	2,923		180		181		3,351		222		221
Total Trading	130,944		2,259		2,095		113,599		1,750		1,631
Other risk management	324		3		8		251		5		2
Total derivative instruments	$	145,968	$	2,606	$	2,103	$	129,600	$	1,828	$	1,647

We recognized net losses of $10 million and $11 million on other risk management derivatives for the three and six months ended June 30, 2016 and net losses of $2 million and $1 million for the three and six months ended June 30, 2015, which are included in other noninterest income.

Derivatives Designated and Qualifying as Hedging Instruments

The Company uses interest rate derivatives to manage the financial impact on the Company from changes in market interest rates. These instruments are used to manage interest rate risk relating to specified groups of assets and liabilities, primarily LIBOR-based commercial loans and debt issuances. Derivatives that qualify for hedge accounting are designated as either fair value or cash flow hedges. For further information related to the Company’s hedging strategy, see Note 11 to the Consolidated Financial Statements in Part II, Item 8. “Financial Statements and Supplementary Data” in our 2015 Form 10-K.

77

Note 9—Derivative Instruments and Other Financial Instruments Used For Hedging (Continued)

Cash Flow Hedges

The Company used interest rate swaps with a notional amount of $14.2 billion at June 30, 2016 to hedge the risk of changes in cash flows attributable to changes in the designated benchmark interest rate on LIBOR indexed loans. To the extent effective, payments received or paid under the swap contract offset fluctuations in interest income on loans caused by changes in the relevant LIBOR index. At June 30, 2016, the weighted average remaining life of the active cash flow hedges was 3.83 years.

For cash flow hedges, the effective portion of the gain or loss on the hedging instruments is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged cash flows are recognized in net interest income. Gains and losses representing hedge ineffectiveness are recognized in noninterest expense in the period in which they arise. At June 30, 2016, the Company expects to reclassify approximately $160 million of income from AOCI to net interest income during the twelve months ending June 30, 2017. This amount could differ from amounts actually realized due to changes in interest rates, hedge terminations and the addition of other hedges subsequent to June 30, 2016.

The following tables present the amount and location of the net gains and losses recorded in the Company’s consolidated statements of income and changes in stockholder’s equity for derivatives designated as cash flow hedges for the three and six months ended June 30, 2016 and 2015:

	Amount of Gain or (Loss) Recognized in OCI on Derivative Instruments (Effective Portion)						Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)					Gain (Loss) Recognized in Income on Derivative Instruments (Ineffective Portion)
	For the Three Months Ended June 30,						For the Three Months Ended June 30,					For the Three Months Ended June 30,
(Dollars in millions)	2016		2015			Location	2016		2015		Location	2016		2015
Derivatives in cash flow hedging relationships
						Interest income	$	44	$	41
Interest rate contracts	$	144	$	(8	)	Interest expense	—		—		Noninterest expense	$	—	$	—
Total	$	144	$	(8	)		$	44	$	41		$	—	$	—

	Amount of Gain or (Loss) Recognized in OCI on Derivative Instruments (Effective Portion)					Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)					Gain (Loss) Recognized in Income on Derivative Instruments (Ineffective Portion)
	For the Six Months Ended June 30,					For the Six Months Ended June 30,					For the Six Months Ended June 30,
(Dollars in millions)	2016		2015		Location	2016		2015		Location	2016		2015
Derivatives in cash flow hedging relationships
					Interest income	$	87	$	73
Interest rate contracts	$	410	$	111	Interest expense	—		1		Noninterest expense	$	1	$	1
Total	$	410	$	111		$	87	$	74		$	1	$	1

Fair Value Hedges

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

For fair value hedges, any ineffectiveness is recognized in noninterest expense in the period in which it arises. The change in the fair value of the hedged item and the hedging instrument, to the extent completely effective, offsets with no impact on earnings.

78

Note 9—Derivative Instruments and Other Financial Instruments Used For Hedging (Continued)

The following table presents the gains (losses) on the Company's fair value hedges and hedged item for the three and six months ended June 30, 2016 and 2015, respectively:

		For the Three Months Ended June 30, 2016							For the Six Months Ended June 30, 2016
(Dollars in millions)		Derivative		Hedged Item			Hedge Ineffectiveness		Derivative		Hedged Item			Hedge Ineffectiveness
Interest rate risk on long-term debt		$	2	$	(2	)	$	—	$	9	$	(9	)	$	—
	Total	$	2	$	(2	)	$	—	$	9	$	(9	)	$	—

		For the Three Months Ended June 30, 2015							For the Six Months Ended June 30, 2015
(Dollars in millions)		Derivative			Hedged Item		Hedge Ineffectiveness		Derivative		Hedged Item			Hedge Ineffectiveness
Interest rate risk on long-term debt		$	(3	)	$	3	$	—	$	3	$	(3	)	$	—
	Total	$	(3	)	$	3	$	—	$	3	$	(3	)	$	—

Derivatives Not Designated as Hedging Instruments

Trading Derivatives

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

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

The following table presents the amount of the net gains and losses for derivative instruments classified as trading reported in the consolidated statements of income under the heading trading account activities for the three and six months ended June 30, 2016 and 2015:

	Gain or (Loss) Recognized in Income on Derivative Instruments					Gain or (Loss) Recognized in Income on Derivative Instruments
	For the Three Months Ended					For the Six Months Ended
(Dollars in millions)	June 30, 2016			June 30, 2015		June 30, 2016			June 30, 2015
Trading derivatives:
Interest rate contracts	$	8		$	12	$	10		$	10
Equity contracts	(1		)	—		(1		)	—
Foreign exchange contracts	11			5		20			11
Commodity contracts	1			1		1			2
Total	$	19		$	18	$	30		$	23

79

Note 9—Derivative Instruments and Other Financial Instruments Used For Hedging (Continued)

Offsetting Assets and Liabilities

The Company primarily enters into derivative contracts and repurchase agreements with counterparties utilizing a standard International Swaps and Derivatives Association Master Agreements and Master Repurchase Agreements, respectively. These agreements generally establish the terms and conditions of the transactions, including a legal right to set-off amounts payable and receivable between the Company and a counterparty, regardless of whether or not such amounts have matured or have contingency features.

The following tables present the offsetting of financial assets and liabilities as of June 30, 2016 and December 31, 2015:

	June 30, 2016
							Gross Amounts Not Offset in Balance Sheet
(Dollars in millions)	Gross Amounts of Recognized Assets/Liabilities		Gross Amounts Offset in Balance Sheet		Net Amounts Presented in Balance Sheet		Financial Instruments		Cash Collateral Received/Pledged		Net Amount
Financial Assets:
Derivative assets	$	2,606	$	1,170	$	1,436	$	60	$	—	$	1,376
Securities purchased under resale agreements	32		—		32		31		—		1
Total	$	2,638	$	1,170	$	1,468	$	91	$	—	$	1,377
Financial Liabilities:
Derivative liabilities	$	2,103	$	1,450	$	653	$	240	$	1	$	412
Securities sold under repurchase agreements	30		—		30		30		—		—
Total	$	2,133	$	1,450	$	683	$	270	$	1	$	412

	December 31, 2015
							Gross Amounts Not Offset in Balance Sheet
(Dollars in millions)	Gross Amounts of Recognized Assets/Liabilities		Gross Amounts Offset in Balance Sheet		Net Amounts Presented in Balance Sheet		Financial Instruments		Cash Collateral Received/Pledged		Net Amount
Financial Assets:
Derivative assets	$	1,828	$	909	$	919	$	60	$	—	$	859
Securities purchased under resale agreements	24		—		24		24		—		—
Total	$	1,852	$	909	$	943	$	84	$	—	$	859
Financial Liabilities:
Derivative liabilities	$	1,647	$	872	$	775	$	180	$	—	$	595
Securities sold under repurchase agreements	36		—		36		36		—		—
Total	$	1,683	$	872	$	811	$	216	$	—	$	595

80

Note 10—Accumulated Other Comprehensive Income

The following tables present the change in each of the components of accumulated other comprehensive income and the related tax effect of the change allocated to each component for the three months ended June 30, 2016 and 2015:

(Dollars in millions)	Before Tax Amount			Tax Effect			Net of Tax
For the Three Months Ended June 30, 2016
Cash flow hedge activities:
Unrealized net gains (losses) on hedges arising during the period	$	144		$	(56	)	$	88
Reclassification adjustment for net (gains) losses on hedges included in interest income for loans and interest expense on long-term debt	(44		)	17			(27		)
Net change	100			(39		)	61
Securities:
Unrealized holding gains (losses) arising during the period on securities available for sale	105			(41		)	64
Reclassification adjustment for net (gains) losses on securities available for sale included in securities gains, net	(19		)	7			(12		)
Amortization of net unrealized (gains) losses on held to maturity securities	5			(2		)	3
Net change	91			(36		)	55
Foreign currency translation adjustment	1			—			1
Pension and other benefits:
Amortization of prior service credit (1)	(7		)	2			(5		)
Recognized net actuarial (gain) loss(1)	22			(8		)	14
Net change(1)	15			(6		)	9
Other	2			(1		)	1
Net change in AOCI	$	209		$	(82	)	$	127

(1) These amounts are included in the computation of net periodic pension cost. For further information, see Note 11 to these consolidated financial statements.

(Dollars in millions)	Before Tax Amount			Tax Effect			Net of Tax
For the Three Months Ended June 30, 2015
Cash flow hedge activities:
Unrealized net gains (losses) on hedges arising during the period	$	(8	)	$	3		$	(5	)
Reclassification adjustment for net (gains) losses on hedges included in interest income for loans and interest expense on long-term debt	(41		)	16			(25		)
Net change	(49		)	19			(30		)
Securities:
Unrealized holding gains (losses) arising during the period on securities available for sale	(87		)	34			(53		)
Reclassification adjustment for net (gains) losses on securities available for sale included in securities gains, net	(5		)	2			(3		)
Accretion of fair value adjustment on securities available for sale	(1		)	—			(1		)
Amortization of net unrealized (gains) losses on held to maturity securities	5			(2		)	3
Net change	(88		)	34			(54		)
Foreign currency translation adjustment	3			(1		)	2
Pension and other benefits:
Amortization of prior service credit (1)	(7		)	3			(4		)
Recognized net actuarial (gain) loss(1)	27			(10		)	17
Net change(1)	20			(7		)	13
Net change in AOCI	$	(114	)	$	45		$	(69	)

(1) These amounts are included in the computation of net periodic pension cost. For further information, see Note 11 to these consolidated financial statements.

81

Note 10—Accumulated Other Comprehensive Income (Continued)

The following tables present the change in each of the components of accumulated other comprehensive income and the related tax effect of the change allocated to each component for the six months ended June 30, 2016 and 2015:

(Dollars in millions)	Before Tax Amount			Tax Effect			Net of Tax
For the Six Months Ended June 30, 2016
Cash flow hedge activities:
Unrealized net gains (losses) on hedges arising during the period	$	410		$	(161	)	$	249
Reclassification adjustment for net (gains) losses on hedges included in interest income for loans and interest expense on long-term debt	(87		)	34			(53		)
Net change	323			(127		)	196
Securities:
Unrealized holding gains (losses) arising during the period on securities available for sale	263			(103		)	160
Reclassification adjustment for net (gains) losses on securities available for sale included in securities gains, net	(32		)	12			(20		)
Amortization of net unrealized (gains) losses on held to maturity securities	10			(4		)	6
Net change	241			(95		)	146
Foreign currency translation adjustment	8			(3		)	5
Pension and other benefits:
Amortization of prior service credit(1)	(13		)	5			(8		)
Recognized net actuarial gain (loss)(1)	44			(17		)	27
Net change(1)	31			(12		)	19
Net change in AOCI	$	603		$	(237	)	$	366

(1) These amounts are included in the computation of net periodic pension cost. For further information, see Note 11 to these consolidated financial statements.

(Dollars in millions)	Before Tax Amount			Tax Effect			Net of Tax
For the Six Months Ended June 30, 2015
Cash flow hedge activities:
Unrealized net gains (losses) on hedges arising during the period	$	111		$	(44	)	$	67
Reclassification adjustment for net (gains) losses on hedges included in interest income for loans and interest expense on long-term debt	(74		)	29			(45		)
Net change	37			(15		)	22
Securities:
Unrealized holding gains (losses) arising during the period on securities available for sale	33			(13		)	20
Reclassification adjustment for net (gains) losses on securities available for sale included in securities gains, net	(8		)	3			(5		)
Accretion of fair value adjustment on securities available for sale	(3		)	1			(2		)
Amortization of net unrealized (gains) losses on held to maturity securities	10			(4		)	6
Net change	32			(13		)	19
Foreign currency translation adjustment	(9		)	4			(5		)
Pension and other benefits:
Amortization of prior service credit (1)	(13		)	5			(8		)
Recognized net actuarial gain (loss)(1)	56			(21		)	35
Net change(1)	43			(16		)	27
Net change in AOCI	$	103		$	(40	)	$	63

(1) These amounts are included in the computation of net periodic pension cost. For further information, see Note 11 to these consolidated financial statements.

82

Note 10—Accumulated Other Comprehensive Income (Continued)

The following tables present the change in accumulated other comprehensive loss balances:

For the Three Months Ended June 30, 2015 and 2016:
	Net Unrealized Gains (Losses) on Cash Flow Hedges			Net Unrealized Gains (Losses) on Securities			Foreign Currency Translation Adjustment			Pension and Other Postretirement Benefits Adjustment			Other			Accumulated Other Comprehensive Loss
(Dollars in millions)
Balance, March 31, 2015	$	73		$	(72	)	$	(17	)	$	(581	)	$	—		$	(597	)
Other comprehensive income (loss) before reclassifications	(5		)	(51		)	2			—			—			(54		)
Amounts reclassified from AOCI	(25		)	(3		)	—			13			—			(15		)
Balance, June 30, 2015	$	43		$	(126	)	$	(15	)	$	(568	)	$	—		$	(666	)
Balance, March 31, 2016	$	171		$	(60	)	$	(21	)	$	(602	)	$	(1	)	$	(513	)
Other comprehensive income (loss) before reclassifications	88			67			1			—			1			157
Amounts reclassified from AOCI	(27		)	(12		)	—			9			—			(30		)
Balance, June 30, 2016	$	232		$	(5	)	$	(20	)	$	(593	)	$	—		$	(386	)

For the Six Months Ended June 30, 2015 and 2016:
	Net Unrealized Gains (Losses) on Cash Flow Hedges			Net Unrealized Gains (Losses) on Securities			Foreign Currency Translation Adjustment			Pension and Other Postretirement Benefits Adjustment			Accumulated Other Comprehensive Loss
(Dollars in millions)
Balance, December 31, 2014	$	21		$	(145	)	$	(10	)	$	(595	)	$	(729	)
Other comprehensive income (loss) before reclassifications	67			24			(5		)	—			86
Amounts reclassified from AOCI	(45		)	(5		)	—			27			(23		)
Balance, June 30, 2015	$	43		$	(126	)	$	(15	)	$	(568	)	$	(666	)
Balance, December 31, 2015	$	36		$	(151	)	$	(25	)	$	(612	)	$	(752	)
Other comprehensive income (loss) before reclassifications	249			166			5			—			420
Amounts reclassified from AOCI	(53		)	(20		)	—			19			(54		)
Balance, June 30, 2016	$	232		$	(5	)	$	(20	)	$	(593	)	$	(386	)

83

Note 11—Employee Pension and Other Postretirement Benefits

The following table summarizes the components of net periodic benefit cost for the three and six months ended June 30, 2016 and 2015.

	Pension Benefits						Other Postretirement Benefits						Superannuation, SERP and ESBP
	For the Three Months Ended   June 30,						For the Three Months Ended   June 30,						For the Three Months Ended   June 30,
(Dollars in millions)	2016			2015			2016			2015			2016		2015
Components of net periodic benefit cost:
Service cost	$	22		$	23		$	2		$	2		$	—	$	1
Interest cost	26			28			2			2			1		1
Expected return on plan assets	(58		)	(54		)	(4		)	(4		)	—		—
Amortization of prior service credit	(5		)	(5		)	(2		)	(2		)	—		—
Recognized net actuarial loss	19			26			3			1			—		—
Total net periodic benefit cost	$	4		$	18		$	1		$	(1	)	$	1	$	2

	Pension Benefits						Other Postretirement Benefits						Superannuation, SERP and ESBP
	For the Six Months Ended June 30,						For the Six Months Ended June 30,						For the Six Months Ended June 30,
(Dollars in millions)	2016			2015			2016			2015			2016		2015
Components of net periodic benefit cost:
Service cost	$	45		$	48		$	4		$	4		$	1	$	1
Interest cost	52			55			5			5			1		1
Expected return on plan assets	(118		)	(108		)	(9		)	(9		)	—		—
Amortization of prior service credit	(9		)	(9		)	(4		)	(4		)	—		—
Recognized net actuarial loss	38			53			5			2			1		1
Total net periodic benefit cost	$	8		$	39		$	1		$	(2	)	$	3	$	3

Note 12—Commitments, Contingencies and Guarantees

The following table summarizes the Company's commitments:

(Dollars in millions)	June 30, 2016
Commitments to extend credit	$	33,233
Issued standby and commercial letters of credit	$	5,897
Other commitments	$	116

Commitments to extend credit are legally binding agreements to lend to a customer provided there are no violations of any condition established in the contract. Commitments have fixed expiration dates or other termination clauses and may require maintenance of compensatory balances. Since many of the commitments to extend credit may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements. Total commitments to extend credit at June 30, 2016 include $3.0 billion to commercial borrowers in the oil and gas sector.

Standby and commercial letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit are generally contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party, while commercial

84

Note 12—Commitments, Contingencies and Guarantees (Continued)

letters of credit are issued specifically to facilitate foreign or domestic trade transactions. Additionally, the Company enters into risk participations in bankers' acceptances wherein a fee is received to guarantee a portion of the credit risk on an acceptance of another bank. The majority of these types of commitments have terms of 1 year or less. At June 30, 2016, the carrying amount of the Company's risk participations in bankers' acceptances and standby and commercial letters of credit totaled $4 million. Estimated exposure to loss related to these commitments is covered by the allowance for losses on unfunded commitments. The carrying amounts of the standby and commercial letters of credit and the allowance for losses on unfunded credit commitments are included in other liabilities on the consolidated balance sheet.

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

Other commitments include commitments to fund principal investments and other securities.

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

The Company has rental commitments under long-term operating lease agreements. For detail of these commitments, see Note 4 to our Consolidated Financial Statements in our 2015 Form 10-K.

The Company occasionally enters into financial guarantee contracts where a premium is received from another financial institution counterparty to guarantee a portion of the credit risk on interest rate swap contracts entered into between the financial institution and its customer. The Company becomes liable to pay the financial institution only if the financial institution is unable to collect amounts owed to them by their customer. As of June 30, 2016, the current exposure to loss under these contracts totaled $46 million, and the maximum potential exposure to loss in the future was estimated at $70 million.

The Company is subject to various pending and threatened legal actions that arise in the normal course of business. The Company maintains liabilities for losses from legal actions that are recorded when they are determined to be both probable in their occurrence and can be reasonably estimated. Management believes the disposition of all claims currently pending, including potential losses from claims that may exceed the liabilities recorded, and claims for loss contingencies that are considered reasonably possible to occur, will not have a material effect, either individually or in the aggregate, on the Company's consolidated financial condition, results of operations or liquidity.

85

Note 13—Business Segments

During the fourth quarter of 2015, the composition of the Company's reportable segments was revised to reflect the realignment of its business model in the Americas, which includes MUAH. The realignment consolidated the customer base of the Commercial Banking operating segment, including its products and services, into the activities performed within various other segments. The Company now has four reportable segments: Regional Bank, U.S. Wholesale Banking, Transaction Banking, and Investment Banking & Markets. Prior period segment results have been revised to conform to the current period presentation. Below is a detailed description of these reportable segments.

Regional Bank

The Regional Bank offers a range of banking products and services to individuals, including high net worth individuals and institutional clients, and businesses generally with up to $500 million in annual revenue, delivered generally through a network of branches, private banking offices, ATMs, broker mortgage referrals, relationship managers, telephone services, and web-based and mobile banking applications. These products and services include mortgages, home equity lines of credit, consumer and commercial loans, deposit accounts, financial planning and investments. The Regional Bank also provides a broad spectrum of commercial credit products including commercial loans, accounts receivable, inventory, and trade financing to corporate customers generally on the U.S. West Coast, and commercial real estate financing nationwide. The Regional Bank is comprised of five main divisions: Residential Lending, Retail Banking, Wealth Markets, Commercial Banking and Real Estate Industries.

The Residential Lending Division provides the centralized origination, underwriting, processing, servicing, collection and administration for consumer assets including residential mortgages.

The Retail Banking Division serves its customers through Private Banking, which provides comprehensive relationship management to clients with up to $3 million in deposits and investment balances at MUB; 327 full-service branches in California and 26 full-service branches in Washington and Oregon, as well as through ATMs, call centers, web-based and mobile internet banking applications and through alliances with other financial institutions. Retail Banking provides checking and deposit products and services; bill and loan payment, merchant, various types of financing and investment services; and products including credit cards.

The Wealth Markets Division serves its customers through Private Wealth Management, which provides comprehensive relationship management to clients with over $3 million in deposits and investment balances at MUB; UnionBanc Investment Services LLC, a subsidiary of MUB and a registered broker-dealer and investment advisor; and Asset Management, which includes Highmark Capital Management, Inc., a subsidiary of MUB and a registered investment advisor.  Wealth Markets provides investment management and advisory services to institutional clients, wealth planning, deposits and risk management strategies, trust and estate administration, as well as investment sub-advisory services to unaffiliated funds. Products provided to its customers include traditional brokerage, managed accounts, annuities, mutual funds, fixed income products and insurance and customized lending.

The Commercial Banking Division provides a broad spectrum of commercial credit products including commercial loans, accounts receivable, inventory, and trade financing primarily to corporate customers with annual revenues up to $500 million based on the U.S. West Coast. Commercial Banking offers its customers a range of noncredit services and products, which include global treasury management and capital markets solutions, foreign exchange and various interest rate risk and commodity risk management products through cooperation with other segments.

The Real Estate Industries Division serves professional real estate investors and developers. Real Estate Industries, through its Community Development Finance unit, makes tax credit investments in affordable housing projects, as well as construction and permanent financing.

U.S. Wholesale Banking

U.S. Wholesale Banking provides commercial lending products, including commercial loans, lines of credit and project financing, to corporate customers with revenue greater than $500 million. The segment employs an industry-focused strategy including dedicated coverage teams in General Industries, Power and Utilities, Oil and Gas, Telecom and Media, Technology, Healthcare and Nonprofit, Public Finance, and Financial Institutions

86

Note 13—Business Segments (Continued)

(predominantly Insurance and Asset Managers). By working with the Company's other segments, U.S. Wholesale Banking offers its customers a range of noncredit services, which include global treasury management, capital market solutions, and various foreign exchange, interest rate risk and commodity risk management products.

Transaction Banking

Transaction Banking works alongside the Company's other segments to provide working capital management and asset servicing solutions, including deposits and treasury management, trade finance, and institutional trust and custody, to the Company's customers. The client base consists of financial institutions, corporations, government agencies, insurance companies, mutual funds, investment managers and non-profit organizations.

Investment Banking & Markets

Investment Banking & Markets, which includes Global Capital Markets of the Americas, works with the Company's other segments to provide customers structured credit services, including project finance, leasing and equipment finance, commercial finance, funds finance and securitizations. Investment Banking & Markets also provides capital markets solutions, including syndicated loans, equity and debt underwriting, tax equity and merchant banking investments; risk management solutions, including foreign exchange, interest rate and energy risk management solutions; and facilitates merchant and investment banking-related transactions.

Other

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

"Other" includes the Asian Corporate Banking segment and Corporate Treasury. The Asian Corporate Banking segment offers a range of credit, deposit, and investment management products and services to companies located primarily in the U.S. that are affiliated with companies headquartered in Japan and other Asian countries. Corporate Treasury is responsible for ALM, wholesale funding and the ALM investment and derivatives hedging portfolios. These treasury management activities are carried out to manage the net interest rate and liquidity risks of the Company's balance sheet and to manage those risks within the guidelines established by ALCO. For additional discussion regarding these risk management activities, see Part I, Item 3. “Quantitative and Qualitative Disclosures About Market Risk” in this Form 10-Q.

Additionally, "Other" is comprised of certain corporate activities of the Company; the net impact of funds transfer pricing charges and credits allocated to the reportable segments; the residual costs of support groups; fees from affiliates and noninterest expenses associated with BTMU's U.S. branch banking operations; the unallocated allowance; goodwill, intangible assets, and the related amortization/accretion associated with the Company's privatization transaction; the elimination of the fully taxable-equivalent basis amount; the difference between the marginal tax rate and the consolidated effective tax rate; and the FDIC covered assets.

The information, set forth in the tables that follow, is prepared using various management accounting methodologies to measure the performance of the individual segments. Unlike GAAP there is no standardized or authoritative guidance for management accounting. Consequently, reported results are not necessarily comparable with those presented by other companies and they are not necessarily indicative of the results that would be reported by the business units if they were unique economic entities. The management reporting accounting methodologies, which are enhanced from time to time, measure segment profitability by assigning balance sheet and statements of income items to each operating segment. Methodologies that are applied to the measurement of segment profitability include a funds transfer pricing system, an activity-based costing methodology, other indirect costs and a methodology to allocate the provision for credit losses. The funds transfer pricing system assigns a cost of funds or a credit for funds to assets or liabilities based on their type, maturity or repricing characteristics between Corporate Treasury and the operating segments. A segment receives a funding credit from Corporate Treasury for its liabilities. Conversely, a segment is assigned a charge by Corporate Treasury to fund its assets. Certain indirect costs, such as operations and technology expense, are allocated

87

Note 13—Business Segments (Continued)

to the segments based on an activity-based costing methodology. Other indirect costs, such as corporate overhead, are allocated to the segments based on internal surveys and metrics that serve as proxies for estimated usage. During the normal course of business, the Company occasionally changes or updates its management accounting methodologies or organizational structure. During the fourth quarter of 2015, the Company revised its management reporting accounting methodology to exclude the impact of the business integration initiative from the measurement of segment profitability. Fees from affiliates and noninterest expenses associated with BTMU's U.S. branch banking operations are now included within "Other." Beginning with the second quarter of 2016, the Company revised its methodology for allocating certain indirect costs to the segments. Prior period results have been updated to reflect these changes in methodology.

As of and for the Three Months Ended June 30, 2016:
(Dollars in millions)	Regional Bank			U.S. Wholesale Banking			Transaction Banking			Investment Banking & Markets		Other			MUFG Americas Holdings Corporation
Results of operations - Market View
Net interest income (expense)	$	478		$	114		$	120		$	60	$	(52	)	$	720
Noninterest income (expense)	112			38			44			65		207			466
Total revenue	590			152			164			125		155			1,186
Noninterest expense	420			49			109			42		190			810
(Reversal of) provision for credit losses	(5		)	(28		)	(3		)	2		(3		)	(37		)
Income (loss) before income taxes and including noncontrolling interests	175			131			58			81		(32		)	413
Income tax expense (benefit)	51			52			23			12		(19		)	119
Net income (loss) including noncontrolling interests	124			79			35			69		(13		)	294
Deduct: net loss from noncontrolling interests	—			—			—			—		11			11
Net income (loss) attributable to MUAH	$	124		$	79		$	35		$	69	$	(2	)	$	305
Total assets, end of period	$	63,467		$	14,392		$	1,838		$	11,762	$	25,697		$	117,156

As of and for the Three Months Ended June 30, 2015:
(Dollars in millions)	Regional Bank		U.S. Wholesale Banking		Transaction Banking		Investment Banking & Markets			Other			MUFG Americas Holdings Corporation
Results of operations - Market View
Net interest income (expense)	$	473	$	106	$	111	$	62		$	(33	)	$	719
Noninterest income (expense)	106		41		42		60			136			385
Total revenue	579		147		153		122			103			1,104
Noninterest expense	467		48		108		43			177			843
(Reversal of) provision for credit losses	6		12		—		(12		)	9			15
Income (loss) before income taxes and including noncontrolling interests	106		87		45		91			(83		)	246
Income tax expense (benefit)	26		35		18		23			(31		)	71
Net income (loss) including noncontrolling interests	80		52		27		68			(52		)	175
Deduct: net loss from noncontrolling interests	—		—		—		—			6			6
Net income (loss) attributable to MUAH	$	80	$	52	$	27	$	68		$	(46	)	$	181
Total assets, end of period	$	61,468	$	13,293	$	1,779	$	11,277		$	26,449		$	114,266

88

Note 13—Business Segments (Continued)

As of and for the Six Months Ended June 30, 2016:
(Dollars in millions)	Regional Bank			U.S. Wholesale Banking		Transaction Banking			Investment Banking & Markets			Other			MUFG Americas Holdings Corporation
Results of operations - Market View
Net interest income (expense)	$	959		$	223	$	241		$	119		$	(125	)	$	1,417
Noninterest income (expense)	226			66		91			90			388			861
Total revenue	1,185			289		332			209			263			2,278
Noninterest expense	856			98		229			83			420			1,686
(Reversal of) provision for loan losses	(6		)	102		(1		)	32			(2		)	125
Income (loss) before income taxes and including noncontrolling interests	335			89		104			94			(155		)	467
Income tax expense (benefit)	97			35		41			(2		)	(35		)	136
Net income (loss) including noncontrolling interests	238			54		63			96			(120		)	331
Deduct: net loss from noncontrolling interests	—			—		—			—			23			23
Net income (loss) attributable to MUAH	$	238		$	54	$	63		$	96		$	(97	)	$	354
Total assets, end of period	$	63,467		$	14,392	$	1,838		$	11,762		$	25,697		$	117,156

As of and for the Six Months Ended June 30, 2015:
(Dollars in millions)	Regional Bank		U.S. Wholesale Banking		Transaction Banking		Investment Banking & Markets			Other			MUFG Americas Holdings Corporation
Results of operations - Market View
Net interest income (expense)	$	951	$	207	$	227	$	122		$	(105	)	$	1,402
Noninterest income (expense)	217		73		85		91			254			720
Total revenue	1,168		280		312		213			149			2,122
Noninterest expense	928		100		210		77			377			1,692
(Reversal of) provision for loan losses	12		15		1		(19		)	9			18
Income (loss) before income taxes and including noncontrolling interests	228		165		101		155			(237		)	412
Income tax expense (benefit)	45		63		39		35			(77		)	105
Net income (loss) including noncontrolling interests	183		102		62		120			(160		)	307
Deduct: net loss from noncontrolling interests	—		—		—		—			11			11
Net income (loss) attributable to MUAH	$	183	$	102	$	62	$	120		$	(149	)	$	318
Total assets, end of period	$	61,468	$	13,293	$	1,779	$	11,277		$	26,449		$	114,266

89

Note 14—Subsequent Event

On July 1, 2016 Mitsubishi UFJ Financial Group, Inc. designated MUAH as its IHC in accordance with the requirements of the U.S. Federal Reserve Board's final rules for Enhanced Prudential Standards and transferred interests in substantially all its U.S. subsidiaries to the IHC. The subsidiaries include MUFG Securities Americas Inc. (formerly Mitsubishi UFJ Securities (USA), Inc.), a registered broker-dealer, and various other non-bank subsidiaries with approximately $31 billion in total assets and $30 billion in total liabilities as of June 30, 2016. Also on July 1, 2016, the Company issued 4,345,174 and 2,052,913 shares of common stock to MUFG and BTMU, respectively, as consideration for the interests in the transferred subsidiaries. The shares issued by the Company represented approximately 80% of the total consideration expected to be paid based on the Company’s and the transferred entities’ March 31, 2016 financial statements. The remaining shares to be issued will be calculated following the completion of the Company’s and transferred entities’ June 30, 2016 financial statements.

The transfer of entities will be accounted for as a combination of entities under common control. Assets and liabilities will be transferred to MUAH at book value and beginning in the third quarter of 2016, MUAH's comparative historical financial statements will be retrospectively adjusted to include the prior period results of the transferred entities.

90

PART II. OTHER INFORMATION

Item 1.   Legal Proceedings

We are subject to various pending and threatened legal actions that arise in the normal course of business. We maintain liabilities for losses from legal actions that are recorded when they are determined to be both probable in their occurrence and can be reasonably estimated. We believe the disposition of all claims currently pending, including potential losses from claims that may exceed the liabilities recorded, and claims for loss contingencies that are considered reasonably possible to occur, will not have a material effect, either individually or in the aggregate, on our consolidated financial position, results of operations, or liquidity.

Item 1A.   Risk Factors

For a discussion of risk factors relating to our business, please refer to Part I, Item 1A. of our 2015 Form 10-K, which is incorporated by reference herein; in addition to the following information:

Industry Factors

Difficult market conditions have adversely affected the U.S. banking industry

Dramatic declines in the housing market in the U.S. in general, and in California in particular, during 2008 and continuing through 2011, with falling or sluggish home prices and increasing foreclosures, unemployment and under-employment, negatively impacted the credit performance of mortgage loans and resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities as well as commercial and investment banks. These write-downs, initially of mortgage-backed securities but spreading to credit default swaps and other derivative securities, residential and commercial real estate loans and small business and other commercial loans, in turn, caused many financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail. These adverse economic conditions also led to an increased level of commercial and consumer delinquencies, reduced consumer confidence, increased market volatility and widespread reduction of business activity generally. The resulting economic pressure on consumers and lack of confidence in the financial markets adversely affected our business, financial condition and results of operations in 2009 and this effect continued, although to a lesser degree, in 2010. Although the economic conditions in our markets, including California in particular, and in the U.S. generally have shown improvement since 2011, there can be no assurance that these conditions will continue to improve. In recent years, California has been facing a severe drought which, if it continues, may negatively impact its economy, particularly in the agricultural sector, as other markets improve. In addition, turbulent political and economic conditions in foreign countries have in recent years negatively impacted the U.S. financial markets and economy in general and may do so in the future. A worsening of these conditions would likely exacerbate the adverse effects of market conditions on us and others in the financial institutions industry. In particular, we may face the following risks in connection with these events:

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

• We may not be able to accurately estimate credit exposure losses because the process we use to estimate these losses requires difficult, subjective, and complex judgments with respect to predictions which may not be amenable to precise estimates, including forecasts of economic conditions and how these economic predictions might impair the ability of our borrowers to repay their loans.

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

• Further downgrades in the credit ratings of major U.S. or foreign banks, or other financial difficulties affecting such major banks, could have adverse consequences for the financial markets generally, including possible negative effects on the available sources of market liquidity and increased pricing pressures in such markets, which, in turn, could make it more difficult or expensive for banks generally and for us to access such markets to satisfy liquidity needs.

91

• Significant fluctuations in the prices of equity and fixed income securities could adversely impact the revenues of our asset management and trust business. The fees we charge are based upon values of assets we manage and declines in values proportionately reduce our fees charged.

• Declines in oil and gas prices have led to deterioration in our oil and gas portfolio; further declines would likely result in additional deterioration in the portfolio. For additional information on our oil and gas portfolio, see Part I, Item 2. “Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Management - Concentration of Risk” in this Form 10-Q.

• Competition in our industry could intensify as a result of the increasing consolidation of financial services companies and the enhanced ability of banks to expand across state lines under the Dodd-Frank Act. For additional information, see “Substantial competition could adversely affect us” in Part I, Item 1A. “Risk Factors” in our 2015 Form 10-K.

• We may incur goodwill impairment losses in future periods. See “Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates - Goodwill Impairment Analysis” in Part II, Item 7. and Note 5 to our Consolidated Financial Statements included in our 2015 Form 10-K.

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

Acts or threats of terrorism and actions taken by the U.S. or other governments as a result of such acts or threats and other international hostilities, as well as political unrest in various regions, including the Middle East, may result in a disruption of U.S. and global economic and financial conditions and increases in energy costs and could adversely affect business, economic and financial conditions in the U.S. and globally and in our principal markets. In addition, continuing global tensions may result in new and enhanced U.S. economic sanctions against other governments or entities which may increase our compliance costs under the regulations of OFAC and other federal or state agencies. Although we have not experienced an adverse impact on our business from the British vote to exit the European Union (known as Brexit), potential changes in the European Union may have negative consequences to the global and U.S. economies and to our customers.

Company Factors

We are subject to a wide array of operational risks, including, but not limited to, cyber-security risks

We are subject to many types of operational risks throughout our organization. Operational risk is the risk to our financial position and resilience arising from inadequate or failed internal processes or systems, human errors or misconduct, or adverse external events, that do not fall into the market risk or credit risk categories described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2. of this Form 10-Q. Operational risk includes execution risk related to operational initiatives, such as implementation of our technology enhancement projects; increased reliance on internally developed models for risk and finance management, including models associated with regulatory capital requirements; risks from cyber-security breaches or attacks; the risk of fraud or theft by employees, customers or outsiders; unauthorized transactions by employees or operational errors, including clerical or record-keeping errors or those resulting from faulty or disabled computer or telecommunications systems; and operational risks related to use of third party service providers. A discussion of risks associated with regulatory compliance appears in Part I, Item 1A. of our 2015 Form 10-K under the caption “The effects of changes or increases in, or supervisory enforcement of, banking or other laws and regulations or governmental fiscal or monetary policies could adversely affect us.”

Our operations rely on the secure processing, storage, transmission and reporting of personal, confidential and other sensitive information or data in our computer systems, networks and business applications. Although we take protective measures, our computer systems may be vulnerable to breaches, unauthorized access, misuse, computer viruses or other malicious code, and other events that could have significant negative consequences to us. Such events could result in interruptions or malfunctions in our operations or our customers’ operations; interception, misuse or mishandling of personal, confidential or proprietary information and data; or processing of unauthorized transactions or loss of funds. These events could result in litigation and financial losses that are either not insured against or not fully covered by our insurance, and regulatory consequences or reputational harm, any of which could harm our competitive position, operating results and financial condition.

92

These types of incidents can remain undetected for extended periods of time, thereby increasing the associated risks. We may also be required to expend significant resources to modify our protective measures or to investigate and remediate vulnerabilities or exposures arising from cyber-security risks. We may also be required to expend significant resources to cover costs imposed on us as a result of breaches of bank card information occurring at retail merchants and other businesses.

We depend on the continued efficacy of our technical systems, operational infrastructure, relationships with third parties and our employees in our day-to-day and ongoing operations. Our dependence upon automated systems to record and process transactions may further increase the risk that technical system flaws or employee tampering or manipulation of those systems will result in losses that are difficult to detect or data which are not reliable. With regard to the physical infrastructure that supports our operations, we have taken measures to implement backup systems and other safeguards, but our ability to conduct business may be adversely affected by any disruption to that infrastructure, including disruptions from natural disasters or other causes. Failures in our internal control or operational systems, security breaches or service interruptions, or those of our third-party service providers, could impair our ability to operate our business and result in potential liability to customers, reputational damage and regulatory intervention, any of which could harm our operating results and financial condition.

MUB and reportedly other financial institutions have been the target of various denial-of-service or other cyber-attacks (including attempts to inject malicious code and viruses into our computer systems) as part of what appears to be a coordinated effort to disrupt the operations of financial institutions and potentially test their cyber-security in advance of future and more advanced cyber-attacks. These denial-of-service and other attacks have not breached MUB's data security systems, but require substantial resources to defend, and may affect customer satisfaction and behavior. To date we have not experienced any material losses relating to cyber-attacks or other information security breaches, but there can be no assurance that we will not suffer such losses or information security breaches in the future. While we have a variety of cyber-security measures in place, the consequences to our business of such attacks cannot be predicted with any certainty.

In addition, there have been increasing efforts on the part of third parties to breach data security at financial institutions as well as at other types of companies, such as large retailers, or with respect to financial transactions, including through the use of social engineering schemes such as “phishing.” The ability of our customers to bank remotely, including online and through mobile devices, requires secure transmissions of confidential information and increases the risk of data security breaches which would expose us to financial claims by customers or others and which could adversely affect our reputation. Even if cyber-attacks and similar tactics are not directed specifically at MUB or our third-party service providers, such attacks on other large financial institutions could disrupt the overall functioning of the financial system and undermine consumer confidence in banks generally, to the detriment of other financial institutions, including MUB.

In March 2015, the Federal bank regulators issued two related statements regarding cyber-security. One statement indicates financial institutions should design multiple layers of security controls to establish lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing internet-based services of the financial institution. The other statement indicates financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the institution’s operations after a cyber-attack involving destructive malware. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyber-attack. Although these regulatory statements state they do not contain any new regulatory expectations, we are continuing to evaluate them as they do indicate that the regulators regard cyber-security to be a matter of great importance for U.S. financial institutions. A financial institution which fails to observe the regulatory guidance could be subject to various regulatory sanctions, including financial penalties.

In July 2015, the Federal bank regulators announced the issuance of a cyber-security assessment tool, the output of which can assist a financial institution’s senior management and board of directors in assessing the institution’s cyber-security risk and preparedness. The first part of the assessment tool is the inherent risk profile, which aims to assist management in determining an institution’s level of cyber-security risk. The second part of the assessment tool is cyber-security maturity, which is designed to help management assess whether their controls provide the desired level of preparedness. The Federal bank regulators plan to utilize the

93

assessment tool as part of their examination process when evaluating financial institutions’ cyber-security preparedness in information technology and safety and soundness examinations and inspections. Failure to effectively utilize this tool could result in regulatory criticism.  Significant resources may be required to adequately implement the tool and address any assessment concerns regarding preparedness. Management conducted an initial cyber-security assessment leveraging this tool, and is currently addressing any concerns from the assessment.

We may also be subject to disruptions of our operating systems arising from other events that are wholly or partially beyond our control, such as electrical, internet or telecommunications outages, natural disasters (such as major seismic events), terrorist attacks or unexpected difficulties with the implementation of our technology enhancement projects, which may give rise to disruption of service to customers and to financial loss or liability in ways which cannot be predicted with any certainty. Our business recovery plan may not work as intended or may not prevent significant interruptions of our operations.

Our framework for managing risks may not be effective in mitigating risk and loss to the Company

Our risk management framework is made up of various processes and strategies to manage our risk exposure. Types of risk to which we are subject include liquidity risk, credit risk, market and investment risk, interest rate risk, operational risk (including, but not limited to, technology and model risk), legal risk, compliance risk, reputation risk, fiduciary risk, counterparty risk, and strategic risk (including risks to our financial position and resilience arising from adverse business decisions or poorly implemented decisions or lack of responsiveness to industry changes and the operating environment), among others. Our framework to manage risk, including the framework’s underlying assumptions, such as our modeling methodologies, may not be effective under all conditions and circumstances. In the banking industry’s complex and rapidly evolving operating environment, certain risks, especially operational risk and strategic risk, can present significant challenges to our risk management framework. If our risk management framework proves ineffective, we could suffer unexpected losses and our business, financial condition, results of operations or prospects could be materially adversely affected, and there also could be consequent adverse regulatory implications in any such event. Implementation of the business integration initiative effective July 1, 2014, as described in ”Management’s Discussion and Analysis of Financial Condition and Results of Operations - Introduction - Business Integration Initiative” and "Risk Management" in Part II, Item 7. in our 2015 Form 10-K, as well as implementation of the IHC described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Executive Overview - Formation of the U.S. Intermediate Holding Company” of this Form 10-Q, could increase our risk management challenges in light of the new customer relationships and lines of business, structural and operational changes, and enhanced governance and risk management standards, among other reasons.

Item 6.   Exhibits

A list of exhibits to this Form 10-Q is set forth on the Exhibit Index immediately preceding such exhibits and is incorporated herein by reference.

94

SIGNATURES

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

	MUFG AMERICAS HOLDINGS CORPORATION (Registrant)
Date: August 8, 2016	By:	/s/ STEPHEN E. CUMMINGS
		Stephen E. Cummings President and Chief Executive Officer (Principal Executive Officer)
Date: August 8, 2016	By:	/s/ JOHN F. WOODS
		John F. Woods Chief Financial Officer (Principal Financial Officer)
Date: August 8, 2016	By:	/s/ ROLLAND D. JURGENS
		Rolland D. Jurgens Controller and Chief Accounting Officer (Principal Accounting Officer)

95

EXHIBIT INDEX

Exhibit No.	Description
2.1	Contribution Agreement by and among MUFG Americas Holdings Corporation, The Bank of Tokyo-Mitsubishi UFJ Ltd. and Mitsubishi UFJ Financial Group Inc. dated June 30, 2016(3)
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)
32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1)(2)
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1)(2)
101	Pursuant to Rule 405 of Regulation S-T, the following financial information from the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016, is formatted in XBRL interactive data files: (i) Consolidated Statements of Income; (ii) Consolidated Statements of Comprehensive Income; (iii) Consolidated Balance Sheets; (iv) Consolidated Statements of Changes in Stockholder's Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Financial Statements(1)

(1) Filed herewith.

(2) In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-Q and will not be deemed "filed" for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act.

(3) Incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K dated July 1, 2016.

96