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 ~~September 30, 2017~~March 31, 2018

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) 782-6800

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, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth 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

	Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act 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 ~~October 31, 2017:~~April 30, 2018: 147,589,713

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	4238
Item 1. Financial Statements	4238
Consolidated Statements of Income (Unaudited)	4238
Consolidated Statements of Comprehensive Income (Unaudited)	4339
Consolidated Balance Sheets (Unaudited)	4440
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)	4541
Consolidated Statements of Cash Flows (Unaudited)	4642
Note 1—Summary of Significant Accounting Policies and Nature of Operations	4743
Note 2—Securities	5147
Note 3—Loans and Allowance for Loan Losses	5753
Note 4—Variable Interest Entities	6662
Note 5—Securities Financing Arrangements	6864
Note 6—Commercial Paper and Other Short-Term Borrowings	7167
Note 7—Long-Term Debt	7268
Note 8—Fair Value Measurement and Fair Value of Financial Instruments	7470
Note 9—Derivative Instruments and Other Financial Instruments Used For Hedging	8176
Note 10—Accumulated Other Comprehensive Income	8579
Note 11—Employee Pension and Other Postretirement Benefits	8881
Note 12—Commitments, Contingencies and Guarantees	8982
Note 13—Business Segments	90
~~Note 14—Related Party Transactions~~	9483
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	12
Balance Sheet Analysis	1615
Capital Management	1816
Risk Management	2220
Business Segments	3229
Critical Accounting Estimates	3835
Non-GAAP Financial Measures	3835
Item 3. Quantitative and Qualitative Disclosures About Market Risk	4036
Item 4. Controls and Procedures	4137
PART II. OTHER INFORMATION	9686
Item 1. Legal Proceedings	9686
Item 1A. Risk Factors	9686
Item 6. Exhibits	~~100~~87
SIGNATURES	~~101~~88

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~~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~~Holding Company
CCAR	Comprehensive Capital Analysis and Review
CD	Certificate of deposit
CFPB	Consumer Financial Protection Bureau
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
EURIBOR	The Euro Interbank Offered Rate
Exchange Act	U.S. Securities Exchange Act of 1934
FASB	Financial Accounting Standards Board
FDIC	Federal Deposit Insurance Corporation
Federal Reserve	Board of Governors of the Federal Reserve System
FHLB	Federal Home Loan Bank
FICO	Fair Isaac Corporation
GAAP	Accounting principles generally accepted in the United States of America
GSE	Government-sponsored enterprise
GSIB	Global systemically important banks
HQLA	High quality liquid assets
IHC	Intermediate Holding Company
LCR	Liquidity Coverage Ratio
LIHC	Low income housing credit
LTV	Loan-to-value
MBS	Mortgage-backed securities
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.
MUSA	MUFG Securities Americas Inc.
nm	Not meaningful
OCC	Office of the Comptroller of the Currency
OCI	Other comprehensive income
OREO	Other real estate owned
~~PEP~~	~~Petroleum exploration and production~~
RMBS	Residential mortgage-backed securities
SEC	Securities and Exchange Commission
SERP	Supplemental Executive Retirement Plan
SLR	Supplementary ~~Leverage Ratio~~leverage ratio
TCJA	Tax Cuts and Jobs Act
TDR	Troubled debt restructuring
TLAC	Total Loss Absorbing Capacity
VaR	Value-at-risk
VIE	Variable interest entity

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 ~~2016~~2017 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 ~~2016~~2017 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, our investment portfolio, our balance sheet composition, 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 financial crisis, 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, 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 including the Federal banking agencies' TLAC regulation (and our expectation that we will replace a portion of our externally-placed debt with debt issued to our parent to comply with this regulation), and other 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

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~~probability of default and credit migration trends, and severity of loss ~~factors~~upon default

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 prepayments and deposit repricing

Expected rates of return, maturities, yields, loss exposure, growth rates, pension plan strategies, contributions and benefit payments, forecasted balance sheet activity 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

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, or the transfer to MUAH by MUFG of its interests in U.S. subsidiaries, and their timing and impact on our business

Our expectations regarding the formation of our IHC and the impact of acquisitions on our business and results of operations

The impact of changes in our credit ratings 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~~MUFG Bank, Ltd. 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~~MUFG Bank, Ltd. 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~~MUFG Bank, Ltd. will continue to limit its participation in transactions with Iranian entities and individuals to certain types of transactions

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 a possible return of the California drought on its economy and related governmental actions and the potential consequences of recent California wildfires or other natural disasters

~~The realignment by MUFG Americas of its business model in the U.S., including MUAH~~

Descriptions of assumptions underlying or relating to any of the foregoing

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 ~~2016~~2017 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.

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 Nine Months Ended								For the Three Months Ended
(Dollars in millions)	September 30, 2017			September 30, 2016			Percent Change		September 30, 2017			September 30, 2016			Percent Change		March 31, 2018			March 31, 2017			Percent Change
Results of operations:
Net interest income	$	816		$	773		6	%	$	2,405		$	2,251		7	%	$	825		$	795		4	%
Noninterest income	515			570			(10	)	1,492			1,609			(7	)	382			488			(22	)
Total revenue	1,331			1,343			(1	)	3,897			3,860			1		1,207			1,283			(6	)
Noninterest expense	982			952			3		2,945			2,826			4		1,084			1,006			8
Pre-tax, pre-provision income⁽¹⁾	349			391			(11	)	952			1,034			(8	)	123			277			(56	)
(Reversal of) provision for credit losses	18			73			(75	)	(34		)	196			(117	)	(2		)	(30		)	93
Income before income taxes and including noncontrolling interests	331			318			4		986			838			18		125			307			(59	)
Income tax expense	109			97			12		255			244			5		(42		)	83			(151	)
Net income including noncontrolling interests	222			221			—		731			594			23		167			224			(25	)
Deduct: Net loss from noncontrolling interests	10			39			(74	)	25			62			(60	)
Deduct: Net (income) loss from noncontrolling interests																	(1		)	5			(120	)
Net income attributable to MUAH	$	232		$	260		(11	)	$	756		$	656		15		$	166		$	229		(28	)
Balance sheet (period average):
Total assets	$	152,695		$	149,056		2	%	$	150,613		$	150,996		—	%	$	157,436		$	149,563		5	%
Total securities	27,104			23,503			15		25,799			23,465			10		27,446			24,900			10
Securities borrowed or purchased under resale agreements	20,614			20,668			—		20,565			25,448			(19	)	20,660			20,454			1
Total loans held for investment	79,047			80,469			(2	)	78,514			80,698			(3	)	80,656			77,982			3
Earning assets	138,995			136,051			2		137,429			138,459			(1	)	143,715			136,489			5
Total deposits	85,263			84,194			1		85,723			83,928			2		83,609			86,151			(3	)
Securities loaned or sold under repurchase agreements	26,183			23,872			10		25,926			26,794			(3	)	27,130			25,904			5
MUAH stockholders' equity	18,485			17,311			7		17,827			16,942			5		18,132			17,487			4
Performance ratios:
Return on average assets⁽²⁾	0.61		%	0.70		%			0.67		%	0.58		%			0.42		%	0.62		%
Return on average MUAH stockholders' equity⁽²⁾	5.02			6.03					5.64			5.15					3.66			5.27
Return on average MUAH tangible common equity⁽²⁾⁽³⁾	6.35			7.60					7.10			6.54					4.69			6.64
Efficiency ratio⁽⁴⁾	73.78			70.88					75.57			73.23					89.84			78.39
Adjusted efficiency ratio⁽⁵⁾	67.58			62.46					70.34			65.90
Net interest margin^{(2) (6)}	2.37			2.29					2.36			2.19
Net interest margin⁽²⁾⁽⁵⁾																	2.32			2.37
Net loans charged-off to average total loans held for investment⁽²⁾	0.03			0.61					0.17			0.37					0.05			0.29

MUFG Americas Holdings Corporation and Subsidiaries

Consolidated Financial Highlights (Continued)


	As of								As of
	September 30, 2017			December 31, 2016			Percent Change		March 31, 2018			December 31, 2017			Percent Change
Balance sheet (end of period):
Total assets	$	154,852		$	148,144		5	%	$	157,310		$	154,550		2	%
Total securities	28,457			24,478			16		27,301			27,448			(1	)
Securities borrowed or purchased under resale agreements	21,891			19,747			11		19,902			20,894			(5	)
Total loans held for investment	78,829			77,551			2		81,400			80,014			2
Nonperforming assets	466			692			(33	)	350			466			(25	)
Total deposits	85,349			86,947			(2	)	83,532			84,787			(1	)
Securities loaned or sold under repurchase agreements	27,307			24,616			11		26,391			26,437			—
Long-term debt	11,419			11,410			—		14,085			12,162			16
MUAH stockholders' equity	18,459			17,233			7		18,193			18,255			—
Credit ratios:
Allowance for loan losses to total loans held for investment⁽⁷⁾⁽⁶⁾	0.69		%	0.82		%			0.57		%	0.59		%
Allowance for loan losses to nonaccrual loans⁽⁷⁾⁽⁶⁾	116.45			92.69					131.51			102.37
Allowance for credit losses to total loans held for investment⁽⁸⁾⁽⁷⁾	0.85			1.03					0.72			0.75
Allowance for credit losses to nonaccrual loans⁽⁸⁾⁽⁷⁾	144.13			116.20					167.62			128.75
Nonperforming assets to total loans held for investment and OREO	0.59			0.89					0.43			0.58
Nonperforming assets to total assets	0.30			0.47					0.22			0.30
Nonaccrual loans to total loans held for investment	0.59			0.89					0.43			0.58
Capital ratios:
Regulatory ⁽⁹⁾:
Regulatory⁽⁸⁾:
Common Equity Tier 1 risk-based capital ratio	16.19		%	14.77		%			16.30		%	16.31		%
Tier 1 risk-based capital ratio	16.19			14.77					16.30			16.31
Total risk-based capital ratio	17.70			16.45					17.75			17.76
Tier 1 leverage ratio	10.44			9.92					10.20			10.06
Other:
Tangible common equity ratio⁽¹⁰⁾	9.86		%	9.58		%
Common Equity Tier 1 risk-based capital ratio (U.S. Basel III standardized approach; fully phased-in)⁽¹¹⁾	16.16			14.73
Tangible common equity ratio⁽⁹⁾									9.52		%	9.73		%
Common Equity Tier 1 risk-based capital ratio (U.S. Basel III standardized approach; fully phased-in)⁽¹⁰⁾									16.30			16.27

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)

Return on tangible common equity, a non-GAAP financial measure, is net income excluding intangible asset amortization divided by average tangible common equity. Management believes that this ratio provides useful supplemental information regarding the Company's business results. The methodology for determining tangible common equity may differ among companies. Please refer to Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures" in this Form 10-Q for further information.


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

(5)

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, impairment on private equity investments and gains on sale of fixed assets. 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 - Non-GAAP Financial Measures" in this Form 10-Q for further information.


~~(6)~~	Yields, interest income and net interest margin are presented on a taxable-equivalent basis using the federal statutory tax ~~rate~~rates of 21% and 35%. for 2018 and 2017, respectively.


~~(7)~~(6)	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)~~(7)	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)~~(8)	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)~~(9)

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)~~(10)

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.

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, ~~2016 (2016~~2017 (2017 Form 10-K) along with the following discussion and analysis of our consolidated financial position and results of operations for the period ended ~~September 30, 2017~~March 31, 2018 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, bank holding company and intermediate holding company whose principal subsidiaries are MUFG Union Bank, N.A. (MUB or the Bank) and MUSA. We are owned by ~~BTMU~~MUFG Bank, Ltd. (formerly The Bank of Tokyo-Mitsubishi UFJ, Ltd.) and MUFG. ~~BTMU~~MUFG Bank, Ltd. is a wholly-owned subsidiary of MUFG.

~~Earlier this year, the management of MUAH announced a realignment of its business model in the Americas, which includes MUAH.~~ The realignment consolidates the customer base of the Investment Banking & Markets segment into other operating segments. After this realignment, which was implemented during the second quarter of 2017, the Company ~~now~~ has four reportable segments: Regional Bank, U.S. Wholesale & Investment Banking, Transaction Banking and MUSA. We service U.S. Wholesale & Investment Banking, certain Transaction Banking, and MUSA customers through the MUFG brand and 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 also provides various business, banking, financial, administrative and support services, and facilities for ~~BTMU~~MUFG Bank, Ltd. in connection with the operation and administration of ~~BTMU's~~MUFG Bank, Ltd.'s business in the U.S. (including ~~BTMU's~~MUFG Bank, Ltd.'s U.S. branches). The Bank and ~~BTMU participate in~~MUFG Bank, Ltd. are parties to a master services agreement whereby the Bank earns fee income in exchange for services and facilities provided.

The Company’s leadership team is bicoastal with Regional Bank and Transaction Banking leaders on the West Coast while U.S. Wholesale & Investment Banking and MUSA leaders are based in New York City. The corporate headquarters (principal executive office) for MUB, MUSA and MUAH is in New York City. MUB's main banking office is in San Francisco. The Company had consolidated assets of ~~$154.9~~$157.3 billion at ~~September 30, 2017.~~

On July 1, 2016, MUFG designated MUAH as its U.S. Intermediate Holding Company and transferred substantially all its U.S. subsidiaries to the IHC in accordance with the requirements of the U.S. Federal Reserve Board's final rules for Enhanced Prudential Standards. MUFG's remaining U.S. subsidiaries were transferred to MUAH on July 1, 2017. The remaining subsidiaries transferred have been included in MUAH's financial results on a prospective basis. The Company issued 3,267,433 shares to BTMU and MUFG in exchange for the transferred subsidiaries. For additional information regarding related party transactions, refer to Note 14 of our Consolidated Financial Statements in Part I, Item 1. "Financial Statements" of this Form 10-Q.March 31, 2018.

Executive Overview

We are providing you with an overview of what we believe are the most significant factors and developments that affected our ~~third~~first quarter ~~2017~~2018 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, securities borrowed or purchased under resale agreements, trading account assets and other interest-earning assets, less interest incurred on deposits and borrowings, securities loaned or sold under repurchase agreements and other interest-bearing liabilities. The primary sources of noninterest income are revenues from investment banking and syndication fees, service charges on deposit accounts, trust and investment management fees, trading account activities, credit facility 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 ~~third~~first quarter of ~~2017,~~

2018, revenue was comprised of ~~61%~~68% net interest income and ~~39%~~32% 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 raised from ~~BTMU~~MUFG Bank, Ltd. and affiliates, interbank and other sources, both domestic and international, funding secured by certain assets, or 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 ~~$232~~$166 million in the ~~third~~first quarter of ~~2017,~~2018, down ~~$28~~$63 million from the ~~third~~first quarter of ~~2016.~~2017. The decrease was driven by lower noninterest income, ~~primarily~~partially offset by an income tax benefit. Noninterest income was lower trading income and lower gains on our securities portfolio, and higher noninterest expense, primarily higher professional and outside services expense and higher software expense. Net income attributable to MUAH for the nine months ended September 30, 2017 was $756 million, an increase of $100 million compared with the prior year period, primarilylargely due to losses on certain renewable energy investments as a ~~decrease in~~result of the ~~provision for credit losses and expansion of our net interest margin.~~

TCJA. The ~~provision (reversal) for credit losses~~income tax benefit was $(34) million for the nine months ended September 30, 2017, compared with $196 million for the nine months ended September 30, 2016. The reversal of provision for credit losses in 2017 reflects general improvement in portfoliodue to an adjustment to certain prior period state income taxes. Portfolio credit quality ~~and composition. The provision for credit losses in 2016~~ was ~~substantially due to~~stable during the ~~impact~~first quarter of ~~continued low oil prices, which resulted in negative credit migration in the oil and gas sector of our loan portfolio.~~2018.

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 ~~16.19%~~16.30%, ~~16.19%~~16.30% and ~~17.70%~~17.75%, respectively, at ~~September 30, 2017.~~March 31, 2018. The Tier 1 leverage ratio was ~~10.44%~~10.20% at ~~September 30, 2017.~~March 31, 2018.

Financial Performance

Net Interest Income

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


	For the Three Months Ended															For the Three Months Ended
	September 30, 2017							September 30, 2016								March 31, 2018							March 31, 2017
	September 30, 2017							September 30, 2016								March 31, 2018							March 31, 2017
	Average Balance			Interest Income/ Expense⁽¹⁾		Average Yield/ Rate⁽¹⁾⁽²⁾		Average Balance			Interest Income/ Expense⁽¹⁾			Average Yield/ Rate⁽¹⁾⁽²⁾		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)	Average Balance			Interest Income/ Expense⁽¹⁾		Average Yield/ Rate⁽¹⁾⁽²⁾		Average Balance			Interest Income/ Expense⁽¹⁾			Average Yield/ Rate⁽¹⁾⁽²⁾		Average Balance			Interest Income/ Expense⁽¹⁾		Average Yield/ Rate⁽¹⁾⁽²⁾		Average Balance			Interest Income/ Expense⁽¹⁾		Average Yield/ Rate⁽¹⁾⁽²⁾
Assets
Loans held for investment:⁽³⁾
Commercial and industrial	$	24,619		$	229	3.68	%	$	29,052		$	241		3.29	%	$	23,462		$	225	3.91	%	$	25,612		$	220	3.49	%
Commercial mortgage	14,126			144		4.10		15,139			152			4.03		14,336			148		4.12		14,504			148		4.07
Construction	1,859			21		4.58		2,242			24			4.22		1,813			20		4.40		2,217			22		4.01
Lease financing	1,838			17		3.69		1,851			15			3.26		1,505			16		4.23		1,788			16		3.63
Residential mortgage	33,254			282		3.38		28,668			236			3.30		36,051			311		3.45		30,411			256		3.37
Home equity and other consumer loans	3,351			50		5.91		3,517			46			5.11		3,489			54		6.28		3,450			49		5.77
Total loans held for investment	79,047			743		3.75		80,469			714			3.54		80,656			774		3.86		77,982			711		3.67
Securities	27,104			154		2.28		23,503			127			2.16		27,446			165		2.41		24,900			135		2.16
Securities borrowed or purchased under resale agreements	20,614			97		1.87		20,668			47			0.90		20,660			126		2.47		20,454			63		1.26
Interest bearing deposits in banks	2,093			10		1.56		3,522			4			0.50		2,707			11		1.65		3,450			7		0.82
Federal funds sold	2			—		1.76		7			—			0.71		20			—		1.94		—			—		1.03
Trading account assets	9,802			89		3.62		7,503			50			2.66		11,622			93		3.23		9,094			74		3.29
Other earning assets	333			—		1.43		379			2			2.34		604			3		2.00		609			3		2.12
Total earning assets	138,995			1,093		3.13		136,051			944			2.77		143,715			1,172		3.28		136,489			993		2.93
Allowance for loan losses	(517		)					(757		)						(473		)					(647		)
Cash and due from banks	1,895							1,864								1,839							1,869
Premises and equipment, net	609							588								608							592
Other assets⁽⁴⁾	11,713							11,310								11,747							11,260
Total assets	$	152,695						$	149,056							$	157,436						$	149,563
Liabilities
Interest bearing deposits:
Transaction and money market accounts	$	38,144		$	37	0.39	%	$	37,688		$	29		0.31	%	$	36,966		$	41	0.44	%	$	39,905		$	33	0.34	%
Savings	8,255			8		0.38		5,826			1			0.04		8,574			11		0.52		6,205			1		0.07
Time	5,549			17		1.20		6,700			19			1.13		5,342			16		1.23		5,369			15		1.13
Total interest bearing deposits	51,948			62		0.48		50,214			49			0.39		50,882			68		0.54		51,479			49		0.39
Commercial paper and other short-term borrowings	6,328			17		1.08		6,281			7			0.44		8,550			33		1.58		3,477			8		0.94
Securities loaned or sold under repurchase agreements	26,183			102		1.54		23,872			36			0.60		27,130			138		2.07		25,904			59		0.92
Long-term debt	10,935			66		2.39		11,928			57			1.92		13,946			80		2.29		11,347			57		2.01
Total borrowed funds	43,446			185		1.69		42,081			100			0.95		49,626			251		2.05		40,728			124		1.22
Trading account liabilities	3,157			20		2.53		2,549			14			2.20		3,602			22		2.45		2,567			16		2.57
Total interest bearing liabilities	98,551			267		1.08		94,844			163			0.69		104,110			341		1.32		94,774			189		0.81
Noninterest bearing deposits	33,315							33,980								32,727							34,672
Other liabilities⁽⁵⁾	2,218							2,733								2,367							2,487
Total liabilities	134,084							131,557								139,204							131,933
Equity
MUAH stockholders' equity	18,485							17,311								18,132							17,487
Noncontrolling interests	126							188								100							143
Total equity	18,611							17,499								18,232							17,630
Total liabilities and equity	$	152,695						$	149,056							$	157,436						$	149,563
Net interest income/spread (taxable-equivalent basis)				826		2.05	%				781			2.08	%				831		1.96	%				804		2.12	%
Impact of noninterest bearing deposits						0.28								0.18							0.32							0.22
Impact of other noninterest bearing sources						0.04								0.03							0.04							0.03
Net interest margin						2.37							��	2.29							2.32							2.37
Less: taxable-equivalent adjustment				10							8								6							9
Net interest income				$	816						$	773							$	825						$	795


(1)	Yields, interest income and net interest margin are presented on a taxable-equivalent basis using the federal statutory tax ~~rate~~rates of 21% and 35%. for 2018 and 2017, respectively.


(2)	Annualized.


(3)	Average balances onof loans ~~outstanding~~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)	Includes noninterest bearing trading account assets.


(5)	Includes noninterest bearing trading account liabilities.

For the Nine Months Ended
September 30, 2017 September 30, 2016

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 $ 25,146
$ 677
3.60 % $ 30,133
$ 739
3.27 %
Commercial mortgage 14,347
437
4.06
14,981
453
4.03
Construction 2,016
64
4.30
2,242
70
4.17
Lease financing 1,795
50
3.70
1,866
47
3.32
Residential mortgage 31,820
807
3.38
28,010
702
3.34
Home equity and other consumer loans 3,390
147
5.81
3,466
132
5.05
Total loans held for investment 78,514
2,182
3.71
80,698
2,143
3.54
Securities 25,799
424
2.19
23,465
361
2.05
Securities borrowed or purchased under resale agreements 20,565
243
1.58
25,448
141
0.74
Interest bearing deposits in banks 2,591
23
1.15
2,542
10
0.52
Federal funds sold 2
—
1.58
20
—
0.55
Trading account assets 9,496
245
3.45
5,952
110
2.47
Other earning assets 462
5
1.53
334
6
2.46
Total earning assets 137,429
3,122
3.03
138,459
2,771
2.67
Allowance for loan losses (578 )
(789 )
Cash and due from banks 1,866

1,856

Premises and equipment, net 603

625

Other assets⁽⁴⁾
11,293

10,845

Total assets $ 150,613

$ 150,996

Liabilities
Interest bearing deposits:
Transaction and money market accounts $ 38,748
$ 106
0.37 % $ 37,853
$ 86
0.30 %
Savings 7,427
15
0.27
5,761
2
0.05
Time 5,507
48
1.16
7,263
59
1.09
Total interest bearing deposits 51,682
169
0.44
50,877
147
0.39
Commercial paper and other short-term borrowings 4,514
35
1.04
4,922
17
0.45
Securities loaned or sold under repurchase agreements 25,926
245
1.26
26,794
99
0.49
Long-term debt 11,079
183
2.20
12,761
193
2.02
Total borrowed funds 41,519
463
1.49
44,477
309
0.92
Trading account liabilities 2,885
56
2.58
2,699
42
2.08
Total interest-bearing liabilities 96,086
688
0.96
98,053
498
0.68
Noninterest bearing deposits 34,041

33,051

Other liabilities⁽⁵⁾
2,524

2,763

Total liabilities 132,651

133,867

Equity
MUAH stockholders' equity 17,827

16,942

Noncontrolling interests 135

187

Total equity 17,962

17,129

Total liabilities and equity $ 150,613

$ 150,996

Net interest income/spread (taxable-equivalent basis)
2,434
2.07 % 2,273
1.99 %
Impact of noninterest bearing deposits

0.25

0.17
Impact of other noninterest bearing sources

0.04

0.03
Net interest margin

2.36

2.19
Less: taxable-equivalent adjustment
29

22

Net interest income
$ 2,405

$ 2,251


~~(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 outstanding 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)~~	~~Includes noninterest bearing trading account assets.~~


~~(5)~~	~~Includes noninterest bearing trading account liabilities.~~

Net interest income for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 increased ~~$43~~$30 million ~~and $154 million, respectively,~~ compared with the same ~~periods~~period in ~~2016. Expansion in the net interest margin, reflecting the comparatively higher short-term interest rate environment in the current year, contributed~~2017 due to ~~increases in net interest income in both periods. During the third quarter of 2017,~~ an increase in earning assets, also contributed to the increase in net interest income. During the nine months ended September 30, 2017, earning assets decreased compared with the prior year period, however, the increase in interest rateswhich more than offset a decline in the ~~impact of this decrease on~~ net interest ~~income.~~margin. Earning assets increased substantially due to increases in residential mortgages, securities and trading assets, partially offset by a decrease in commercial and industrial balances. The net interest margin decreased 5 basis points during the first quarter of 2018 due primarily to an increase in funding costs resulting from an increase in borrowed funds, partially offset by the favorable effect of noninterest bearing deposits in a rising rate environment.

Noninterest Income and Noninterest Expense

The following tables display our noninterest income and noninterest expense for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 and ~~2016:~~2017:

Noninterest Income


	For the Three Months Ended												For the Nine Months Ended																For the Three Months Ended
						Increase (Decrease)															Increase (Decrease)															Increase (Decrease)
	September 30, 2017			September 30, 2016								September 30, 2017				September 30, 2016					Increase (Decrease)							March 31, 2018				March 31, 2017				Increase (Decrease)
(Dollars in millions)	September 30, 2017			September 30, 2016			Amount			Percent		September 30, 2017								Amount				Percent							Amount					Percent
Service charges on deposit accounts	$	47		$	48	$	(1	)	(2	)	%		$	142		September 30, 2016		$	143			$	(1	)		(1	)	March 31, 2018	%		$	March 31, 2017		45		$	48		$	(3	)	(6	)	%
Trust and investment management fees	32			29		3			10				91				91				—				—				29				29			—			—
Trading account activities	(3		)	25		(28		)	(112	)			(10		)		93				(103		)		(111	)			2				(4		)	6			150
Securities gains, net	6			23		(17		)	(74	)			15				55				(40		)		(73	)			—				2			(2		)	(100	)
Credit facility fees	26			27		(1		)	(4	)			75				82				(7		)		(9	)			23				26			(3		)	(12	)
Brokerage commissions and fees	16			15		1			7				52				59				(7		)		(12	)			18				18			—			—
Card processing fees, net	10			10		—			—				34				28				6				21				12				11			1			9
Investment banking and syndication fees	106			113		(7		)	(6	)			288				253				35				14				89				88			1			1
Fees from affiliates	209			222		(13		)	(6	)			639				692				(53		)		(8	)			276				219			57			26
Other investment income	2			1		1			100				(17		)		(4		)		(13		)		(325	)
Other, net	64			57		7			12				183				117				66				56				(112		)		51			(163		)	(320	)
Total noninterest income	$	515		$	570	$	(55	)	(10	)	%		$	1,492			$	1,609			$	(117	)		(7	)	%		$	382			$	488		$	(106	)	(22	)	%

Noninterest income decreased during the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 compared with the same prior year ~~periods primarily~~period largely due to ~~decreases~~the Company's share of losses on certain renewable energy investments of $164 million as a result of the TCJA. These losses, which were included in ~~trading account activities, securities gains,~~other, net, ~~and~~were partially offset by a change in presentation of certain expenses beginning January 1, 2018, as a result of adopting ASU 2016-08, Principal versus Agent Considerations. During the first quarter of 2018, expenses of $40 million were presented as noninterest expense, rather than a reduction of fees from affiliates partially offset by an increase in fund administration fees from entities transferred to the Company on July 1, 2017 (included in other, net). The decrease in noninterest income during the nine months ended September 30, 2017 compared with the prior year period was also partially offset by an increase in investment banking and syndication fees. The decrease in trading account activities was related to losses on fixed rate securities at our broker-dealer due to rising interest rates. The decrease in securities gains, net was due to fewer sales of securities during the current year. The decrease in fees from affiliates was due to lower revenue sharing fees.as they were presented through December 31, 2017.

Noninterest Expense


	For the Three Months Ended															For the Nine Months Ended														For the Three Months Ended
								Increase (Decrease)															Increase (Decrease)													Increase (Decrease)
	September 30, 2017				September 30, 2016										September 30, 2017			September 30, 2016					Increase (Decrease)						March 31, 2018			March 31, 2017				Increase (Decrease)
(Dollars in millions)				Amount						Percent				Amount				September 30, 2016				Percent				Amount			March 31, 2018			March 31, 2017			Percent
Salaries and other compensation	September 30, 2017	$	530		September 30, 2016		$	524			$	6			September 30, 2017		1	%		$	1,573			$	1,509		$	64			4	%
Employee benefits	59				68			(9		)		(13	)			217			250				(33		)	(13	)
Salaries and employee benefits	589				592			(3		)		(1	)			1,790			1,759				31			2				$	670		$	645		$	25	4	%
Net occupancy and equipment	87				82			5				6				256			242				14			6				90			82			8		10
Professional and outside services	101				84			17				20				316			270				46			17				132			116			16		14
Software	49				39			10				26				142			113				29			26				70			46			24		52
Regulatory assessments	22				22			—				—				61			50				11			22				23			20			3		15
Intangible asset amortization	8				7			1				14				22			20				2			10				7			7			—		—
LIHC investment amortization	4				2			2				100				8			5				3			60
Advertising and public relations	14				8			6				75				45			30				15			50
Communications	16				14			2				14				45			42				3			7
Data processing	10				6			4				67				25			23				2			9
Other	82				96			(14		)		(15	)			235			272				(37		)	(14	)			92			90			2		2
Total noninterest expense	$	982			$	952		$	30			3		%		$	2,945		$	2,826			$	119		4		%		$	1,084		$	1,006		$	78	8	%

The increase in noninterest expense for the ~~third~~first quarter of ~~2017~~2018 compared with the ~~third~~first quarter of ~~2016~~2017 was driven primarily by ~~an increase~~the change in ~~professional and outside services~~presentation of certain expenses and software expense, partially offset by a low income housing impairment charge (included in other) attributed to noncontrolling interests that occurred in 2016. The Company's share of the impairment charge was not significant. Thean increase ~~during the nine months ended September 30, 2017 compared with the prior year period was due primarily to increases~~ in salaries and employee benefits ~~expense,~~expense. The increases in professional and outside services and software expenses ~~partially offset by~~were substantially due to the ~~low income housing impairment charge from 2016.~~change in presentation of certain expenses beginning January 1, 2018, as a result of adopting ASU 2016-08, Principal versus Agent Considerations, as discussed in Noninterest Income above. The increase in salaries and employee benefits expense ~~for~~included the ~~nine months ended September 30, 2017 was related in part to~~impact of higher incentive accruals, partially offset by a decrease in pension expense. The increase in professional and outside services expense for the three and nine months ended September 30, 2017 was primarily related to controls and compliance initiatives. The increase in software expense for the three and nine months ended September 30, 2017 was the result of increased investment in software to support various business activities.headcount.

Income Tax Expense

Income tax expense and the effective tax rate include both federal and state income taxes. In the ~~third~~first quarter of ~~2017,~~2018, income tax ~~expense~~ was ~~$109~~a benefit of $42 million ~~with an~~and the effective tax rate ~~of 33%~~was negative 34%, compared with ~~31% for the third quarter of 2016. For the nine months ended September 30, 2017, income tax expense was $255 million with an effective tax rate of 26%, compared with 29%~~positive 27% in the comparative prior year period. The ~~increase in~~income tax benefit and negative effective tax rate for the three months ended ~~September 30, 2017 is primarily~~March 31, 2018 are largely due to an ~~upward revision in estimated~~adjustment to certain prior period state income taxes ~~and the impact of discrete tax adjustments~~ during the quarter. ~~The decrease in~~Excluding that adjustment, the effective tax rate for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 would have been 11%, which is ~~primarily due to higher federal income tax credits and~~ lower ~~state taxes in~~than the ~~current year.~~prior year period as a result of the TCJA.

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~~The changes in the U.S. tax laws, the majority of which were effective January 1, 2018, will impact our business and results of operations in a variety of ways, some of which are expected to be positive and others which may be negative” and “Our effective tax rates, ~~could affect~~and our future results can also be affected by our participation for state income tax purposes as a member of MUFG’s unitary group in the U.S. and by other factors” ~~in “Risk Factors”~~ in Part I, Item 1A. and Note 1817 to the Consolidated Financial Statements in Part II, Item 8. “Financial Statements and Supplementary Data” in our ~~2016~~2017 Form 10-K.

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, U.S. government-sponsored agency 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 and U.S. government-sponsored agency RMBS and CMBS.

The amortized cost, gross unrealized gains, gross unrealized losses and fair values of securities are detailed in Note 2 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)									Increase (Decrease)
	September 30, 2017		December 31, 2016		Increase (Decrease)					March 31, 2018		December 31, 2017		Increase (Decrease)
(Dollars in millions)	September 30, 2017		December 31, 2016		Amount			Percent		March 31, 2018		December 31, 2017		Amount			Percent
Loans held for investment:
Commercial and industrial	$	23,443	$	25,379	$	(1,936	)	(8	)%	$	23,403	$	23,281	$	122		1	%
Commercial mortgage	14,161		14,625		(464		)	(3	)	14,496		14,320		176			1
Construction	1,856		2,283		(427		)	(19	)	1,835		1,775		60			3
Lease financing	1,796		1,819		(23		)	(1	)	1,494		1,533		(39		)	(3	)
Total commercial portfolio	41,256		44,106		(2,850		)	(6	)	41,228		40,909		319			1
Residential mortgage	34,205		29,922		4,283			14		36,660		35,643		1,017			3
Home equity and other consumer loans	3,368		3,523		(155		)	(4	)	3,512		3,462		50			1
Total consumer portfolio	37,573		33,445		4,128			12		40,172		39,105		1,067			3
Total loans held for investment	$	78,829	$	77,551	$	1,278		2	%	$	81,400	$	80,014	$	1,386		2	%

Loans held for investment increased from December 31, ~~2016~~2017 to ~~September 30, 2017,~~March 31, 2018, primarily due to growth in the residential mortgage 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 Japan, the only country where such outstandings exceeded one percent of total assets were $4.0 billion at September 30, 2017 and $3.1 billion at December 31, 2016. These cross-border outstandings are based on category and legal residence of ultimate risk and are largely comprised of securities financing arrangements by MUSA.

Deposits

The table below presents our deposits as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.


					Increase (Decrease)									Increase (Decrease)
	September 30, 2017		December 31, 2016		Increase (Decrease)					March 31, 2018		December 31, 2017		Increase (Decrease)
(Dollars in millions)	September 30, 2017		December 31, 2016		Amount			Percent		March 31, 2018		December 31, 2017		Amount			Percent
Interest checking	$	5,054	$	5,093	$	(39	)	(1	)%	$	4,039	$	5,209	$	(1,170	)	(22	)%
Money market	32,595		34,591		(1,996		)	(6	)	32,512		33,245		(733		)	(2	)
Total interest bearing transaction and money market accounts	37,649		39,684		(2,035		)	(5	)	36,551		38,454		(1,903		)	(5	)
Savings	8,423		5,928		2,495			42		8,849		8,426		423			5
Time	5,295		5,681		(386		)	(7	)	5,387		5,305		82			2
Total interest bearing deposits	51,367		51,293		74			—		50,787		52,185		(1,398		)	(3	)
Noninterest bearing deposits	33,982		35,654		(1,672		)	(5	)	32,745		32,602		143			—
Total deposits	$	85,349	$	86,947	$	(1,598	)	(2	)%	$	83,532	$	84,787	$	(1,255	)	(1	)%

Total deposits decreased ~~$1.6~~$1.3 billion from December 31, ~~2016~~2017 to ~~September 30, 2017~~March 31, 2018 due to a decrease in ~~demand deposits,~~interest checking and money market deposits, ~~and interest checking, substantially~~partially offset by an increase in interest bearing savings deposits related to ~~the launch of~~ PurePoint Financial, ~~a new~~the online division of the Bank.

Securities Financing Arrangements

The Company enters into securities purchased under agreements to resell, securities sold under agreements to repurchase, and securities borrowing and lending transactions to facilitate customer match-book activity, cover short positions and to fund the Company's trading inventory. These balances are almost entirely attributable to MUSA. See Note 5 to our Consolidated Financial Statements in this Form 10-Q for ~~additional~~more information.

Capital Management

Both MUAH and MUB are subject to various capital adequacy regulations issued by the U.S. federal banking agencies, including requirements to file an annual capital plan and to maintain minimum regulatory capital ratios. As of ~~September 30, 2017,~~March 31, 2018, 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 ~~2017.~~2018. 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 ~~2017~~2018 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,~~time frame, and a discussion of any proposed business plan changes that are likely to have a material impact on capital adequacy. In June 2017, 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. In October 2017, the Company submitted its mid-cycle Dodd-Frank Act Stress Test results to the Federal Reserve and subsequently disclosed the results of those stress tests.

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 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, for advanced approaches institutions, 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; 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 phased-out, for advanced approaches institutions, the exclusion of AOCI that had applied under Basel I and Basel II rules, over a four-year transition period beginning on January 1, 2014. Banking organizations not subject to the advanced approaches rules, such as MUAH, were required to comply with the standardized approach capital rules beginning on January 1, 2015.

MUB previously opted-in to the advanced approaches risk-based capital rules, and therefore was required to comply with the U.S. Basel III capital rules beginning on January 1, 2014. However, in October 2017, the OCC approved MUB's request to opt-out of the U.S. Basel III advanced approaches rules, including MUB's one-time permanent election to exclude certain components of AOCI from its regulatory capital calculations, effective September 30, 2017.

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 ~~September 30, 2017.~~March 31, 2018.

The following tables summarize the calculation of MUAH’s risk-based capital ratios in accordance with the U.S. Basel III rules as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.

MUFG Americas Holdings Corporation


	U.S. Basel III				U.S. Basel III
(Dollars in millions)	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Capital Components
Common Equity Tier 1 capital	$	15,716	$	14,757	$	15,834	$	15,708
Tier 1 capital	$	15,716	$	14,757	$	15,834	$	15,708
Tier 2 capital	1,467		1,674		1,405		1,398
Total risk-based capital	$	17,183	$	16,431	$	17,239	$	17,106
Risk-weighted assets	$	97,072	$	99,904	$	97,141	$	96,330
Average total assets for leverage capital purposes	$	150,541	$	148,794	$	155,213	$	156,126

U.S. Basel III
Minimum Capital Requirement with Capital Conservation Buffer ⁽¹⁾
(Dollars in millions) September 30, 2017 December 31, 2016 September 30, 2017
Capital Ratios Amount Ratio Amount Ratio Amount Ratio
Common Equity Tier 1 capital (to risk-weighted assets) $ 15,716
16.19 % $ 14,757
14.77 % ≥ $ 5,582
5.750 %
Tier 1 capital (to risk-weighted assets) 15,716
16.19
14,757
14.77
≥ 7,038
7.250
Total capital (to risk-weighted assets) 17,183
17.70
16,431
16.45
≥ 8,979
9.250
Tier 1 leverage⁽²⁾
15,716
10.44
14,757
9.92
≥ 6,022
4.000



	U.S. Basel III								Minimum Capital Requirement with Capital Conservation Buffer ⁽¹⁾
(Dollars in millions)	March 31, 2018				December 31, 2017				March 31, 2018
Capital Ratios	Amount		Ratio		Amount		Ratio		Amount			Ratio
Common Equity Tier 1 capital (to risk-weighted assets)	$	15,834	16.30	%	$	15,708	16.31	%	≥	$	6,193	6.375	%
Tier 1 capital (to risk-weighted assets)	15,834		16.30		15,708		16.31		≥	7,650		7.875
Total capital (to risk-weighted assets)	17,239		17.75		17,106		17.76		≥	9,593		9.875
Tier 1 leverage⁽²⁾	15,834		10.20		15,708		10.06		≥	6,209		4.000

(1)Beginning January 1, ~~2017,~~2018, the minimum capital requirement includes a capital conservation buffer of ~~1.250%~~1.875%.

(2)Tier 1 capital divided by quarterly average assets (excluding certain disallowed assets, primarily goodwill and other intangibles).

~~The increase in the Company's risk-based capital ratios was driven primarily by the impact of entities transferred to the Company on July 1, 2017 and net income.~~

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 ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.

MUFG Union Bank, N.A.


	U.S. Basel III				U.S. Basel III
(Dollars in millions)	September 30, 2017		December 31, 2016 ⁽¹⁾		March 31, 2018		December 31, 2017
Capital Components
Common Equity Tier 1 capital	$	14,139	$	13,056	$	14,261	$	14,028
Tier 1 capital	$	14,139	$	13,056	$	14,261	$	14,028
Tier 2 capital	1,378		1,504		1,303		1,307
Total risk-based capital	$	15,517	$	14,560	$	15,564	$	15,335
Risk-weighted assets	$	86,983	$	89,382	$	87,432	$	86,730
Average total assets for leverage capital purposes	$	114,420	$	113,939	$	117,897	$	119,052


	U.S. Basel III								Minimum Capital Requirement with Capital Conservation Buffer ⁽²⁾					To Be Well-Capitalized Under Prompt Corrective Action Provisions					U.S. Basel III								Minimum Capital Requirement with Capital Conservation Buffer ⁽¹⁾					To Be Well-Capitalized Under Prompt Corrective Action Provisions
(Dollars in millions)	September 30, 2017				December 31, 2016⁽¹⁾				September 30, 2017										March 31, 2018				December 31, 2017				March 31, 2018
Capital Ratios	Amount		Ratio		Amount		Ratio		Amount			Ratio		Amount			Ratio		Amount		Ratio		Amount		Ratio		Amount			Ratio		Amount			Ratio
Common Equity Tier 1 capital (to risk-weighted assets)	$	14,139	16.26	%	$	13,056	14.61	%	≥	$	5,002	5.750	%	≥	$	5,654	6.5	%	$	14,261	16.31	%	$	14,028	16.17	%	≥	$	5,574	6.375	%	≥	$	5,683	6.50	%
Tier 1 capital (to risk-weighted assets)	14,139		16.26		13,056		14.61		≥	6,306		7.250		≥	6,959		8.0		14,261		16.31		14,028		16.17		≥	6,885		7.875		≥	6,995		8.00
Total capital (to risk-weighted assets)	15,517		17.84		14,560		16.29		≥	8,046		9.250		≥	8,698		10.0		15,564		17.80		15,335		17.68		≥	8,634		9.875		≥	8,743		10.00
Tier 1 leverage⁽³⁾⁽²⁾	14,139		12.36		13,056		11.46		≥	4,577		4.000		≥	5,721		5.0		14,261		12.10		14,028		11.78		≥	4,716		4.000		≥	5,895		5.00


~~(1)~~	~~Calculated under phase-in of AOCI in Common Equity Tier 1 capital under the U.S. Basel III regulatory capital requirements of an advanced approaches institution.~~

~~(2)~~(1)Beginning January 1, ~~2017,~~2018, the minimum capital requirement includes a capital conservation buffer of ~~1.250%~~1.875%.

~~(3)~~(2)Tier 1 capital divided by quarterly average assets (excluding certain disallowed assets, primarily goodwill and other intangibles).

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 ~~September 30, 2017.~~March 31, 2018. 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 ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016:~~2017:


	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
(Dollars in millions)	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Total MUAH stockholders' equity	$	18,459		$	17,233		$	18,193		$	18,255
Goodwill	(3,301		)	(3,225		)	(3,301		)	(3,301		)
Intangible assets, except mortgage servicing rights	(321		)	(223		)	(306		)	(313		)
Deferred tax liabilities related to goodwill and intangible assets	79			79			56			55
Tangible common equity (a)	$	14,916		$	13,864		$	14,642		$	14,696
Total assets	$	154,852		$	148,144		$	157,310		$	154,550
Goodwill	(3,301		)	(3,225		)	(3,301		)	(3,301		)
Intangible assets, except mortgage servicing rights	(321		)	(223		)	(306		)	(313		)
Deferred tax liabilities related to goodwill and intangible assets	79			79			56			55
Tangible assets (b)	$	151,309		$	144,775		$	153,759		$	150,991
Tangible common equity ratio (a)/(b)	9.86		%	9.58		%	9.52		%	9.73		%

The Company’s fully phased-in Common Equity Tier 1 capital ratio calculated under the U.S. Basel III standardized approach at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 was estimated to be ~~16.16%~~16.30% and ~~14.73%~~16.27%, 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 ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.

The following table summarizes 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 ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016:~~2017:


Common Equity Tier 1 capital under U.S. Basel III (standardized approach; fully phased-in)
	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
(Dollars in millions)	(Estimated)			(Estimated)			(Estimated)			(Estimated)
Common Equity Tier 1 capital under U.S. Basel III (transitional)	$	15,716		$	14,757		$	15,834		$	15,708
Other	(48		)	(58		)	—			(51		)
Common Equity Tier 1 capital estimated under U.S. Basel III (standardized approach; fully phased-in) (a)	$	15,668		$	14,699		$	15,834		$	15,657
Risk-weighted assets, estimated under U.S. Basel III (standardized; transitional)	$	97,072		$	99,904		$	97,141		$	96,330
Adjustments	(127		)	(137		)	—			(107		)
Total risk-weighted assets, estimated under U.S. Basel III (standardized approach; fully phased-in) (b)	$	96,945		$	99,767		$	97,141		$	96,223
Common Equity Tier 1 capital to total risk-weighted assets estimated under U.S. Basel III (standardized approach; fully phased-in) ⁽¹⁾(a)/(b)	16.16		%	14.73		%	16.30		%	16.27		%

(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.

For additional information regarding our regulatory capital requirements, see "Supervision and Regulation-Regulatory Capital and Liquidity Standards" in Part I, Item 1. in our ~~2016~~2017 Form 10-K.

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 committees, 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 ~~2016~~2017 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 ~~2016~~2017 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 ~~2016~~2017 Form 10-K. During the first quarter of 2018, the Company refined its methodology for estimating the allowance for commercial loans collectively evaluated for impairment and the allowance for losses on unfunded credit commitments. Previously the Company derived the allowance for these loans by assigning a loss factor based on an internal risk rating that estimated the probability that a credit facility may ultimately default (i.e. probability of default). The refinement implemented during the quarter now utilizes a dual factor internal risk rating system that encompasses both the probability of default and an estimate of the severity of the loss that would be realized upon such default (i.e. the loss-given default). For additional information regarding our allowance for loan losses, refer to Note 3 ofto our Consolidated Financial Statements in Part I, Item 1. “Financial Statements” of this Form 10-Q.

The allowance for loan losses was ~~$542~~$460 million at ~~September 30, 2017~~March 31, 2018 compared with ~~$639~~$476 million at December 31, ~~2016.~~2017. Our ratio of allowance for loan losses to total loans held for investment was ~~0.69%~~0.57% as of ~~September 30, 2017~~March 31, 2018 and ~~0.82%~~0.59% as of December 31, ~~2016.~~2017. The reversal of provision ~~(reversal)~~ for loan losses was ~~$33 million and $(1)~~$5 million for the three ~~and nine~~ months ended ~~September 30, 2017, respectively. The provision for loan losses~~March 31, 2018, reflecting stable portfolio credit quality during the ~~three months ended September 30, 2017 reflects inherent losses related to the commercial loan portfolio, which are included in the unallocated allowance.~~quarter. The unallocated allowance for loan losses ~~totaled~~decreased from $30 million at ~~September 30, 2017.~~December 31, 2017 to $5 million at March 31, 2018. This decrease resulted from refinements to the methodology used to measure credit risk ascribed to the commercial loan portfolio segment, which previously had been estimated within the unallocated allowance for loan losses. Net loans charged-off to average total loans held for investment were ~~0.03% and 0.17%~~0.05% for the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2018, compared with ~~0.61% and 0.37%~~0.29% for the three ~~and nine~~ months ended ~~September 30, 2016, respectively.~~March 31, 2017.

Nonaccrual loans were ~~$465~~$350 million at ~~September 30, 2017~~March 31, 2018 compared with ~~$689~~$465 million at December 31, ~~2016.~~2017. The decrease in nonaccrual loans outstanding during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 was primarily driven by ~~payoffs of certain loans in the PEP portfolio, as well as a refinement to our credit policy related to accrual status on residential mortgages.~~paydowns and payoffs. Our ratio of nonaccrual loans to total loans held for investment decreased to ~~0.59%~~0.43% at ~~September 30, 2017~~March 31, 2018 from ~~0.89%~~0.58% at December 31, ~~2016.~~2017. Our ratio of allowance for loan losses to nonaccrual loans increased to ~~116.45%~~131.51% at ~~September 30, 2017~~March 31, 2018 from ~~92.69%~~102.37% at December 31, ~~2016.~~2017. Criticized credits in the

commercial segment ~~decreased to $1.9~~were $1.6 billion at ~~September 30, 2017 from $2.4 billion at~~March 31, 2018 and December 31, ~~2016. The decrease in criticized credits was primarily due to general improvement and payoffs in the PEP portfolio during the first nine months of~~ 2017. Refer to Note 3 ofto our Consolidated Financial Statements in Part I, Item 1. "Financial Statements" ofin this Form 10-Q for a description of criticized credits.

Change in the Allowance for Loan Losses

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


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						For the Three Months Ended March 31,
(Dollars in millions)	2017			2016			2017			2016			2018			2017
Allowance for loan losses, beginning of period	$	513		$	748		$	639		$	723		$	476		$	639
(Reversal of) provision for loan losses	33			68			(1		)	190			(5		)	(14		)
Other	2			(1		)	2			3			—			1
Loans charged-off:
Commercial and industrial	(5		)	(66		)	(83		)	(120		)	(6		)	(49		)
Commercial and industrial - transfer to held for sale	(1		)	(60		)	(7		)	(111		)	—			(6		)
Commercial mortgage	(1		)	—			(1		)	—
Total commercial portfolio	(7		)	(126		)	(91		)	(231		)	(6		)	(55		)
Residential mortgage	1			2			2			3			—			—
Home equity and other consumer loans	(11		)	(4		)	(34		)	(8		)	(10		)	(11		)
Total consumer portfolio	(10		)	(2		)	(32		)	(5		)	(10		)	(11		)
Total loans charged-off	(17		)	(128		)	(123		)	(236		)	(16		)	(66		)
Recoveries of loans previously charged-off:
Commercial and industrial	8			2			20			5			3			8
Commercial mortgage	—			1			1			4			—			1
Total commercial portfolio	8			3			21			9			3			9
Residential mortgage													—			—
Home equity and other consumer loans	3			1			4			2			2			1
Total consumer portfolio	3			1			4			2			2			1
Total recoveries of loans previously charged-off	11			4			25			11			5			10
Net loans recovered (charged-off)	(6		)	(124		)	(98		)	(225		)	(11		)	(56		)
Ending balance of allowance for loan losses	542			691			542			691			460			570
Allowance for losses on unfunded credit commitments	129			171			129			171			126			146
Total allowance for credit losses	$	671		$	862		$	671		$	862		$	586		$	716

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 to our Consolidated Financial Statements included in Part II, Item 8. “Financial Statements and Supplementary Data” in our ~~2016~~2017 Form 10-K.

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


	September 30, 2017		December 31, 2016		Increase (Decrease)					March 31, 2018		December 31, 2017		Increase (Decrease)
(Dollars in millions)	September 30, 2017		December 31, 2016		Amount			Percent		March 31, 2018		December 31, 2017		Amount			Percent
Nonaccrual loans:
Commercial and industrial	$	308	$	458	$	(150	)	(33	)%	$	211	$	319	$	(108	)	(34	)%
Commercial mortgage	22		31		(9		)	(29	)	15		20		(5		)	(25	)
Total commercial portfolio	330		489		(159		)	(33	)	226		339		(113		)	(33	)
Residential mortgage	112		171		(59		)	(35	)	102		104		(2		)	(2	)
Home equity and other consumer loans	23		29		(6		)	(21	)	22		22		—			—
Total consumer portfolio	135		200		(65		)	(33	)	124		126		(2		)	(2	)
Total nonaccrual loans	465		689		(224		)	(33	)	350		465		(115		)	(25	)
OREO	1		3		(2		)	(67	)	—		1		(1		)	(100	)
Total nonperforming assets	$	466	$	692	$	(226	)	(33	)%	$	350	$	466	$	(116	)	(25	)
Troubled debt restructurings:
Accruing	$	308	$	215	$	93		43	%	$	323	$	348	$	(25	)	(7	)%
Nonaccruing (included in total nonaccrual loans above)	$	224	$	384	$	(160	)	(42	)%	182		229		(47		)	(21	)
Total troubled debt restructurings	$	532	$	599	$	(67	)	(11	)%	$	505	$	577	$	(72	)	(12	)

Total nonperforming assets as of ~~September 30, 2017~~March 31, 2018 were $350 million, or 0.22% of total assets, compared with $466 million, or 0.30% of total assets, ~~compared with $692 million, or 0.47% of total assets,~~ at December 31, ~~2016.~~2017. The decrease in nonperforming assets of ~~$226~~$116 million from December 31, ~~2016~~2017 to ~~September 30, 2017~~March 31, 2018 was driven primarily by ~~payoffs of certain loans in the PEP loan portfolio, as well as a refinement to our credit policy related to accrual status on residential mortgages.~~paydowns and payoffs.

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.

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 ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016. Refer to~~2017. See Note 3 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								As a Percentage of Ending Loan Balances
(Dollars in millions)	September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017		March 31, 2018		December 31, 2017
Commercial and industrial	$	214	$	321	0.91	%	1.26	%	$	143	$	202	0.61	%	0.87	%
Commercial mortgage	7		9		0.05		0.06		4		7		0.03		0.05
Construction	58		—		3.13		—		128		128		6.98		7.21
Total commercial portfolio	279		330		0.68		0.75		275		337		0.67		0.82
Residential mortgage	227		239		0.66		0.80		207		215		0.56		0.60
Home equity and other consumer loans	26		30		0.77		0.85		23		25		0.65		0.72
Total consumer portfolio	253		269		0.67		0.80		230		240		0.57		0.61
Total restructured loans	$	532	$	599	0.67	%	0.77	%	$	505	$	577	0.62		0.72

Loans 90 Days or More Past Due and Still Accruing

Loans held for investment 90 days or more past due and still accruing totaled ~~$13~~$9 million and $12 million at ~~September 30, 2017~~March 31, 2018 and ~~$23 million~~ at December 31, ~~2016.~~2017, respectively.

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~~primarily of the following industry sectors: finance and insurance, real estate and leasing, power and utilities, information and ~~wholesale trade.~~manufacturing. No individual industry sector exceeded 10% of our total loans held for investment at either ~~September 30, 2017~~March 31, 2018 or December 31, ~~2016.~~2017.

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 ~~September 30, 2017, 51%~~March 31, 2018, 58% of the Company’s construction loan portfolio was concentrated in California, ~~11%~~12% to borrowers in ~~the state of~~ New York and 8%6% to borrowers in the state of Washington. The commercial mortgage loan portfolio consists of loans secured by commercial income properties. At ~~September 30, 2017, 63%~~March 31, 2018, 66% of the Company’s commercial mortgage loans were made to borrowers located in California, 7%6% to borrowers in ~~the state of~~ New York, and 7% to borrowers in the state of Washington.

Residential mortgage loans are originated and secured by one-to-four family residential properties, through our ~~multiple channel~~multi-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 ~~September 30, 2017,~~March 31, 2018, payment terms on ~~37%~~36% 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 65%. 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 ~~31% and 32%~~29% of ~~the~~these home equity loans and lines were supported by first liens on residential properties as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016, respectively.~~2017. 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 3 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 and home equity and other consumer loans at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.

In October 2017, wildfires occurred in a number of California counties where the Bank has branches and does business. The Company is assessing the potential consequences for its business from these events to determine whether it has incurred any significant losses as a result of these wildfires.

~~As of September 30, 2017, 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. Interest rate risk arises from instruments, positions and transactions entered into for purposes other than trading and for trading. Other than trading interest rate risk arises from loans, securities, deposits, borrowings, securities purchased under agreements to resell, securities sold under agreements to repurchase, securities borrowing and lending transactions, and derivative instruments. Trading interest rate risk primarily arises from trading activities at MUAH's broker-dealer subsidiary, MUSA, and derivative contracts MUB 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, and 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 oversight of the risk management framework and reviews and discusses market risk management reports and trends. MRMC approves the trading policies that govern the Company’s activities. ALCO is responsible for the approval of specific interest rate risk management programs, including those related to interest rate hedging, investment securities and wholesale funding of MUAH, along with approval of capital policies.

The Treasurer is primarily responsible for the implementation of interest rate risk management strategies approved by ALCO and for operational management of market risk, as defined above, through funding, investment and derivatives hedging activities. The MRM unit is responsible for monitoring market risk and functions independently of all operating and management units and subsidiaries.

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

ALCO monitors interest rate risk from ALM activities 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.

Net Interest Income Sensitivity

The table below presents the estimated increase (decrease) in the Company's 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)	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Effect on net interest income:
Increase 200 basis points	$	51.4		$	18.5		$	114.1		$	100.2
as a percentage of base case net interest income	1.67		%	0.61		%	3.66		%	3.21		%
Decrease 100 basis points	$	(57.8	)	$	(19.1	)	$	(66.3	)	$	(75.7	)
as a percentage of base case net interest income	(1.88		)%	(0.63		)%	(2.12		)%	(2.42		)%

An increase in rates increases net interest income. During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2018, the Company's asset sensitive profile increased due to changes in balance sheet composition and forecasted balance sheet activity over the next twelve months, reflecting the impact of recent rate increases on certain components of the balance sheet.

MUSA's securities borrowed or purchased under resale agreements and securities loaned or sold under repurchase agreements are included in the Company's net interest income sensitivity analysis. However, due to the short-term nature of these interest-bearing assets and liabilities, the Company also monitors net interest income sensitivity excluding these balances. Excluding the impact of MUSA, the Company would have a slightly greater asset sensitive risk profile at ~~September 30, 2017.~~March 31, 2018.

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~~historical 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 ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, our ALM securities portfolio fair values were ~~$26.8~~$25.6 billion and ~~$22.7~~$25.7 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 4.5 years at ~~September 30, 2017.~~March 31, 2018. At ~~September 30, 2017,~~March 31, 2018, approximately ~~$1.9~~$2.0 billion of the portfolio was pledged to secure trust and public deposits and for other purposes as required or permitted by law. During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2018, we purchased ~~$9.1~~$1.3 billion and sold ~~$1.9 billion~~$9 million of securities as part of our investment portfolio strategy, while ~~$3.1~~$1.1 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 ~~3.6~~3.7 years at ~~September 30, 2017,~~March 31, 2018, compared with ~~4.0~~3.7 years at December 31, ~~2016.~~2017. Effective duration is a measure of price sensitivity of a bond portfolio to immediate parallel shifts in interest rates. An effective duration of ~~3.6~~3.7 years suggests an expected price decrease of approximately ~~3.6%~~3.7% for an immediate 1.0% parallel increase in interest rates.

In addition to our ALM securities, our securities available for sale portfolio includes approximately ~~$1.5~~$1.4 billion of direct bank purchase bonds that are largely managed within our Regional Bank and U.S. Wholesale & Investment 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.

ALM and Other Risk Management Derivatives

The notional amount of the ALM derivatives portfolio decreased during the three months ended March 31, 2018 as the Company terminated receive fixed swap contracts used to hedge floating rate commercial loans in order to increase earnings at risk sensitivity given expectations of rising rates. The gross negative fair value of ALM derivatives decreased during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 primarily as a result of ~~changes in interest rate swap rates and~~ hedge terminations. 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” ofin this Form 10-Q.


(Dollars in millions)	September 30, 2017			December 31, 2016			Increase (Decrease)			March 31, 2018		December 31, 2017			Increase (Decrease)
Total gross notional amount of ALM and other risk management derivatives
ALM derivatives:
Interest rate swap receive fixed contracts	$	11,100		$	15,959		$	(4,859	)	$	3,483	$	7,498		$	(4,015	)
Total ALM derivatives	11,100			15,959			(4,859		)	3,483		7,498			(4,015		)
Other risk management derivatives	1,039			1,045			(6		)	1,389		1,345			44
Total ALM and other risk management derivatives	$	12,139		$	17,004		$	(4,865	)	$	4,872	$	8,843		$	(3,971	)

Fair value of ALM and other risk management derivatives
ALM derivatives:
Gross positive fair value	$	2		$	22		$	(20	)	$	4	$	2		$	2
Gross negative fair value	164			199			(35		)	—		149			(149		)
Positive (negative) fair value of ALM derivatives, net	(162		)	(177		)	15			4		(147		)	151
Other risk management derivatives:
Gross positive fair value	1			3			(2		)	11		3			8
Gross negative fair value	23			90			(67		)	8		9			(1		)
Positive (negative) fair value of other risk management derivatives, net	(22		)	(87		)	65			3		(6		)	9
Positive (negative) fair value of ALM and other risk management derivatives, net	$	(184	)	$	(264	)	$	80		$	7	$	(153	)	$	160

Trading Activities

Trading activities consist primarily of activities at MUAH's broker-dealer subsidiary, MUSA, and derivative contracts MUB enters into as a financial intermediary for customers. MUSA transacts as principal and agent for a variety of securities and exchange traded derivatives. By acting as a financial intermediary, MUB is 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 to mitigate our exposure to market risk.

The Company monitors market risk from trading activities by utilizing 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 $38 million established by Board policy for total trading positions. The VaR model incorporates assumptions on key parameters, including holding period and historical volatility.

The following table sets forth the average, high and low 10-day 99% confidence level VaR for our trading activities for the three months ended ~~September 30, 2017~~March 31, 2018 and ~~September 30, 2016.~~March 31, 2017.


(Dollars in millions)	September 30, 2017		September 30, 2016		March 31, 2018		March 31, 2017
Average VaR	$	9.3	$	8.1	$	9.1	$	9.1
High VaR	12.7		10.7		11.7		11.6
Low VaR	7.0		6.2		6.4		6.8

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.

The following table provides the fair value of our trading account portfolio as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017, and the change in fair value between ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016:~~2017.


(Dollars in millions)	September 30, 2017		December 31, 2016		Increase (Decrease)			March 31, 2018			December 31, 2017		Increase (Decrease)
Fair value of trading account assets:
U.S. Treasury securities	$	2,503	$	1,730	$	773		$	2,594		$	1,926	$	668
Corporate bonds	848		841		7			1,187			1,054		133
Mortgage-backed securities	5,725		5,221		504			7,436			6,339		1,097
Derivatives (including netting adjustment)	763		851		(88		)	661			712		(51		)
Other	384		299		85			687			536		151
Trading account assets	$	10,223	$	8,942	$	1,281		$	12,565		$	10,567	$	1,998

Fair value of trading account liabilities:
U.S. Treasury securities	$	2,257	$	1,973	$	284		$	2,899		$	2,709	$	190
Corporate bonds	437		298		139			388			348		40
Derivatives (including netting adjustment)	471		576		(105		)	524			501		23
Other	173		58		115			63			42		21
Trading account liabilities	$	3,338	$	2,905	$	433		$	3,874		$	3,600	$	274

Additional trading account derivative detail:
Total gross notional amount of positions held for trading purposes:
Interest rate contracts	$	154,986	$	149,229	$	5,757		$	118,198		$	132,214	$	(14,016	)
Commodity contracts	1,672		2,825		(1,153		)	710			1,244		(534		)
Foreign exchange contracts	6,663		5,981		682			8,488			7,053		1,435
Equity contracts	1,547		2,385		(838		)	912			1,496		(584		)
Other contracts	79		4		75			88			4		84
Total	$	164,947	$	160,424	$	4,523		$	128,396		$	142,011	$	(13,615	)
Fair value of positions held for trading purposes:
Gross positive fair value	$	1,376	$	1,601	$	(225	)	$	937		$	1,317	$	(380	)
Gross negative fair value	981		1,395		(414		)	942			969		(27		)
Positive fair value of positions, net	$	395	$	206	$	189		$	(5	)	$	348	$	(353	)

Notional amounts at ~~September 30, 2017~~March 31, 2018 also included $~~0.8~~0.3 billion, $~~0.6~~0.1 billion and ~~$1.5~~$0.7 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.

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 MUAH ALM and Liquidity Risk Management Policies. The MUAH ALM Policy is under the oversight of ALCO, which oversees first line liquidity risk management activities conducted by ~~Treasury, and the Audit & Finance Committee of the Board.~~Treasury. Treasury formulates the funding, liquidity and contingency planning strategies for the Company, the Bank and MUSA, and is responsible for identifying, managing and reporting on liquidity risk. The Liquidity Risk Management Policies for the Company, the Bank and MUSA are under the oversight of the ARC and the Risk Committee of the Board. MRM conducts independent oversight and governance of liquidity risk management activities to establish sound policies and effective risk and independent monitoring controls. We are also subject to a Contingency Funding Plan framework 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, the Bank or MUSA.

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. Although we make an effort to diversify our sources of liquidity, as discussed below, we will be required to maintain a minimum amount of TLAC-eligible debt due to affiliates beginning January 1, 2019. Various tools are used to measure and monitor liquidity, including forecasting of the sources and uses of cash flows over multiple time horizons and stress testing of the forecasts under various scenarios. Stress testing, which incorporates both institution-specific and systemic market scenarios, as well as a combination scenario that adversely affects the Company's liquidity position and profile, facilitates the identification of appropriate remedial measures to help ensure that the Company 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, adjusting asset growth and financing or selling assets.

In December 2016, the Federal Reserve finalized rules imposing new TLAC requirements on GSIBs with operations in the U.S., such as MUFG. The final rule includes an Internal TLAC requirement which sets a minimum amount of loss-absorbing instruments, which must be issued by the Company to MUFG or ~~BTMU~~MUFG Bank, Ltd. (or another wholly-owned non-U.S. subsidiary of MUFG) due to MUFG's single point of entry resolution approach. These loss absorbing instruments are comprised of Tier 1 regulatory capital and long-term debt. TLAC Tier 1 regulatory capital is designed to absorb ongoing losses, while the conversion of TLAC-eligible long-term debt into common equity of the Company is ~~designed~~intended to recapitalize the Company prior to any bankruptcy or insolvency proceedings. The Company will be required to comply with these new rules by January 1, 2019. The Company expects to restructure existing debt issued to ~~BTMU~~MUFG Bank, Ltd. and replace a portion of its externally-placed debt with the issuance of internal TLAC-eligible debt issued to ~~BTMU or~~ MUFG Bank, Ltd. in order to comply with the new rules. See "Supervision and Regulation-Dodd-Frank Act and Related Regulations" in Part I, Item 1. "Business" in our ~~2016~~2017 Form 10-K.

We maintain a substantial level of available liquidity in the form of on-balance sheet and off-balance sheet funding sources. Sources of liquidity include cash at the Federal Reserve, unencumbered liquid securities, and capacity to borrow on a secured basis at the FHLB of San Francisco and the Federal Reserve Bank’s Discount Window. Total unpledged securities ~~increased by $9.5 billion to $28.7~~were $23.5 billion at ~~September 30, 2017 from $19.2 billion at December~~March 31, ~~2016.~~2018. Our primary funding sources are customer deposits, secured FHLB advances, and unsecured short-term and long-term debt. Total deposits were down ~~$1.6~~$1.3 billion from ~~$86.9~~$84.8 billion at December 31, ~~2016~~2017 to ~~$85.3~~$83.5 billion at ~~September 30, 2017.~~March 31, 2018. As of ~~September 30, 2017,~~March 31, 2018, the Bank had ~~$5.6~~$11.9 billion of 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 ~~$26.1~~$25.3 billion. The Bank maintains a $12.0 billion unsecured bank note program. Available funding under the bank note program was $5.9 billion at ~~September 30, 2017.~~March 31, 2018. We do not have any firm commitments in place to sell additional notes under this program.

In addition to managing liquidity risk on a consolidated basis and at each of the major subsidiaries (the Bank and MUSA), we assess and monitor liquidity at the parent company (MUAH) and the other non-bank subsidiaries. The parent company maintains sufficient liquidity to meet expected obligations, without access to the wholesale funding markets or dividends from subsidiaries, for at least 20 months. ~~As of September 30, 2017,~~At March 31, 2018, the parent company’s liquidity exceeded 20 months.

MUAH issues debt securities through a $3.6 billion shelf registration statement with the SEC. As of September 30, 2017, $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 also borrows, on a long-term basis, from BTMU. On March 28, 2017, MUAH entered into a Credit Agreement with BTMU under which MUAH borrowed $3.5 billion. Simultaneously with the funding of this loan on March 31, 2017, the Bank prepaid three other loans from BTMU totaling $3.5 billion. At September 30, 2017, MUAH’s total debt outstanding to BTMU totaled $4.4 billion. This compares with $845 million at December 31, 2016.

~~MUAH’s~~and its subsidiaries ~~also~~ may borrow on a long-term basis from ~~BTMU~~MUFG Bank, Ltd. and affiliates. As of ~~September 30, 2017,~~March 31, 2018, the Company had total long-term debt issued to ~~BTMU~~MUFG Bank, Ltd. and affiliates of ~~$6.2~~$6.1 billion, including $1.2 billion of subordinated debt with a capital component.

The Company’s total wholesale funding included ~~$10.7~~$13.6 billion of ~~long term~~long-term debt (excluding nonrecourse debt) and ~~$6.0~~$9.1 billion of short-term debt at ~~September 30, 2017.~~March 31, 2018. For additional information regarding our outstanding debt, refer to Note 6 and Note 7 to our Consolidated Financial Statements in Part I, Item 1. “Financial Statements” ofin this Form 10-Q. We evaluate and monitor the stability and reliability of our various funding sources to help ensure that we have sufficient liquidity in adverse circumstances.

Our costs and ability to raise funds in the capital markets are influenced by our credit ratings. In ~~October 2017 Moody's upgraded MUAH's~~April 2018, Standard & Poor's revised the outlook on MUAH, MUB and MUSA to positive from stable following a similar revision to MUFG’s outlook. The change in MUFG’s outlook is a result of Standard & Poor's revising the outlook on the long-term ~~senior debt~~sovereign rating of Japan to A2positive from ~~A3.~~stable. The following table provides our credit ratings as of ~~September 30, 2017:~~March 31, 2018:



		MUFG Union Bank, N.A.		MUFG Securities Americas Inc.	MUFG Americas Holdings Corporation
		Deposits	Senior Debt	Senior Debt	Senior Debt
Standard & Poor's	Long-term	—	A+	A+A	A	A-
	Short-term	—	A-1	A-1	~~A-1~~A-2
Moody's	Long-term	Aa2	A2	—	A3A2
	Short-term	P-1	P-1	—	—
Fitch	Long-term	A+	A	A	A
	Short-term	F1	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 ~~2016~~2017 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, 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. At September 30, 2017, the Company was 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. in our 2016 Form 10-K 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 II, Item 1A. “Risk Factors” in this Form 10-Q.~~

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. Operational risk 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 ~~including its impact on business continuity plans,~~ is a significant operational risk element for the Company and includes the risk of losses resulting from ~~cyber attacks.~~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 our ~~2016~~2017 Form 10-K. 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 ~~2016~~2017 Form 10-K.

Business Segments

~~During the second quarter of 2017, the composition of the Company’s 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 Investment Banking and Markets segment, including its products and services, into the activities performed within various other segments. We now have~~Company has four reportable segments: Regional Bank, U.S. Wholesale & Investment Banking, Transaction Banking, and MUFG Securities Americas. ~~Prior period results have been revised to conform to the current period presentation.~~ 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” ofin 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. Certain of the entities transferred to the IHC are not measured using a "market view" perspective. 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 wide range of financial products and services to individuals and businesses on the West Coast. Capabilities are delivered through a network of retail and private banking offices, digital channels, relationship managers, call centers and ATMs.

Consumers have access to checking and deposit accounts, residential mortgage loans, consumer loans, home equity lines of credit, credit cards, bill and loan payment services, and merchant services. Additionally, online deposit savings products are offered through PurePoint Financial which provides services to customers online and through a call center and a network of financial centers.

Commercial clients with up to $1 billion in annual revenue have access to commercial and asset-based loans, and professional real estate developers are offered financing solutions for existing properties and construction projects. Through partnerships with other areas of the Bank, these clients also have access to non-credit products and services including global treasury management, capital markets solutions, foreign exchange, ~~and~~ interest rate risk and commodity risk management products and services.

The Wealth Markets Division serves corporate, institutional, non-profit and individual clients. Products and services include wealth planning, trust and estate services, investment management, brokerage and private wealth management.

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


Regional Bank	Regional Bank																					Regional Bank
		For the Three Months Ended September 30,				Increase (Decrease)						For the Nine Months Ended September 30,				Increase (Decrease)							For the Three Months Ended March 31,				Increase (Decrease)
(Dollars in millions)		2017		2016		Amount			Percent			2017		2016		Amount			Percent				2018		2017		Amount			Percent
Results of operations - Market View
Net interest income		$	511	$	481	$	30		6		%	$	1,514	$	1,427	$	87		6		%		$	523	$	498	$	25		5	%
Noninterest income		113		118		(5		)	(4	)		341		344		(3		)	(1	)			117		112		5			4
Total revenue		624		599		25			4			1,855		1,771		84			5				640		610		30			5
Noninterest expense		500		459		41			9			1,505		1,355		150			11				502		496		6			1
(Reversal of) provision for credit losses		20		23		(3		)	(13	)		40		17		23			135				8		2		6			300
Income before income taxes and including noncontrolling interests		104		117		(13		)	(11	)		310		399		(89		)	(22	)			130		112		18			16
Income tax expense		22		29		(7		)	(24	)		68		104		(36		)	(35	)			23		25		(2		)	(8	)
Net income attributable to MUAH		$	82	$	88	$	(6	)	(7	)		$	242	$	295	$	(53	)	(18	)
Net income (loss) attributable to MUAH																							$	107	$	87	$	20		23
Average balances - Market View
Total loans held for investment		$	61,266	$	58,953	$	2,313		4		%	$	60,415	$	58,094	$	2,321		4		%		$	64,551	$	59,646	$	4,905		8	%
Total assets		65,065		62,937		2,128			3			64,276		62,554		1,722			3				68,322		63,542		4,780			8
Total deposits		55,025		52,533		2,492			5			54,433		52,163		2,270			4				54,006		53,424		582			1

Net interest income increased during the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 compared with the prior year ~~periods,~~period, primarily due to balance sheet growth in loans and deposits and higher ~~average residential mortgage loan balances and a higher funds transfer pricing credit due to higher average deposit balances and an increase in the funds transfer pricing credit rate.~~spreads on deposits, partially offset by continued margin compression on loans. Noninterest expense increased in the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018, due primarily to the launch of ~~PurePoint Financial, higher project related expenses, increased total staff expense,~~new business lines and increased support ~~unit costs. The provision for credit losses during 2017 was primarily due to~~function costs, partially offset by a ~~reserve build related to the commercial loan portfolio and retail credit card losses.~~decrease in core business direct expense levels.

U.S. Wholesale & Investment Banking

U.S. Wholesale & Investment Banking delivers the full suite of MUAH products and services to large and mid-corporate customers. 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). U.S. Wholesale & Investment Banking provides customers general corporate credit and structured credit services, including project finance, leasing and equipment finance, commercial finance, funds finance and securitizations. By working with the Company's other segments, U.S. Wholesale & Investment 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 & Investment Banking ~~segment:~~segment.


U.S. Wholesale & Investment Banking	U.S. Wholesale & Investment Banking																								U.S. Wholesale & Investment Banking
		For the Three Months Ended September 30,					Increase (Decrease)						For the Nine Months Ended September 30,						Increase (Decrease)							For the Three Months Ended March 31,						Increase (Decrease)
(Dollars in millions)		2017			2016		Amount			Percent			2017			2016			Amount			Percent				2018			2017			Amount			Percent
Results of operations - Market View
Net interest income		$	110		$	132	$	(22	)	(17	)	%	$	337		$	422		$	(85	)	(20	)	%		$	103		$	115		$	(12	)	(10	)%
Noninterest income		88			109		(21		)	(19	)		265			277			(12		)	(4	)			(106		)	97			(203		)	(209	)
Total revenue		198			241		(43		)	(18	)		602			699			(97		)	(14	)			(3		)	212			(215		)	(101	)
Noninterest expense		93			96		(3		)	(3	)		281			296			(15		)	(5	)			99			101			(2		)	(2	)
(Reversal of) provision for credit losses		(5		)	19		(24		)	(126	)		(53		)	148			(201		)	(136	)			(15		)	(10		)	(5		)	(50	)
Income before income taxes and including noncontrolling interests		110			126		(16		)	(13	)		374			255			119			47
Income (loss) before income taxes and including noncontrolling interests																										(87		)	121			(208		)	(172	)
Income tax expense (benefit)		16			31		(15		)	(48	)		56			36			20			56				(53		)	17			(70		)	(412	)
Net income (loss) including noncontrolling interests		94			95		(1		)	(1	)		318			219			99			45
Deduct: net (income) loss from noncontrolling interests		—			—		—			—			—			(1		)	1			100
Net income attributable to MUAH		$	94		$	95	$	(1	)	(1	)		$	318		$	218		$	100		46
Net income (loss) attributable to MUAH																										$	(34	)	$	104		$	(138	)	(133	)
Average balances - Market View
Total loans held for investment		$	18,141		$	22,220	$	(4,079	)	(18	)	%	$	18,425		$	23,171		$	(4,746	)	(20	)	%		$	16,503		$	18,633		$	(2,130	)	(11	)%
Total assets		22,799			26,869		(4,070		)	(15	)		23,147			27,441			(4,294		)	(16	)			21,110			23,571			(2,461		)	(10	)
Total deposits		8,526			9,099		(573		)	(6	)		9,007			9,087			(80		)	(1	)			8,116			9,740			(1,624		)	(17	)

Net interest income decreased ~~in 2017~~during the three months ended March 31, 2018 compared with ~~2016~~the same prior year period due to lower average loan balances and lower ~~spreads as a result of reductions in oil and gas exposure, predominantly reserved-based loans, and a shift in strategy away from loan-only mid-corporate clients.~~loan spreads. Noninterest income was lower during the ~~nine months ended September 30, 2017,~~first quarter of 2018 compared with the same period in ~~2016,~~2017, primarily due to ~~lower transaction referral fees earned from~~the Company's share of losses on certain renewable energy investments of $164 million as a ~~related party.~~result of the TCJA. The reversal of provision for credit losses during ~~2017 was due to general improvement in customer credit quality, while~~ the ~~provision for credit losses during the nine months ended September 30, 2016~~first quarter of 2018 was primarily due to ~~increased reserves~~a reduction of the estimated allowance for credit losses as a result of refinements to the ~~oil and gas portfolio.~~methodology used to measure credit risk ascribed to the commercial loan portfolio segment. The income tax benefit during the first quarter of 2018 includes tax credits from renewable energy investments.

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:~~segment.


Transaction Banking	Transaction Banking																							Transaction Banking
		For the Three Months Ended September 30,					Increase (Decrease)						For the Nine Months Ended September 30,					Increase (Decrease)							For the Three Months Ended March 31,					Increase (Decrease)
(Dollars in millions)		2017			2016		Amount			Percent			2017			2016		Amount			Percent				2018			2017		Amount			Percent
Results of operations - Market View
Net interest income		$	146		$	125	$	21		17		%	$	421		$	350	$	71		20		%		$	150		$	136	$	14		10	%
Noninterest income		45			39		6			15			124			130		(6		)	(5	)			38			39		(1		)	(3	)
Total revenue		191			164		27			16			545			480		65			14				188			175		13			7
Noninterest expense		114			110		4			4			348			338		10			3				119			120		(1		)	(1	)
(Reversal of) provision for credit losses		(1		)	1		(2		)	(200	)		(1		)	—		(1		)	(100	)			(1		)	—		(1		)	nm
Income before income taxes and including noncontrolling interests		78			53		25			47			198			142		56			39				70			55		15			27
Income tax expense		30			21		9			43			78			56		22			39				18			22		(4		)	(18	)
Net income attributable to MUAH		$	48		$	32	$	16		50			$	120		$	86	$	34		40
Net income (loss) attributable to MUAH																									$	52		$	33	$	19		58
Average balances - Market View
Total loans held for investment		$	50		$	50	$	—		—		%	$	56		$	54	$	2		4		%		$	52		$	62	$	(10	)	(16	)%
Total assets		1,706			1,891		(185		)	(10	)		1,810			1,880		(70		)	(4	)			1,634			1,895		(261		)	(14	)
Total deposits		37,982			37,709		273			1			38,759			36,031		2,728			8				36,186			40,099		(3,913		)	(10	)

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. The increase in net interest income during the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 compared with the prior year ~~periods~~period was driven by widening spreads on deposits, ~~and higher~~partially offset by lower average deposit balances.

MUFG Securities Americas

MUSA is MUAH's broker-dealer subsidiary which engages in capital markets origination transactions, private placements, collateralized financings, securities borrowing and lending transactions, and domestic and foreign debt and equity securities transactions.

The following table sets forth the results for the MUSA ~~segment:~~segment.


MUSA	MUSA																					MUSA
		For the Three Months Ended September 30,				Increase (Decrease)						For the Nine Months Ended September 30,				Increase (Decrease)							For the Three Months Ended March 31,				Increase (Decrease)
(Dollars in millions)		2017		2016		Amount			Percent			2017		2016		Amount			Percent				2018		2017		Amount			Percent
Results of operations - Market View
Net interest income		$	61	$	46	$	15		33		%	$	178	$	106	$	72		68		%		$	54	$	59	$	(5	)	(8	)	%
Noninterest income		100		96		4			4			272		255		17			7				88		84		4			5
Total revenue		161		142		19			13			450		361		89			25				142		143		(1		)	(1	)
Noninterest expense		119		99		20			20			336		278		58			21				116		105		11			10
(Reversal of) provision for credit losses		—		—		—			—			—		—		—			—
Income before income taxes and including noncontrolling interests		42		43		(1		)	(2	)		114		83		31			37				26		38		(12		)	(32	)
Income tax expense		16		17		(1		)	(6	)		45		33		12			36				7		15		(8		)	(53	)
Net income attributable to MUAH		$	26	$	26	$	—		—			$	69	$	50	$	19		38
Net income (loss) attributable to MUAH																							$	19	$	23	$	(4	)	(17	)
Average balances - Market View
Total loans held for investment		$	—	$	—	$	—		—		%	$	—	$	—	$	—		—		%		$	—	$	—	$	—		—		%
Total assets		31,764		28,696		3,068			11			31,202		31,715		(513		)	(2	)			33,455		30,732		2,723			9
Total deposits		—		—		—			—			—		—		—			—				—		—		—			—

Net interest income ~~increased~~decreased during the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 compared with the three ~~and nine~~ months ended ~~September 30, 2016,~~March 31, 2017, primarily due to ~~higher yields~~an increase in short term interest rates on ~~securities borrowed and purchased under resale agreements and higher balances and yields on~~borrowings to fund trading ~~account~~ assets. Noninterest income increased during the first quarter of 2018 due primarily to ~~higher investment banking fees and~~ higher fees from affiliates, partially offset by a decrease in trading account income. Noninterest expense increased due to increases in salaries and employee benefits expense resulting from increased head count, commission expense and ~~transaction referral fees paid to affiliates.~~affiliate revenue sharing expense.

Other

"Other" includes the MUFG Fund Services segment, Markets segment, Asian Corporate Banking segment, Corporate Treasury, and certain corporate activities of the Company. MUFG Fund Services provides comprehensive investment fund administrative solutions. Markets provides risk management solutions, including foreign exchange, interest rate and energy risk management solutions. Asian Corporate Banking 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 or other Asian countries. Corporate Treasury is responsible for ALM, wholesale funding, and the ALM investment securities and derivatives hedging portfolios.

In addition, "Other" includes the elimination of duplicative results from the internal management "market view" perspective; 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~~MUFG Bank, Ltd.'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 FDIC covered assets.

The following table sets forth the results for ~~Other:~~Other.


Other	Other																									Other
		For the Three Months Ended September 30,						Increase (Decrease)						For the Nine Months Ended September 30,						Increase (Decrease)							For the Three Months Ended March 31,						Increase (Decrease)
(Dollars in millions)		2017			2016			Amount			Percent			2017			2016			Amount			Percent				2018			2017			Amount			Percent
Results of operations - Market View
Net interest income		$	(12	)	$	(11	)	$	(1	)	(9	)	%	$	(45	)	$	(54	)	$	9		17		%		$	(5	)	$	(13	)	$	8		62		%
Noninterest income		169			208			(39		)	(19	)		490			603			(113		)	(19	)			245			156			89			57
Total revenue		157			197			(40		)	(20	)		445			549			(104		)	(19	)			240			143			97			68
Noninterest expense		156			188			(32		)	(17	)		475			559			(84		)	(15	)			248			184			64			35
(Reversal of) provision for credit losses		4			30			(26		)	(87	)		(20		)	31			(51		)	(165	)			6			(22		)	28			127
Income before income taxes and including noncontrolling interests		(3		)	(21		)	18			86			(10		)	(41		)	31			76				(14		)	(19		)	5			26
Income tax (benefit)		25			(1		)	26			nm			8			15			(7		)	(47	)			(37		)	4			(41		)	nm
Net income (loss) including noncontrolling interests		(28		)	(20		)	(8		)	(40	)		(18		)	(56		)	38			68				23			(23		)	46			200
Deduct: net loss from noncontrolling interests		10			39			(29		)	(74	)		25			63			(38		)	(60	)
Net income attributable to MUAH		$	(18	)	$	19		$	(37	)	(195	)		$	7		$	7		$	—		—
Deduct: net (income) loss from noncontrolling interests																											(1		)	5			(6		)	(120	)
Net income (loss) attributable to MUAH																											$	22		$	(18	)	$	40		222
Average balances - Market View
Total loans held for investment		$	(410	)	$	(754	)	$	344		46		%	$	(382	)	$	(621	)	$	239		38		%		$	(450	)	$	(359	)	$	(91	)	(25	)	%
Total assets		31,361			28,663			2,698			9			30,178			27,406			2,772			10				32,915			29,823			3,092			10
Total deposits		(16,270		)	(15,147		)	(1,123		)	(7	)		(16,476		)	(13,353		)	(3,123		)	(23	)			(14,699		)	(17,111		)	2,412			14

Critical Accounting Estimates

MUAH’s consolidated financial statements are prepared in accordance with GAAP, which includes 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~~As discussed in the section "Allowance for Credit Losses" included in Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-Q, beginning in the first quarter of 2018 we estimate probability of default and the loss ~~factors, adjusted for current conditions,~~severity associated with the default (i.e. the loss-given default) 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~~our loss ~~factors that we use.~~estimates. 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 ~~2016~~2017 Form 10-K. There have been no material changes to these critical accounting estimates during the ~~third~~first quarter of ~~2017.~~2018.

Non-GAAP Financial Measures

The following ~~tables present reconciliations~~table presents a reconciliation between certain Generally Accepted Accounting Principles (GAAP) amounts and specific non-GAAP measures as used to compute selected non-GAAP financial ratios. 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.

~~The following table shows the calculation of~~calculate return on average MUAH tangible common equity for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 and ~~2016:~~2017:

For the Three Months Ended For the Nine Months Ended
(Dollars in millions) September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Net income attributable to MUAH $ 232
$ 260
$ 756
$ 656
Add: intangible asset amortization, net of tax 5
4
13
12
Net income attributable to MUAH, excluding intangible asset amortization (a) $ 237
$ 264
$ 769
$ 668
Average MUAH stockholders' equity $ 18,485
$ 17,311
$ 17,827
$ 16,942
Less: Goodwill 3,301
3,225
3,250
3,225
Less: Intangible assets, except mortgage servicing rights 326
193
253
186
Less: Deferred tax liabilities related to goodwill and intangible assets (76 ) (50 ) (76 ) (47 )
Tangible common equity (b) $ 14,934
$ 13,943
$ 14,400
$ 13,578
Return on average MUAH tangible common equity⁽¹⁾ (a)/(b)
6.35 % 7.60 % 7.10 % 6.54 %



	For the Three Months Ended
(Dollars in millions)	March 31, 2018			March 31, 2017
Net income attributable to MUAH	$	166		$	229
Add: intangible asset amortization, net of tax	5			4
Net income attributable to MUAH, excluding intangible asset amortization (a)	$	171		$	233
Average MUAH stockholders' equity	$	18,132		$	17,487
Less: Goodwill	3,301			3,225
Less: Intangible assets, except mortgage servicing rights	310			220
Less: Deferred tax liabilities related to goodwill and intangible assets	(56		)	(75		)
Tangible common equity (b)	$	14,577		$	14,117
Return on average MUAH tangible common equity⁽¹⁾ (a)/(b)	4.69		%	6.64		%

(1) Annualized.

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 nine months ended September 30, 2017 and 2016.

For the Three Months Ended For the Nine Months Ended
(Dollars in millions) September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Noninterest Expense $ 982
$ 952
$ 2,945
$ 2,826
Less: Staff costs associated with fees from affiliates - support services 149
139
434
415
Less: Foreclosed asset expense and other credit costs —
1
1
—
Less: Productivity initiative costs 11
18
24
34
Less: LIHC investment amortization expense 4
2
8
5
Less: Expenses of the LIHC consolidated VIEs 10
40
24
63
Less: Merger and business integration costs 4
3
10
13
Less: Net adjustments related to privatization transaction 3
4
10
14
Less: Intangible asset amortization 5
3
13
8
Less: Contract termination fee —
(2 ) �� 2
(2 )
Noninterest expense, as adjusted (a) $ 796
$ 744
$ 2,419
$ 2,276
Total Revenue $ 1,331
$ 1,343
$ 3,897
$ 3,860
Add: Net interest income taxable-equivalent adjustment 10
8
29
22
Less: Fees from affiliates - support services 159
150
465
446
Less: Productivity initiative gains 3
—
10
—
Less: Accretion related to privatization-related fair value adjustments 2
2
6
10
Less: Other credit costs (1 ) 4
(4 ) (18 )
Less: Impairment on private equity investments —
3
5
(9 )
Less: Gains on sale of fixed assets —
—
5
—
Total revenue, as adjusted (b) $ 1,178
$ 1,192
$ 3,439
$ 3,453
Adjusted efficiency ratio (a)/(b) 67.58 % 62.46 % 70.34 % 65.90 %

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 Securities Exchange Act of 1934 (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 ~~September 30, 2017,~~March 31, 2018, 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. Specifically, MUFG’s non-U.S. banking subsidiary, ~~BTMU,~~MUFG Bank, 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. For the quarter ended ~~September 30, 2017,~~March 31, 2018, the aggregate interest and fee income relating to these transactions was less than ~~¥40~~¥30 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~~MUFG Bank outside the United States by Iranian financial institutions and other entities in, or affiliated with, Iran. In addition to such accounts, ~~BTMU~~MUFG Bank 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 ~~September 30, 2017,~~March 31, 2018, the average aggregate balance of deposits held in these accounts represented less than 0.1 percent of the average balance of MUFG’s total deposits. The fee income from the transactions attributable to these account holders was less than ¥3 million, representing less than 0.001 percent of MUFG’s total fee income. ~~BTMU~~MUFG Bank 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 balance of which was less than ~~¥60~~¥50 million, representing less than 0.0001 percent of MUFG’s total loans, as of ~~September 30, 2017.~~March 31, 2018. For the quarter ended ~~September 30, 2017,~~March 31, 2018, the aggregate gross interest and fee income relating to these loan transactions was less than ~~¥20~~¥1 million, representing less than ~~0.005~~0.0001 percent of MUFG’s total interest and fee income.

We understand that ~~BTMU~~MUFG Bank will continue to participate in these types of transactions. Following the international relaxation of sanctions against Iran in January 2016, we understand that the balance of non-U.S. dollar correspondent accounts described above at BTMU has remained relatively stable since our prior disclosure,transactions, and that ~~BTMU~~MUFG Bank recognizes that such transactions remain subject to compliance with applicable U.S. and Japanese regulations and 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. As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of the Company's management, including its Chief Executive Officer and its Chief Financial Officer, of the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that these disclosure controls and procedures were effective.

Internal Control Over Financial Reporting. During the ~~third~~first quarter of ~~2017,~~2018, 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.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MUFG Americas Holdings Corporation and Subsidiaries

Consolidated Statements of Income

(Unaudited)


	For the Three Months Ended September 30,					For the Nine Months Ended September 30,					For the Three Months Ended March 31,
(Dollars in millions)	2017			2016		2017			2016		2018			2017
Interest Income
Loans	$	738		$	711	$	2,170		$	2,136	$	772		$	708
Securities	149			122		407			346		162			129
Securities borrowed or purchased under resale agreements	97			47		243			141		126			63
Trading assets	89			50		245			110		92			74
Other	10			6		28			16		14			10
Total interest income	1,083			936		3,093			2,749		1,166			984
Interest Expense
Deposits	62			49		169			147		68			49
Commercial paper and other short-term borrowings	17			7		35			17		33			8
Long-term debt	66			57		183			193		80			57
Securities loaned or sold under repurchase agreements	102			36		245			99		138			59
Trading liabilities	20			14		56			42		22			16
Total interest expense	267			163		688			498		341			189
Net Interest Income	816			773		2,405			2,251		825			795
(Reversal of) provision for credit losses	18			73		(34		)	196		(2		)	(30		)
Net interest income after (reversal of) provision for credit losses	798			700		2,439			2,055		827			825
Noninterest Income
Service charges on deposit accounts	47			48		142			143		45			48
Trust and investment management fees	32			29		91			91		29			29
Trading account activities	(3		)	25		(10		)	93		2			(4		)
Securities gains, net	6			23		15			55		—			2
Credit facility fees	26			27		75			82		23			26
Brokerage commissions and fees	16			15		52			59		18			18
Card processing fees, net	10			10		34			28		12			11
Investment banking and syndication fees	106			113		288			253		89			88
Fees from affiliates	209			222		639			692		276			219
Other, net	66			58		166			113		(112		)	51
Total noninterest income	515			570		1,492			1,609		382			488
Noninterest Expense
Salaries and employee benefits	589			592		1,790			1,759		670			645
Net occupancy and equipment	87			82		256			242		90			82
Professional and outside services	101			84		316			270		132			116
Software	49			39		142			113		70			46
Regulatory assessments	22			22		61			50		23			20
Intangible asset amortization	8			7		22			20		7			7
Other	126			126		358			372		92			90
Total noninterest expense	982			952		2,945			2,826		1,084			1,006
Income before income taxes and including noncontrolling interests	331			318		986			838		125			307
Income tax expense	109			97		255			244		(42		)	83
Net Income Including Noncontrolling Interests	222			221		731			594		167			224
Deduct: Net loss from noncontrolling interests	10			39		25			62
Deduct: Net (income) loss from noncontrolling interests											(1		)	5
Net Income Attributable to MUAH	$	232		$	260	$	756		$	656	$	166		$	229

See accompanying ~~notes~~Notes to ~~consolidated financial statements.~~Consolidated Financial Statements.

MUFG Americas Holdings Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						For the Three Months Ended March 31,
(Dollars in millions)	2017			2016			2017			2016			2018			2017
Net Income Attributable to MUAH	$	232		$	260		$	756		$	656		$	166		$	229
Other Comprehensive Income (Loss), Net of Tax:
Net change in unrealized gains (losses) on cash flow hedges	(3		)	(59		)	(11		)	131			(58		)	(30		)
Net change in unrealized gains (losses) on investment securities	17			4			76			150			(190		)	35
Foreign currency translation adjustment	4			(1		)	7			4			(2		)	1
Pension and other postretirement benefit adjustments	7			16			20			35			10			7
Other	1			(1		)	1			(1		)	(1		)	—
Total other comprehensive income (loss)	26			(41		)	93			319			(241		)	13
Comprehensive Income (Loss) Attributable to MUAH	258			219			849			975			(75		)	242
Comprehensive loss from noncontrolling interests	(10		)	(39		)	(25		)	(62		)
Comprehensive income (loss) from noncontrolling interests													1			(5		)
Total Comprehensive Income (Loss)	$	248		$	180		$	824		$	913		$	(74	)	$	237

See accompanying ~~notes~~Notes to ~~consolidated financial statements.~~Consolidated Financial Statements.

MUFG Americas Holdings Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)


(Dollars in millions, except per share amount)	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Assets
Cash and due from banks	$	1,788		$	1,909		$	1,769		$	2,057
Interest bearing deposits in banks	1,846			3,844			2,848			1,335
Total cash and cash equivalents	3,634			5,753			4,617			3,392
Securities borrowed or purchased under resale agreements	21,891			19,747			19,902			20,894
Trading account assets (includes $1,261 at September 30, 2017 and $1,122 at December 31, 2016 pledged as collateral that may be repledged)	10,223			8,942
Securities available for sale (includes $179 at September 30, 2017 and $148 at December 31, 2016 pledged as collateral that may be repledged)	18,114			14,141
Securities held to maturity (Fair value $10,349 at September 30, 2017 and $10,316 at December 31, 2016)	10,343			10,337
Trading account assets (includes $1,102 at March 31, 2018 and $1,001 at December 31, 2017 pledged as collateral that may be repledged)							12,565			10,567
Securities available for sale (includes $125 at March 31, 2018 and $163 at December 31, 2017 pledged as collateral that may be repledged)							15,878			17,563
Securities held to maturity (fair value $11,208 at March 31, 2018 and $9,799 at December 31, 2017)							11,423			9,885
Loans held for investment	78,829			77,551			81,400			80,014
Allowance for loan losses	(542		)	(639		)	(460		)	(476		)
Loans held for investment, net	78,287			76,912			80,940			79,538
Premises and equipment, net	605			591			630			610
Goodwill	3,301			3,225			3,301			3,301
Other assets	8,454			8,496			8,054			8,800
Total assets	$	154,852		$	148,144		$	157,310		$	154,550
Liabilities
Deposits:
Noninterest bearing	$	33,982		$	35,654		$	32,745		$	32,602
Interest bearing	51,367			51,293			50,787			52,185
Total deposits	85,349			86,947			83,532			84,787
Securities loaned or sold under repurchase agreements	27,307			24,616			26,391			26,437
Commercial paper and other short-term borrowings	6,026			2,360			9,084			7,066
Long-term debt	11,419			11,410			14,085			12,162
Trading account liabilities	3,338			2,905			3,874			3,600
Other liabilities	2,834			2,520			2,051			2,143
Total liabilities	136,273			130,758			139,017			136,195
Commitments, contingencies and guarantees—See Note 12
Equity
MUAH stockholders' 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, 147,589,713 shares issued and outstanding as of September 30, 2017 and 144,322,280 shares issued and outstanding as of December 31, 2016	148			144
Authorized 300,000,000 shares, 147,589,713 shares issued and outstanding as of March 31, 2018 and December 31, 2017							148			148
Additional paid-in capital	8,179			7,884			8,190			8,197
Retained earnings	10,935			10,101			11,101			10,936
Accumulated other comprehensive loss	(803		)	(896		)	(1,246		)	(1,026		)
Total MUAH stockholders' equity	18,459			17,233			18,193			18,255
Noncontrolling interests	120			153			100			100
Total equity	18,579			17,386			18,293			18,355
Total liabilities and equity	$	154,852		$	148,144		$	157,310		$	154,550

See accompanying ~~notes~~Notes to ~~consolidated financial statements.~~Consolidated Financial Statements.

MUFG Americas Holdings Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders' Equity

(Unaudited)


	MUAH Stockholders' Equity																	MUAH Stockholders' Equity
(Dollars in millions)	Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests			Total Equity			Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests			Total Equity
Balance December 31, 2015	$	144	$	7,868		$	9,116		$	(750	)	$	215		$	16,593
Balance, December 31, 2016																		$	144	$	7,884		$	10,101		$	(896	)	$	153		$	17,386
Net income (loss)	—		—			656			—			(62		)	594			—		—			229			—			(5		)	224
Other comprehensive income (loss), net of tax	—		—			—			319			—			319			—		—			—			13			—			13
Compensation—restricted stock units	—		1			(1		)	—			—			—			—		8			1			—			—			9
Other	—		2			(2		)	—			6			6			—		—			—			—			(2		)	(2		)
Net change	—		3			653			319			(56		)	919			—		8			230			13			(7		)	244
Balance September 30, 2016	$	144	$	7,871		$	9,769		$	(431	)	$	159		$	17,512
Balance, March 31, 2017																		$	144	$	7,892		$	10,331		$	(883	)	$	146		$	17,630

Balance December 31, 2016	$	144	$	7,884		$	10,101		$	(896	)	$	153		$	17,386
Balance, December 31, 2017																		$	148	$	8,197		$	10,936		$	(1,026	)	$	100		$	18,355
Net income (loss)	—		—			756			—			(25		)	731			—		—			166			—			1			167
Other comprehensive income (loss), net of tax	—		—			—			93			—			93			—		—			—			(241		)	—			(241		)
Compensation—restricted stock units	—		(26		)	—			—			—			(26		)	—		14			—			—			—			14
Issuance of common stock⁽¹⁾	3		321			78			—			—			402
Other	1		—			—			—			(8		)	(7		)
Other ⁽¹⁾																		—		(21		)	(1		)	21			(1		)	(2		)
Net change	4		295			834			93			(33		)	1,193			—		(7		)	165			(220		)	—			(62		)
Balance September 30, 2017	$	148	$	8,179		$	10,935		$	(803	)	$	120		$	18,579
Balance, March 31, 2018																		$	148	$	8,190		$	11,101		$	(1,246	)	$	100		$	18,293


(1)	For additional information on ~~the issuance of common stock,~~other, refer to Note ~~14.~~10.

See accompanying ~~notes~~Notes to ~~consolidated financial statements.~~Consolidated Financial Statements.

MUFG Americas Holdings Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)


	For the Nine Months Ended September 30,						For the Three Months Ended March 31,
(Dollars in millions)	2017			2016			2018			2017
Cash Flows from Operating Activities:
Net income including noncontrolling interests	$	731		$	594		$	167		$	224
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
(Reversal of) provision for credit losses	(34		)	196			(2		)	(30		)
Depreciation, amortization and accretion, net	265			255			92			80
Stock-based compensation—restricted stock units	49			50			17			14
Deferred income taxes	138			158			(90		)	31
Net gains on sales of securities	(15		)	(55		)	—			(2		)
Net decrease (increase) in securities borrowed or purchased under resale agreements	(2,144		)	9,166			992			(245		)
Net decrease (increase) in securities loaned or sold under repurchase agreements	2,691			(3,559		)	(46		)	463
Net decrease (increase) in trading account assets	(1,281		)	(5,671		)	(1,998		)	16
Net decrease (increase) in other assets	411			(215		)	448			(567		)
Net increase (decrease) in trading account liabilities	433			(384		)	274			328
Net increase (decrease) in other liabilities	(331		)	(55		)	(51		)	(27		)
Loans originated for sale	(473		)	(1,031		)	(255		)	(146		)
Net proceeds from sale of loans originated for sale	505			1,062			260			208
Pension and other benefits adjustment	(156		)	(145		)	(13		)	(127		)
Other, net	12			17			29			(12		)
Total adjustments	70			(211		)	(343		)	(16		)
Net cash provided by (used in) operating activities	801			383			(176		)	208
Cash Flows from Investing Activities:
Proceeds from sales of securities available for sale	1,953			4,023			9			608
Proceeds from paydowns and maturities of securities available for sale	1,836			1,272			880			567
Purchases of securities available for sale	(7,195		)	(4,161		)	(1,417		)	(2,018		)
Proceeds from paydowns and maturities of securities held to maturity	1,324			1,616			386			408
Purchases of securities held to maturity	(1,235		)	(1,914		)	—			(499		)
Proceeds from sales of loans	751			734			240			347
Net decrease (increase) in loans	(1,793		)	(1,484		)	(1,308		)	(1,194		)
Purchases of other investments	(131		)	(284		)	(36		)	(14		)
Other, net	(12		)	(109		)	(68		)	27
Net cash provided by (used in) investing activities	(4,502		)	(307		)	(1,314		)	(1,768		)
Cash Flows from Financing Activities:
Net increase (decrease) in deposits	(1,495		)	312			(1,258		)	(425		)
Net increase (decrease) in commercial paper and other short-term borrowings	3,630			2,440			1,988			1,145
Proceeds from issuance of senior debt due to BTMU	4,122			795
Proceeds from issuance of senior debt							—			3,521
Proceeds from issuance of long-term debt							2,755			—
Repayment of long-term debt	(4,591		)	(3,026		)	(815		)	(3,602		)
Other, net	(76		)	(36		)	(21		)	(2		)
Change in noncontrolling interests	(8		)	6			—			(2		)
Net cash provided by (used in) financing activities	1,582			491			2,649			635
Net change in cash and cash equivalents	(2,119		)	567
Cash and cash equivalents at beginning of period	5,753			4,807
Cash and cash equivalents at end of period	$	3,634		$	5,374
Net change in cash, cash equivalents and restricted cash							1,159			(925		)
Cash, cash equivalents and restricted cash at beginning of period							3,528			5,834
Cash, cash equivalents and restricted cash at end of period							$	4,687		$	4,909
Cash Paid During the Period For:
Interest	$	652		$	471		$	311		$	187
Income taxes, net	168			175			25			22
Supplemental Schedule of Noncash Investing and Financing Activities:
Net transfer of loans held for investment to (from) loans held for sale	833			1,313			(91		)	230
Transfer of assets and liabilities from BTMU and MUFG:
Carrying amount of assets acquired	1,003			—
Carrying amount of liabilities assumed	601			—
For more information on related party transactions—See Note 14
Securities available for sale transferred to securities held to maturity							1,924			—
Reconciliation of Cash, Cash Equivalents and Restricted Cash:
Cash and cash equivalents							$	4,617		$	4,827
Restricted cash included in other assets							70			82
Total cash, cash equivalents and restricted cash per consolidated statement of cash flows							$	4,687		$	4,909

See accompanying ~~notes~~Notes to ~~consolidated financial statements.~~Consolidated Financial Statements.

Notes to Consolidated Financial Statements

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

MUFG Americas Holdings Corporation (MUAH) is a financial holding company, bank holding company and intermediate holding company whose principal subsidiaries are MUFG Union Bank, N.A. (MUB or the Bank) and MUFG Securities Americas Inc. (MUSA) ~~(formerly Mitsubishi UFJ Securities (USA), Inc.)~~. MUAH provides a wide range of financial services to consumers, small businesses, middle-market companies and major corporations nationally and internationally. The Company also provides various business, banking, financial, administrative and support services, and facilities for ~~BTMU~~MUFG Bank, Ltd. (formerly The Bank of Tokyo-Mitsubishi UFJ, Ltd.) in connection with the operation and administration of all of ~~BTMU's~~MUFG Bank, Ltd.'s business in the U.S. (including ~~BTMU's~~MUFG Bank, Ltd.'s U.S. branches). 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 ~~third~~first quarter of ~~2017~~2018 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, ~~2016 (2016~~2017 (2017 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. Critical estimates made by management in the preparation of the Company’s financial statements include, but are not limited to, the allowance for credit losses (Note 3), goodwill impairment, fair value of financial instruments (Note 8), ~~hedge accounting (Note 9),~~ pension accounting (Note 11), income taxes, and transfer pricing.

During the first quarter of 2018, the Company refined its methodology for estimating the allowance for commercial loans collectively evaluated for impairment and the allowance for losses on unfunded credit commitments. Previously the Company derived the allowance for these loans by assigning a loss factor based on an internal risk rating that estimated the probability that a credit facility may ultimately default (i.e. probability of default). The refinement implemented during the quarter now utilizes a dual factor internal risk rating system that encompasses both the probability of default and an estimate of the severity of the loss that would be realized upon such default (i.e. the loss-given default).

Recently Issued Accounting Pronouncements

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. 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. The ASU is effective for interim and annual periods beginning on January 1, 2019 and requires a modified retrospective approach, with early adoption permitted. The Company plans to adopt the ASU on January 1, 2019. The Company is in the technology design phase of this project to support the ongoing lessee accounting required under the ASU. Management is currently assessing the impact of this guidance on the Company's financial position and results of operations.

Table of Contents

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

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. The Company plans to adopt the ASU on January 1, 2020. The Company is currently collecting business and data requirements to support the project planning phase of the implementation. Management is currently assessing the impact of this guidance on the Company’s financial position and results of operations.

Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. The ASU removes Step 2 of the goodwill impairment test, which measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under the amendments, a goodwill impairment loss will be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value; however, the loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss. The ASU will be effective for MUAH beginning January 1, 2020 on a prospective basis. Early adoption is permitted for any impairment tests performed after January 1, 2017. Management does not expect the adoption of this guidance to significantly impact the Company’s financial position or results of operations.

Premium Amortization on Purchased Callable Debt Securities

In March 2017, the FASB issued ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities, which requires premiums on certain purchased callable debt securities to be amortized to the earliest call date. Under current guidance, premiums on callable debt securities are generally amortized over the contractual life of the security. The amortization period for callable debt securities purchased at a discount will not be impacted. The ASU is effective for interim and annual periods beginning on January 1, 2019 and requires a modified retrospective approach, with early adoption permitted. Management does not expect the adoption of this guidance to significantly impact the Company’s financial position and results of operations.

Targeted Improvements to Accounting for Hedging Activities

In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities, which will make more hedging strategies eligible for hedge accounting, simplify the application of hedge accounting, and enhance the transparency and understandability of hedge results. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. It also amends the disclosure requirements and changes how entities assess effectiveness. The guidance will be effective for MUAH beginning January 1, 2019, with early adoption permitted. If the guidance is early adopted in an interim period, any adjustments would be reflected as of the beginning of the fiscal year that includes that interim period. Management is currently assessing the impact of this guidance on the Company’s financial position and results of operations.

Table of Contents

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

Recently Adopted Accounting Pronouncements

~~Revenue from Contracts with Customers~~Simplifying the Test for Goodwill Impairment

In ~~May 2014,~~January 2017, the FASB issued ASU ~~2014-09,~~2017-04, ~~Revenue from Contracts~~Simplifying the Test for Goodwill Impairment. The ASU removes Step 2 of the goodwill impairment test, which measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with ~~Customers~~,the carrying amount of that goodwill. Under the amendments, a goodwill impairment loss will be measured as the amount by which ~~provides guidance on~~a reporting unit’s carrying amount exceeds its fair value; however, the ~~core principle~~loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should ~~recognize revenue to depict~~consider income tax effects from any tax deductible goodwill on the ~~transfer of promised goods or services to customers in an~~carrying 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,~~reporting unit when measuring the ~~FASB issued~~goodwill impairment loss. The ASU ~~2015-14,~~ ~~Deferral of the Effective Date, which deferred the~~will be effective ~~date of ASU 2014-09 to interim and annual periods~~for MUAH beginning on January 1, ~~2018, with early~~2020 on a prospective basis. Early adoption is permitted ~~in 2017. The Company plans to apply the modified retrospective method upon adoption on~~for any impairment tests performed after January 1, ~~2018. As part of our implementation progress to date, we are in the implementation phase and are evaluating potential changes to processes and controls.~~2017. Management does not expect the adoption of this guidance to significantly impact the Company’s financial position ~~and~~or results of operations.

~~Recognition and Measurement of Financial Assets and Financial Liabilities~~Premium Amortization on Purchased Callable Debt Securities

In ~~January 2016,~~March 2017, the FASB issued ASU ~~2016-01,~~2017-08, ~~Recognition and Measurement of Financial Assets and Financial Liabilities~~Premium Amortization on Purchased Callable Debt Securities, which ~~amends~~requires premiums on certain purchased callable debt securities to be amortized to 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 consolidationearliest call date. Under current guidance, premiums on callable debt securities are generally amortized over the contractual life of the ~~investee); however, an entity may choose to measure equity investments that do~~security. The amortization period for callable debt securities purchased at a discount will not ~~have readily determinable fair values at cost minus~~

~~Table of Contents~~

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

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 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. The ASU 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 does not expect the adoption of this guidance to significantly impact 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. 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.impacted. The ASU is effective for interim and annual periods beginning on January 1, 2019 and requires a modified retrospective approach, with early adoption permitted. The Company plans to adopt the ASU on January 1, 2019. The Company recently began the technology design phase of this project to support the ongoing lessee accounting required under the ASU. Management is currently assessing the impact of this guidance on the Company's financial position and results of operations.

~~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 the Company plans to adopt 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 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. The Company plans to adopt the ASU on January 1, 2020. The Company is currently collecting business and data requirements to support the project planning phase of the implementation. Management is currently assessing the impact of this guidance on the Company’s financial position and results of operations.

~~Table of Contents~~

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

~~Classification of Certain Cash Receipts and Cash Payments~~

~~In August 2016, the FASB issued ASU 2016-15,~~ ~~Classification of Certain Cash Receipts and Cash Payments~~, to address diversity in practice in how certain cash receipts and payments are presented and classified in the statement of cash flows. The ASU is effective for interim and annual periods beginning on January 1, 2018, with early adoption permitted. Management does not expect the adoption of this guidance to significantly impact the Company's statement of cash flows.

~~Income Tax Consequences of Intra-Entity Asset Transfers~~

~~In October 2016, the FASB issued ASU 2016-16,~~ ~~Intra-Entity Transfers of Assets Other Than Inventory~~, to improve the accounting for the income tax consequences of intra-entity assets other than inventory. The ASU will require recognition of the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The ASU is effective for interim and annual periods beginning on January 1, 2018, with early adoption permitted. Management does not expect adoption of this guidance to significantly impact the Company's financial position and results of operations.

~~Restricted Cash~~

~~In November 2016, the FASB issued ASU 2016-18,~~ ~~Restricted Cash~~, to address diversity in the classification and presentation of changes in restricted cash on the statement of cash flows. The ASU requires that a statement of cash flows explains the change during the period in the total of cash, cash equivalents, and the amounts generally described as restricted cash or restricted cash equivalents. The ASU is effective for interim and annual periods beginning on January 1, 2018 using a retrospective transition method. Early adoption is permitted. Management does not expect the adoption of this guidance to have a significant impact on the Company's statement of cash flows.

~~Clarifying the Definition of a Business~~

~~In January 2017, the FASB issued ASU 2017-01,~~ ~~Clarifying the Definition of a Business~~, which specifies when a set of assets and activities constitutes a business. The ASU adds a “screen” to determine when a set is not a business, thus reducing the number of transactions deemed businesses. Specifically, if the fair value of the gross assets acquired is concentrated in a single identifiable asset (or a group of similar identifiable assets), the set is not deemed a business. Otherwise, to be considered a business, a set must include at least one input and a substantive process that together significantly contribute to the ability to create outputs. Although outputs are not required to be a business, the ASU narrows the definition of an output and limits the instances where sets that lack outputs are deemed businesses. The ASU is effective for interim and annual periods prospectively beginning on January 1, 2018, with early adoption permitted. Management does not expect the adoption of this guidance to significantly impact the Company’s financial position and results of operations.

Targeted Improvements to Accounting for Hedging Activities

Table of Contents

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

Recently Adopted Accounting Pronouncements

Simplifying the Test for Goodwill Impairment

~~Table of Contents~~

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

~~Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of~~

~~Nonfinancial Assets~~

~~In February 2017, the FASB issued ASU 2017-05,~~ ~~Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets,~~ ~~to clarify the scope of ASC 610-20,~~ ~~Other Income - Gains and Losses from Derecognition of Nonfinancial Assets~~ (issued as part of ASU 2014-09), and provide guidance on partial sales of nonfinancial assets. The ASU clarifies that the unit of account under ASC 610-20 is each distinct nonfinancial or in substance nonfinancial asset and that a financial asset that meets the definition of an “in substance nonfinancial asset” is within the scope of ASC 610-20. The ASU eliminates rules specifically addressing sales of real estate and removes exceptions to the financial asset derecognition model. The ASU is effective upon the adoption of ASU 2014-09, which the Company plans to adopt beginning January 1, 2018. It allows an entity to use either a retrospective or modified retrospective approach. Management does not expect the adoption of this guidance to significantly impact the Company's financial position and results of operations.

~~Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~

~~In March 2017, the FASB issued ASU 2017-07,~~ ~~Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~, which amends the income statement presentation of the components of net periodic benefit cost for sponsored defined benefit pension and other postretirement plans. The ASU also now mandates that only the service cost component of net benefit cost is eligible for capitalization on certain internally produced assets. The ASU is effective for interim and annual periods beginning January 1, 2018, with retrospective application for the new income statement presentation requirements and prospective application for the new capitalization requirement. Management does not expect the adoption of this guidance to significantly impact the Company’s financial position and results of operations.

Premium Amortization on Purchased Callable Debt Securities

In March 2017, the FASB issued ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities, which requires premiums on certain purchased callable debt securities to be amortized to the earliest call date. Under current guidance, premiums on callable debt securities are generally amortized over the contractual life of the security. The amortization period for callable debt securities purchased at a discount will not be impacted. The ASU is effective for interim and annual periods beginning on January 1, 2019 and requires a modified retrospective approach, ~~with early adoption permitted. Management does not expect the adoption of this guidance to significantly impact the Company’s financial position and results of operations.~~

~~Scope of Modification Accounting~~

~~In May 2017, the FASB issued ASU 2017-09, Scope of Modification Accounting,~~ to provide guidance about which changes to the terms and conditions of a share-based payment award require an entity to apply modification accounting. The ASU is effective for interim and annual periods beginning January 1, 2018, and will be applied prospectively, with early adoption permitted. Management does not expect the adoption of this guidance to significantly impact the Company’s financial position and results of operations.

Targeted Improvements to Accounting for Hedging Activities

Table of Contents

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

Recently Adopted Accounting Pronouncements

Revenue from Contracts with Customers

Effective January 1, 2018, the Company adopted 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. This guidance did not significantly affect the Company's financial position and results of operations. As a result of adopting this guidance, the Company's accounting policies have been updated as summarized below.

Revenues from Contracts with Customers

Revenues from contracts with customers include service charges on deposit accounts, trust and investment management fees, brokerage commissions and fees, card processing fees, net, investment banking and syndication fees, and fees from affiliates. The Company recognizes revenue from contracts with customers according to a 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. The Company’s contracts with customers generally contain a single performance obligation or separately identified performance obligations, each with a stated transaction price and generally do not involve a significant timing difference between satisfaction of the performance obligation and customer payment. Revenues are recognized over time or at a point in time as the performance obligations are satisfied. Certain revenues, primarily included within brokerage commissions and fees, are variable. However, recognition of these variable revenues does not involve significant estimates or constraints.

Table of Contents

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

Principal versus Agent Considerations (Reporting Revenue Gross versus Net)

Effective January 1, 2018, the Company adopted 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. As a result of adopting ASU 2016-08, beginning January 1, 2018 certain expenses that were previously presented as a reduction of related fees from affiliates and investment banking and syndication fees are presented in noninterest expense.

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

Effective January 1, 2018, the Company adopted ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which amended the income statement presentation of the components of net periodic benefit cost for sponsored defined benefit pension and other postretirement plans. As a result of adopting ASU 2017-07, the salaries and benefits expense and other expense categories in noninterest expense have been adjusted to reflect adoption of this guidance as follows:



	For the Three Months Ended
	March 31, 2017
(Dollars in millions)	As Previously Reported		Adjustment			As Reported Under New Guidance
Salaries and employee benefits	$	615	$	30		$	645
Other	120		(30		)	90

Note 2—Securities

Securities Available for Sale

At ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017, the amortized cost, gross unrealized gains, gross unrealized losses and fair values of securities available for sale are presented below.


	September 30, 2017								March 31, 2018
(Dollars in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Asset Liability Management securities:
U.S. Treasury	$	3,072	$	—	$	90	$	2,982	$	3,617	$	—	$	183	$	3,434
U.S. government-sponsored agencies	11		1		—		12
Residential mortgage-backed securities:
U.S. government agency and government-sponsored agencies	10,117		11		82		10,046		7,711		2		192		7,521
Privately issued	552		3		4		551		797		1		17		781
Privately issued - commercial mortgage-backed securities	739		6		3		742		949		1		21		929
Collateralized loan obligations	2,133		9		1		2,141		1,641		6		—		1,647
Other	5		—		—		5		80		1		—		81
Asset Liability Management securities	16,629		30		180		16,479		14,795		11		413		14,393
Other debt securities:
Direct bank purchase bonds	1,519		47		21		1,545		1,419		30		38		1,411
Other	80		—		—		80		74		—		—		74
Equity securities	10		—		—		10
Total securities available for sale	$	18,238	$	77	$	201	$	18,114	$	16,288	$	41	$	451	$	15,878


	December 31, 2016								December 31, 2017
(Dollars in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Asset Liability Management securities:
U.S. Treasury	$	2,625	$	1	$	121	$	2,505	$	3,370	$	—	$	118	$	3,252
Residential mortgage-backed securities:
U.S. government agency and government-sponsored agencies	6,814		3		122		6,695		9,338		2		132		9,208
Privately issued	333		1		7		327		695		3		4		694
Privately issued - commercial mortgage-backed securities	666		4		6		664		823		4		5		822
Collateralized loan obligations	2,219		4		5		2,218		1,895		10		—		1,905
Other	7		—		—		7		5		—		—		5
Asset Liability Management securities	12,664		13		261		12,416		16,126		19		259		15,886
Other debt securities:
Direct bank purchase bonds	1,601		41		29		1,613		1,495		38		30		1,503
Other	108		—		1		107		163		1		—		164
Equity securities	5		—		—		5		10		—		—		10
Total securities available for sale	$	14,378	$	54	$	291	$	14,141	$	17,794	$	58	$	289	$	17,563

5147

Table of Contents

Note 2—Securities (Continued)

The Company’s securities available for sale with a continuous unrealized loss position at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 are shown below, identified for periods less than 12 months and 12 months or more.


	September 30, 2017												March 31, 2018
	Less than 12 months				12 months or more				Total				Less than 12 months				12 months or more				Total
(Dollars in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Asset Liability Management securities:
U.S. Treasury	$	2,600	$	75	$	382	$	15	$	2,982	$	90	$	1,297	$	37	$	2,088	$	146	$	3,385	$	183
Residential mortgage-backed securities:
U.S. government agency and government-sponsored agencies	5,556		66		924		16		6,480		82		2,999		59		3,587		133		6,586		192
Privately issued	175		2		52		2		227		4		554		10		157		7		711		17
Privately issued - commercial mortgage-backed securities	314		3		7		—		321		3		781		17		83		4		864		21
Collateralized loan obligations	63		—		54		1		117		1		229		—		—		—		229		—
Asset Liability Management securities	8,708		146		1,419		34		10,127		180		5,860		123		5,915		290		11,775		413
Other debt securities:
Direct bank purchase bonds	11		3		589		18		600		21		320		11		457		27		777		38
Other	56		—		—		—		56		—		22		—		—		—		22		—
Equity securities	—		—		10		—		10		—
Total securities available for sale	$	8,775	$	149	$	2,018	$	52	$	10,793	$	201	$	6,202	$	134	$	6,372	$	317	$	12,574	$	451


	December 31, 2016												December 31, 2017
	Less than 12 months				12 months or more				Total				Less than 12 months				12 months or more					Total
(Dollars in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value			Unrealized Losses		Fair Value		Unrealized Losses
Asset Liability Management securities:
U.S. Treasury	$	2,257	$	121	$	—	$	—	$	2,257	$	121	$	1,074	$	14	$	2,128		$	104	$	3,202	$	118
Residential mortgage-backed securities:																			��
U.S. government agency and government-sponsored agencies	5,501		113		667		9		6,168		122		3,606		22		4,651			110		8,257		132
Privately issued	249		6		29		1		278		7		275		1		164			3		439		4
Privately issued - commercial mortgage-backed securities	415		6		11		—		426		6		447		3		80			2		527		5
Collateralized loan obligations	75		—		1,077		5		1,152		5		12		—		—			—		12		—
Other	—		—		1		—		1		—
Asset Liability Management securities	8,497		246		1,785		15		10,282		261		5,414		40		7,023			219		12,437		259
Other debt securities:
Direct bank purchase bonds	386		12		499		17		885		29		58		4		563			26		621		30
Other	36		1		—		—		36		1		79		—		—			—		79		—
Equity securities	—		—		5		—		5		—		10		—		—			—		10		—
Total securities available for sale	$	8,919	$	259	$	2,289	$	32	$	11,208	$	291	$	5,561	$	44	$	7,586		$	245	$	13,147	$	289

At ~~September 30, 2017~~March 31, 2018, 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 ~~September 30, 2017~~March 31, 2018, the Company expects to recover the entire amortized cost

~~Table of Contents~~

~~Note 2—Securities (Continued)~~

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

Table of Contents

Note 2—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 ~~September 30, 2017~~March 31, 2018, 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 ~~September 30, 2017~~March 31, 2018, 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 ~~September 30, 2017~~March 31, 2018, 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.

September 30, 2017
(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 $ —
$ —
$ 2,982
$ —
$ 2,982
   U.S. government-sponsored agencies 9
3
—
—
12
   Residential mortgage-backed securities:
   U.S. government agency and government-sponsored agencies 2
4
407
9,633
10,046
     Privately issued —
1
—
550
551
Privately issued - commercial mortgage-backed securities —
—
—
742
742
   Collateralized loan obligations —
12
940
1,189
2,141
   Other —
5
—
—
5
    Asset Liability Management securities 11
25
4,329
12,114
16,479
Other debt securities:
   Direct bank purchase bonds 8
529
630
378
1,545
   Other —
56
—
24
80
      Total debt securities available for sale $ 19
$ 610
$ 4,959
$ 12,516
$ 18,104

~~Table of Contents~~

~~Note 2—Securities (Continued)~~



	March 31, 2018
(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	$	—	$	96	$	3,338	$	—	$	3,434
Residential mortgage-backed securities:
U.S. government agency and government-sponsored agencies	—		19		1,490		6,012		7,521
Privately issued	—		1		—		780		781
Privately issued - commercial mortgage-backed securities	—		—		38		891		929
Collateralized loan obligations	—		12		475		1,160		1,647
Other	1		80		—		—		81
Asset Liability Management securities	1		208		5,341		8,843		14,393
Other debt securities:
Direct bank purchase bonds	54		471		641		245		1,411
Other	8		45		—		21		74
Total debt securities available for sale	$	63	$	724	$	5,982	$	9,109	$	15,878

The gross realized gains and losses from sales of available for sale securities for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ are shown below. The specific identification method is used to calculate realized gains and losses on sales.


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,				For the Three Months Ended March 31,
(Dollars in millions)	2017		2016		2017		2016		2018		2017
Gross realized gains	$	6	$	23	$	15	$	55	$	—	$	2

Table of Contents

Note 2—Securities (Continued)

Securities Held to Maturity

At ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017, 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.


	September 30, 2017														March 31, 2018
			Recognized in OCI						Not Recognized in OCI								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		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Carrying Amount		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasury	$	524	$	—	$	—	$	524	$	6	$	—	$	530	$	526	$	—	$	—	$	526	$	3	$	3	$	526
U.S. government agency and government-sponsored agencies - residential mortgage-backed securities	8,324		2		34		8,292		38		78		8,252		9,501		2		112		9,391		15		233		9,173
U.S. government agency and government-sponsored agencies - commercial mortgage-backed securities	1,582		—		55		1,527		46		6		1,567		1,556		—		50		1,506		18		15		1,509
Total securities held to maturity	$	10,430	$	2	$	89	$	10,343	$	90	$	84	$	10,349	$	11,583	$	2	$	162	$	11,423	$	36	$	251	$	11,208


	December 31, 2016														December 31, 2017
			Recognized in OCI						Not Recognized in OCI								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		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Carrying Amount		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasury	$	492	$	—	$	—	$	492	$	5	$	—	$	497	$	525	$	—	$	—	$	525	$	3	$	1	$	527
U.S. government agency and government-sponsored agencies - residential mortgage-backed securities	8,301		3		41		8,263		34		96		8,201		7,870		2		31		7,841		15		130		7,726
U.S. government agency and government-sponsored agencies - commercial mortgage-backed securities	1,645		—		63		1,582		43		7		1,618		1,571		—		52		1,519		36		9		1,546
Total securities held to maturity	$	10,438	$	3	$	104	$	10,337	$	82	$	103	$	10,316	$	9,966	$	2	$	83	$	9,885	$	54	$	140	$	9,799

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.

5450

Table of Contents

Note 2—Securities (Continued)

The Company’s securities held to maturity with a continuous unrealized loss position at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 are shown below, separately for periods less than 12 months and 12 months or more.


	September 30, 2017																		March 31, 2018
	Less than 12 months						12 months or more						Total						Less than 12 months						12 months or more						Total
			Unrealized Losses						Unrealized Losses						Unrealized Losses						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		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. Treasury																			$	493	$	—	$	3	$	—	$	—	$	—	$	493	$	—	$	3
U.S. government agency and government-sponsored agencies - residential mortgage-backed securities	$	4,024	$	—	$	61	$	1,710	$	34	$	17	$	5,734	$	34	$	78	4,290		33		73		4,664		79		160		8,954		112		233
U.S. government agency and government-sponsored agencies - commercial mortgage-backed securities	—		—		—		1,515		55		6		1,515		55		6		48		—		—		1,461		50		15		1,509		50		15
Total securities held to maturity	$	4,024	$	—	$	61	$	3,225	$	89	$	23	$	7,249	$	89	$	84	$	4,831	$	33	$	76	$	6,125	$	129	$	175	$	10,956	$	162	$	251


	December 31, 2016																		December 31, 2017
	Less than 12 months						12 months or more						Total						Less than 12 months						12 months or more						Total
			Unrealized Losses						Unrealized Losses						Unrealized Losses						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		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. Treasury																			$	494	$	—	$	1	$	—	$	—	$	—	$	494	$	—	$	1
U.S. government agency and government-sponsored agencies - residential mortgage-backed securities	$	4,492	$	—	$	92	$	1,386	$	41	$	4	$	5,878	$	41	$	96	2,649		—		31		4,000		31		99		6,649		31		130
U.S. government agency and government-sponsored agencies - commercial mortgage-backed securities	111		—		1		1,448		63		6		1,559		63		7		19		—		—		1,496		52		9		1,515		52		9
Total securities held to maturity	$	4,603	$	—	$	93	$	2,834	$	104	$	10	$	7,437	$	104	$	103	$	3,162	$	—	$	32	$	5,496	$	83	$	108	$	8,658	$	83	$	140

5551

Table of Contents

Note 2—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.


	September 30, 2017																				March 31, 2018
	Over One Year Through Five Years				Over Five Years Through Ten Years				Over Ten Years				Total				Within One Year				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		Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
U.S. Treasury	$	524	$	530	$	—	$	—	$	—	$	—	$	524	$	530	$	102	$	102	$	424	$	424	$	—	$	—	$	—	$	—	$	526	$	526
U.S. government agency and government-sponsored agencies - residential mortgage-backed securities	100		100		391		389		7,801		7,763		8,292		8,252		—		—		—		—		765		747		8,626		8,426		9,391		9,173
U.S. government agency and government-sponsored agencies - commercial mortgage-backed securities	783		816		69		72		675		679		1,527		1,567		—		—		854		866		—		—		652		643		1,506		1,509
Total securities held to maturity	$	1,407	$	1,446	$	460	$	461	$	8,476	$	8,442	$	10,343	$	10,349	$	102	$	102	$	1,278	$	1,290	$	765	$	747	$	9,278	$	9,069	$	11,423	$	11,208

Securities Pledged and Received as Collateral

At ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the Company pledged ~~$11.2~~$13.2 billion and ~~$12.1~~$12.3 billion of available for sale and trading securities as collateral, respectively, of which ~~$1.4~~$1.2 billion and ~~$1.3~~$1.2 billion, respectively, was permitted to be sold or repledged. These securities were pledged as collateral for derivative liability positions, securities loaned or sold under repurchase agreements, short term borrowings and to secure public and trust department deposits.

At ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the Company received ~~$30.7~~$30.9 billion and ~~$31.6~~$31.8 billion, respectively, of collateral, of which ~~$30.7~~$30.8 billion and ~~$31.6~~$31.8 billion, respectively, was permitted to be sold or repledged. Of the collateral received, the Company sold or repledged $29.8 billion and ~~$30.5~~$30.4 billion at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively, for derivative asset positions and securities borrowed or purchased under resale agreements.

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 ~~2016~~2017 Form 10-K.

Note 3—Loans and Allowance for Loan Losses

The following table provides the outstanding balances of loans held for investment at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016:~~2017:


(Dollars in millions)	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Loans held for investment:
Commercial and industrial	$	23,443		$	25,379		$	23,403		$	23,281
Commercial mortgage	14,161			14,625			14,496			14,320
Construction	1,856			2,283			1,835			1,775
Lease financing	1,796			1,819			1,494			1,533
Total commercial portfolio	41,256			44,106			41,228			40,909
Residential mortgage	34,205			29,922			36,660			35,643
Home equity and other consumer loans	3,368			3,523			3,512			3,462
Total consumer portfolio	37,573			33,445			40,172			39,105
Total loans held for investment⁽¹⁾	78,829			77,551			81,400			80,014
Allowance for loan losses	(542		)	(639		)	(460		)	(476		)
Loans held for investment, net	$	78,287		$	76,912		$	80,940		$	79,538


(1)	Includes ~~$277~~$311 million and ~~$180~~$301 million at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, 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 September 30, 2017
(Dollars in millions) Commercial Consumer Unallocated Total
Allowance for loan losses, beginning of period $ 435
$ 78
$ —
$ 513
(Reversal of) provision for loan losses (7 ) 10
30
33
Other 2
—
—
2
Loans charged-off (7 ) (10 ) —
(17 )
Recoveries of loans previously charged-off 8
3
—
11
Allowance for loan losses, end of period $ 431
$ 81
$ 30
$ 542




	For the Three Months Ended March 31, 2018
(Dollars in millions)	Commercial			Consumer			Unallocated			Total
Allowance for loan losses, beginning of period	$	360		$	86		$	30		$	476
(Reversal of) provision for loan losses	14			6			(25		)	(5		)
Loans charged-off	(6		)	(10		)	—			(16		)
Recoveries of loans previously charged-off	3			2			—			5
Allowance for loan losses, end of period	$	371		$	84		$	5		$	460




	For the Three Months Ended March 31, 2017
(Dollars in millions)	Commercial			Consumer			Unallocated		Total
Allowance for loan losses, beginning of period	$	556		$	83		$	—	$	639
(Reversal of) provision for loan losses	(26		)	12			—		(14		)
Other	1			—			—		1
Loans charged-off	(55		)	(11		)	—		(66		)
Recoveries of loans previously charged-off	9			1			—		10
Allowance for loan losses, end of period	$	485		$	85		$	—	$	570

For the Three Months Ended September 30, 2016
(Dollars in millions) Commercial Consumer Unallocated Total
Allowance for loan losses, beginning of period $ 683
$ 65
$ —
$ 748
(Reversal of) provision for loan losses 55
13
—
68
Other (1 ) —
—
(1 )
Loans charged-off (126 ) (2 ) —
(128 )
Recoveries of loans previously charged-off 3
1
—
4
Allowance for loan losses, end of period $ 614
$ 77
$ —
$ 691

5753

Table of Contents

Note 3—Loans and Allowance for Loan Losses (Continued)

For the Nine Months Ended September 30, 2017
(Dollars in millions) Commercial Consumer Unallocated Total
Allowance for loan losses, beginning of period $ 556
$ 83
$ —
$ 639
(Reversal of) provision for loan losses (57 ) 26
30
(1 )
Other 2
—
—
2
Loans charged-off (91 ) (32 ) —
(123 )
Recoveries of loans previously charged-off 21
4
—
25
Allowance for loan losses, end of period $ 431
$ 81
$ 30
$ 542

For the Nine Months Ended September 30, 2016
(Dollars in millions) Commercial Consumer Unallocated Total
Allowance for loan losses, beginning of period $ 653
$ 50
$ 20
$ 723
(Reversal of) provision for loan losses 180
30
(20 ) 190
Other 3
—
—
3
Loans charged-off (231 ) (5 ) —
(236 )
Recoveries of loans previously charged-off 9
2
—
11
Allowance for loan losses, end of period $ 614
$ 77
$ —
$ 691

The following tables show the allowance for loan losses and related loan balances by portfolio segment as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016:~~2017:


	September 30, 2017								March 31, 2018
(Dollars in millions)	Commercial		Consumer		Unallocated		Total		Commercial		Consumer		Unallocated		Total
Allowance for loan losses:
Individually evaluated for impairment	$	92	$	15	$	—	$	107	$	50	$	14	$	—	$	64
Collectively evaluated for impairment	339		66		30		435		321		70		5		396
Total allowance for loan losses	$	431	$	81	$	30	$	542	$	371	$	84	$	5	$	460

Loans held for investment:
Individually evaluated for impairment	$	495	$	342	$	—	$	837	$	416	$	307	$	—	$	723
Collectively evaluated for impairment	40,761		37,231		—		77,992		40,812		39,865		—		80,677
Total loans held for investment	$	41,256	$	37,573	$	—	$	78,829	$	41,228	$	40,172	$	—	$	81,400


	December 31, 2016						December 31, 2017
(Dollars in millions)	Commercial		Consumer		Total		Commercial		Consumer		Unallocated		Total
Allowance for loan losses:
Individually evaluated for impairment	$	151	$	17	$	168	$	58	$	15	$	—	$	73
Collectively evaluated for impairment	405		66		471		302		71		30		403
Total allowance for loan losses	$	556	$	83	$	639	$	360	$	86	$	30	$	476

Loans held for investment:
Individually evaluated for impairment	$	636	$	386	$	1,022	$	544	$	321	$	—	$	865
Collectively evaluated for impairment	43,470		33,059		76,529		40,365		38,784		—		79,149
Total loans held for investment	$	44,106	$	33,445	$	77,551	$	40,909	$	39,105	$	—	$	80,014

Nonaccrual and Past Due Loans

The following table presents nonaccrual loans as of March 31, 2018 and December 31, 2017:



(Dollars in millions)	March 31, 2018		December 31, 2017
Commercial and industrial	$	211	$	319
Commercial mortgage	15		20
Total commercial portfolio	226		339
Residential mortgage	102		104
Home equity and other consumer loans	22		22
Total consumer portfolio	124		126
Total nonaccrual loans	$	350	$	465
Troubled debt restructured loans that continue to accrue interest	$	323	$	348
Troubled debt restructured nonaccrual loans (included in total nonaccrual loans above)	$	182	$	229

5854

Table of Contents

Note 3—Loans and Allowance for Loan Losses (Continued)

~~Nonaccrual and Past Due Loans~~

~~The following table presents nonaccrual loans as of September 30, 2017 and~~ ~~December 31, 2016~~:

(Dollars in millions) September 30, 2017 December 31, 2016
Commercial and industrial $ 308
$ 458
Commercial mortgage 22
31
  Total commercial portfolio 330
489
Residential mortgage 112
171
Home equity and other consumer loans 23
29
  Total consumer portfolio 135
200
        Total nonaccrual loans $ 465
$ 689
Troubled debt restructured loans that continue to accrue interest $ 308
$ 215
Troubled debt restructured nonaccrual loans (included in total nonaccrual loans above) $ 224
$ 384

The following tables show an aging of the balance of loans held for investment, by class as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017:


	September 30, 2017										March 31, 2018
	Aging Analysis of Loans										Aging Analysis of Loans
(Dollars in millions)	Current		30 to 89 Days Past Due		90 Days or More Past Due		Total Past Due		Total		Current		30 to 89 Days Past Due		90 Days or More Past Due		Total Past Due		Total
Commercial and industrial	$	25,115	$	41	$	83	$	124	$	25,239	$	24,698	$	127	$	72	$	199	$	24,897
Commercial mortgage	14,141		12		8		20		14,161		14,475		18		3		21		14,496
Construction	1,856		—		—		—		1,856		1,828		7		—		7		1,835
Total commercial portfolio	41,112		53		91		144		41,256		41,001		152		75		227		41,228
Residential mortgage	34,047		120		38		158		34,205		36,493		136		31		167		36,660
Home equity and other consumer loans	3,336		20		12		32		3,368		3,481		21		10		31		3,512
Total consumer portfolio	37,383		140		50		190		37,573		39,974		157		41		198		40,172
Total loans held for investment	$	78,495	$	193	$	141	$	334	$	78,829	$	80,975	$	309	$	116	$	425	$	81,400


	December 31, 2016										December 31, 2017
	Aging Analysis of Loans										Aging Analysis of Loans
(Dollars in millions)	Current		30 to 89 Days Past Due		90 Days or More Past Due		Total Past Due		Total		Current		30 to 89 Days Past Due		90 Days or More Past Due		Total Past Due		Total
Commercial and industrial	$	27,085	$	54	$	59	$	113	$	27,198	$	24,734	$	17	$	63	$	80	$	24,814
Commercial mortgage	14,571		37		17		54		14,625		14,298		16		6		22		14,320
Construction	2,283		—		—		—		2,283		1,775		—		—		—		1,775
Total commercial portfolio	43,939		91		76		167		44,106		40,807		33		69		102		40,909
Residential mortgage	29,770		110		42		152		29,922		35,453		151		39		190		35,643
Home equity and other consumer loans	3,479		27		17		44		3,523		3,427		23		12		35		3,462
Total consumer portfolio	33,249		137		59		196		33,445		38,880		174		51		225		39,105
Total loans held for investment	$	77,188	$	228	$	135	$	363	$	77,551	$	79,687	$	207	$	120	$	327	$	80,014

Loans 90 days or more past due and still accruing totaled ~~$13~~$9 million at ~~September 30, 2017~~March 31, 2018 and ~~$23~~$12 million at December 31, ~~2016.~~2017.

~~Table of Contents~~

~~Note 3—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. Loans within the commercial portfolio segment are classified as either pass or criticized. Criticized credits are those that have regulatory risk ratings of special mention, substandard or doubtful; classified credits are those that have regulatory risk ratings of substandard or doubtful. Special mention credits are potentially weak, as the borrower has begun to exhibit deteriorating trends, which, if not corrected, may jeopardize repayment of the loan and result in further downgrade. Substandard credits have well-defined weaknesses, which, if not corrected, could jeopardize the full satisfaction of the debt. A credit classified as doubtful has critical weaknesses that make full collection improbable on the basis of currently existing facts and conditions.

Table of Contents

Note 3—Loans and Allowance for Loan Losses (Continued)

The following tables summarize the loans in the commercial portfolio segment monitored for credit quality based on regulatory risk ratings.


	September 30, 2017								March 31, 2018
			Criticized								Criticized
(Dollars in millions)	Pass		Special Mention		Classified		Total		Pass		Special Mention		Classified		Total
Commercial and industrial	$	23,872	$	616	$	751	$	25,239	$	23,674	$	633	$	590	$	24,897
Commercial mortgage	13,836		87		238		14,161		14,270		81		145		14,496
Construction	1,693		14		149		1,856		1,707		—		128		1,835
Total commercial portfolio	$	39,401	$	717	$	1,138	$	41,256	$	39,651	$	714	$	863	$	41,228


	December 31, 2016 ⁽¹⁾								December 31, 2017
			Criticized								Criticized
(Dollars in millions)	Pass		Special Mention		Classified		Total		Pass		Special Mention		Classified		Total
Commercial and industrial	$	25,028	$	860	$	1,097	$	26,985	$	23,632	$	435	$	747	$	24,814
Commercial mortgage	14,152		161		188		14,501		14,081		80		159		14,320
Construction	2,162		121		—		2,283		1,632		15		128		1,775
Total commercial portfolio	$	41,342	$	1,142	$	1,285	$	43,769	$	39,345	$	530	$	1,034	$	40,909


~~(1)~~	~~The amounts presented reflect unpaid principal balances less charge-offs.~~

The Company monitors the credit quality of its consumer portfolio segment based primarily on payment status. The following tables summarize the loans in the consumer portfolio segment, which exclude $8$7 million and ~~$11~~$8 million of loans covered by FDIC loss share agreements, at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively:


	September 30, 2017						March 31, 2018
(Dollars in millions)	Accrual		Nonaccrual		Total		Accrual		Nonaccrual		Total
Residential mortgage	$	34,088	$	112	$	34,200	$	36,553	$	102	$	36,655
Home equity and other consumer loans	3,342		23		3,365		3,488		22		3,510
Total consumer portfolio	$	37,430	$	135	$	37,565	$	40,041	$	124	$	40,165

December 31, 2016
(Dollars in millions) Accrual Nonaccrual Total
Residential mortgage $ 29,751
$ 171
$ 29,922
Home equity and other consumer loans 3,494
29
3,523
Total consumer portfolio $ 33,245
$ 200
$ 33,445

~~Table of Contents~~

~~Note 3—Loans and Allowance for Loan Losses (Continued)~~



	December 31, 2017
(Dollars in millions)	Accrual		Nonaccrual		Total
Residential mortgage	$	35,534	$	104	$	35,638
Home equity and other consumer loans	3,437		22		3,459
Total consumer portfolio	$	38,971	$	126	$	39,097

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 based on refreshed FICO scores and refreshed LTV ratios at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017. These tables exclude loans covered by FDIC loss share agreements, as discussed above. The amounts presented reflect unpaid principal balances less partial charge-offs.

Table of Contents

Note 3—Loans and Allowance for Loan Losses (Continued)


	September 30, 2017												March 31, 2018
	FICO scores												FICO scores
(Dollars in millions)	720 and above			Below 720			No FICO Available⁽¹⁾			Total			720 and above			Below 720			No FICO Available⁽¹⁾			Total
Residential mortgage	$	27,548		$	5,863		$	448		$	33,859		$	29,662		$	6,207		$	415		$	36,284
Home equity and other consumer loans	2,278			894			136			3,308			2,447			947			58			3,452
Total consumer portfolio	$	29,826		$	6,757		$	584		$	37,167		$	32,109		$	7,154		$	473		$	39,736
Percentage of total	80		%	18		%	2		%	100		%	81		%	18		%	1		%	100		%


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


	December 31, 2016												December 31, 2017
	FICO scores												FICO scores
(Dollars in millions)	720 and above			Below 720			No FICO Available⁽¹⁾			Total			720 and above			Below 720			No FICO Available⁽¹⁾			Total
Residential mortgage	$	23,598		$	5,597		$	444		$	29,639		$	28,786		$	6,082		$	411		$	35,279
Home equity and other consumer loans	2,372			977			111			3,460			2,404			918			84			3,406
Total consumer portfolio	$	25,970		$	6,574		$	555		$	33,099		$	31,190		$	7,000		$	495		$	38,685
Percentage of total	78		%	20		%	2		%	100		%	81		%	18		%	1		%	100		%


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

6157

Table of Contents

Note 3—Loans and Allowance for Loan Losses (Continued)


	September 30, 2017															March 31, 2018
	LTV ratios															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			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	$	33,242		$	574		$	10		$	33		$	33,859		$	35,417		$	831		$	28		$	8		$	36,284
Home equity loans	2,091			235			25			33			2,384			1,985			245			20			26			2,276
Total consumer portfolio	$	35,333		$	809		$	35		$	66		$	36,243		$	37,402		$	1,076		$	48		$	34		$	38,560
Percentage of total	98		%	2		%	—		%	—		%	100		%	97		%	3		%	—		%	—		%	100		%


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


	December 31, 2016															December 31, 2017
	LTV ratios															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			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	$	28,547		$	1,030		$	16		$	46		$	29,639		$	34,472		$	771		$	4		$	32		$	35,279
Home equity loans	2,160			206			41			43			2,450			2,052			248			24			33			2,357
Total consumer portfolio	$	30,707		$	1,236		$	57		$	89		$	32,089		$	36,524		$	1,019		$	28		$	65		$	37,636
Percentage of total	96		%	4		%	—		%	—		%	100		%	97		%	3		%	—		%	—		%	100		%


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

Troubled Debt Restructurings

The following table provides a summary of the Company’s recorded investment in TDRs as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017. The summary includes those TDRs that are on nonaccrual status and those that continue to accrue interest. The Company had ~~$30~~$25 million and ~~$59~~$66 million in commitments to lend additional funds to borrowers with loan modifications classified as TDRs as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017, respectively.


(Dollars in millions)	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Commercial and industrial	$	214	$	321	$	143	$	202
Commercial mortgage	7		9		4		7
Construction	58		—		128		128
Total commercial portfolio	279		330		275		337
Residential mortgage	227		239		207		215
Home equity and other consumer loans	26		30		23		25
Total consumer portfolio	253		269		230		240
Total restructured loans	$	532	$	599	$	505	$	577

For the ~~third~~first quarter of ~~2017,~~2018, 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 ~~nine~~three months ended ~~September 30,~~March 31, 2018 and March 31, 2017 ~~and September 30, 2016~~ 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.

6258

Table of Contents

Note 3—Loans and Allowance for Loan Losses (Continued)

The following tables provide the pre- and post-modification outstanding recorded investment amounts of TDRs as of the date of the restructuring that occurred during the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 and ~~2016:~~2017:


	For the Three Months Ended September 30, 2017				For the Nine Months Ended September 30, 2017				For the Three Months Ended March 31, 2018
(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⁾		Pre-Modification Outstanding Recorded Investment⁽¹⁾		Post-Modification Outstanding Recorded Investment⁽²⁾
Commercial and industrial	$	20	$	20	$	116	$	116	$	14	$	14
Commercial mortgage	2		2		3		3
Construction	—		—		61		61
Total commercial portfolio	22		22		180		180		14		14
Residential mortgage	6		6		14		14		1		1
Home equity and other consumer loans	—		—		2		2
Total consumer portfolio	6		6		16		16		1		1
Total	$	28	$	28	$	196	$	196	$	15	$	15


(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 September 30, 2016				For the Nine Months Ended September 30, 2016				For the Three Months Ended March 31, 2017
(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⁾		Pre-Modification Outstanding Recorded Investment⁽¹⁾		Post-Modification Outstanding Recorded Investment⁽²⁾
Commercial and industrial	$	144	$	144	$	320	$	319	$	78	$	78
Commercial mortgage	1		1		9		9		1		1
Construction									61		61
Total commercial portfolio	145		145		329		328		140		140
Residential mortgage	3		3		9		9		4		4
Home equity and other consumer loans	1		1		4		4
Total consumer portfolio	4		4		13		13		4		4
Total	$	149	$	149	$	342	$	341	$	144	$	144


(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.

~~Table of Contents~~

~~Note 3—Loans and Allowance for Loan Losses (Continued)~~

The following ~~tables provide~~table provides the recorded investment amounts of TDRs at the date of default, for which there was a payment default during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2017, ~~and 2016,~~ 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. There were no such defaults during the three months ended March 31, 2018.

(Dollars in millions) For the Three Months Ended September 30, 2017 For the Nine Months Ended September 30, 2017
Commercial and industrial $ —
$ 19
Commercial mortgage —
1
Total commercial portfolio —
20
Residential mortgage 1
2
Home equity and other consumer loans —
—
Total consumer portfolio 1
2
Total $ 1
$ 22



(Dollars in millions)	For the Three Months Ended September 30, 2016		For the Nine Months Ended September 30, 2016		For the Three Months Ended March 31, 2017
Commercial and industrial	$	46	$	57	$	2
Commercial mortgage					1
Total commercial portfolio	46		57		3
Residential mortgage	1		4		1
Home equity and other consumer loans	1		2
Total consumer portfolio	2		6		1
Total	$	48	$	63	$	4

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.

Table of Contents

Note 3—Loans and Allowance for Loan Losses (Continued)

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 ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016:~~2017:

September 30, 2017
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 $ 332
$ 65
$ 397
$ 92
$ 382
$ 95
Commercial mortgage 38
2
40
—
38
3
Construction —
58
58
—
—
58
Total commercial portfolio 370
125
495
92
420
156
Residential mortgage 229
66
295
15
244
76
Home equity and other consumer loans 32
15
47
—
33
25
Total consumer portfolio 261
81
342
15
277
101
Total $ 631
$ 206
$ 837
$ 107
$ 697
$ 257

~~Table of Contents~~

~~Note 3—Loans and Allowance for Loan Losses (Continued)~~



	March 31, 2018
	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	$	218	$	35	$	253	$	50	$	261	$	71
Commercial mortgage	31		4		35		—		31		4
Construction	—		128		128		—		—		128
Total commercial portfolio	249		167		416		50		292		203
Residential mortgage	219		49		268		14		234		58
Home equity and other consumer loans	24		15		39		—		26		24
Total consumer portfolio	243		64		307		14		260		82
Total	$	492	$	231	$	723	$	64	$	552	$	285


	December 31, 2016												December 31, 2017
	Recorded Investment								Unpaid Principal Balance				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		With an Allowance		Without an Allowance		Total		Allowance for Impaired Loans		With an Allowance		Without an Allowance
Commercial and industrial	$	505	$	36	$	541	$	150	$	672	$	54	$	287	$	93	$	380	$	57	$	348	$	102
Commercial mortgage	86		9		95		1		8		9		33		3		36		1		33		3
Construction													—		128		128		—		—		128
Total commercial portfolio	591		45		636		151		680		63		320		224		544		58		381		233
Residential mortgage	250		75		325		17		295		89		218		59		277		15		234		69
Home equity and other consumer loans	41		20		61		—		11		30		29		15		44		—		30		24
Total consumer portfolio	291		95		386		17		306		119		247		74		321		15		264		93
Total	$	882	$	140	$	1,022	$	168	$	986	$	182	$	567	$	298	$	865	$	73	$	645	$	326

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 nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ for the commercial and consumer loans portfolio segments.


	For the Three Months Ended September 30,								For the Nine Months Ended September 30,								For the Three Months Ended March 31,
	2017				2016				2017				2016				2018				2017
(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		Average Recorded Investment		Recognized Interest Income		Average Recorded Investment		Recognized Interest Income
Commercial and industrial	$	397	$	4	$	97	$	1	$	466	$	15	$	147	$	3	$	293	$	2	$	491	$	4
Commercial mortgage	96		11		14		1		94		33		14		1		37		10		18		—
Construction	9		2		—		—		12		3		—		—		128		2		10		—
Total commercial portfolio	502		17		111		2		572		51		161		4		458		14		519		4
Residential mortgage	305		3		253		3		310		10		263		7		272		4		237		2
Home equity and other consumer loans	53		1		31		—		55		5		31		1		41		1		29		—
Total consumer portfolio	358		4		284		3		365		15		294		8		313		5		266		2
Total	$	860	$	21	$	395	$	5	$	937	$	66	$	455	$	12	$	771	$	19	$	785	$	6

Table of Contents

Note 3—Loans and Allowance for Loan Losses (Continued)

The following table presents loan transfers from held to investment to held for sale and proceeds from

sales of loans during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ for the commercial and consumer loans portfolio segments.


	For the Three Months Ended September 30,								For the Nine Months Ended September 30,									For the Three Months Ended March 31,
	2017				2016				2017					2016				2018					2017
(Dollars in millions)	Transfers of loans from held for investment to held for sale, net		Proceeds from sale		Transfers of loans from held for investment to held for sale, net		Proceeds from sale		Transfers of loans from held for investment to held for sale, net			Proceeds from sale		Transfers of loans from held for investment to held for sale, net		Proceeds from sale		Transfers of loans from held for investment to held for sale, net			Proceeds from sale		Transfers of loans from held for investment to held for sale, net			Proceeds from sale
Commercial portfolio	$	477	$	105	$	790	$	570	$	837		$	751	$	969	$	734	$	(91	)	$	240	$	234		$	347
Consumer portfolio	—		—		344		—		(4		)	—		344		—		—			—		(4		)	—
Total	$	477	$	105	$	1,134	$	570	$	833		$	751	$	1,313	$	734	$	(91	)	$	240	$	230		$	347

Note 4—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.

Consolidated VIEs

The following tables present the assets and liabilities of consolidated VIEs recorded on the Company’s consolidated balance sheets at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016:~~2017:


	September 30, 2017										March 31, 2018
	Consolidated Assets						Consolidated Liabilities				Consolidated Assets								Consolidated Liabilities
(Dollars in millions)	Loans Held for Investment, net		Other Assets		Total Assets		Other Liabilities		Total Liabilities		Interest Bearing Deposits in Banks		Loans Held for Investment, net		Other Assets		Total Assets		Other Liabilities		Total Liabilities
LIHC investments	$	—	$	84	$	84	$	—	$	—	$	—	$	—	$	68	$	68	$	1	$	1
Leasing investments	597		164		761		33		33		1		582		155		738		24		24
Total consolidated VIEs	$	597	$	248	$	845	$	33	$	33	$	1	$	582	$	223	$	806	$	25	$	25


	December 31, 2016										December 31, 2017
	Consolidated Assets						Consolidated Liabilities				Consolidated Assets								Consolidated Liabilities
(Dollars in millions)	Loans Held for Investment, net		Other Assets		Total Assets		Other Liabilities		Total Liabilities		Interest Bearing Deposits in Banks		Loans Held for Investment, net		Other Assets		Total Assets		Other Liabilities		Total Liabilities
LIHC investments	$	—	$	112	$	112	$	—	$	—	$	—	$	—	$	68	$	68	$	—	$	—
Leasing investments	641		174		815		54		54		1		583		158		742		24		24
Total consolidated VIEs	$	641	$	286	$	927	$	54	$	54	$	1	$	583	$	226	$	810	$	24	$	24

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 energy, 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.

6662

Table of Contents

Note 4—Variable Interest Entities (Continued)

Unconsolidated VIEs

The following tables present the Company’s carrying amounts related to the unconsolidated VIEs at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017. 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 ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 and ~~September 30, 2016,~~March 31, 2017, the Company had noncash increases in unfunded commitments on LIHC investments of ~~$22~~$23 million and ~~$47~~$19 million, respectively, included within other liabilities.


	September 30, 2017																March 31, 2018
	Unconsolidated Assets										Unconsolidated Liabilities						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		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	$	—	$	29	$	222	$	1,076	$	1,327	$	281	$	281	$	1,327	$	—	$	28	$	231	$	1,017	$	1,276	$	247	$	247	$	1,276
Leasing investments	1		—		26		1,588		1,615		67		67		1,637		1		—		23		1,548		1,572		53		53		1,593
Other investments	—		—		24		24		48		—		—		91		—		—		20		26		46		—		—		86
Total unconsolidated VIEs	$	1	$	29	$	272	$	2,688	$	2,990	$	348	$	348	$	3,055	$	1	$	28	$	274	$	2,591	$	2,894	$	300	$	300	$	2,955


			December 31, 2016																December 31, 2017
			Unconsolidated Assets								Unconsolidated Liabilities								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		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	$	168	$	1,164	$	1,357	$	381	$	381	$	1,357	$	—	$	29	$	228	$	1,028	$	1,285	$	254	$	254	$	1,284
Leasing investments	1		12		47		1,751		1,811		66		66		1,833		1		—		24		1,745		1,770		53		53		1,792
Other investments	—		—		24		26		50		—		—		81		—		—		24		26		50		—		—		132
Total unconsolidated VIEs	$	1	$	37	$	239	$	2,941	$	3,218	$	447	$	447	$	3,271	$	1	$	29	$	276	$	2,799	$	3,105	$	307	$	307	$	3,208

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 nine~~ months ended ~~September 30, 2017~~March 31, 2018 and ~~2016:~~2017:


	For the Three Months Ended						For the Nine Months Ended						For the Three Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016			March 31, 2018			March 31, 2017
(Dollars in millions)
Losses from LIHC investments included in other noninterest expense		$	4		$	2		$	8		$	5		$	2		$	2
Amortization of LIHC investments included in income tax expense	37			34			106			96			34			33
Tax credits and other tax benefits from LIHC investments included in income tax expense	49			47			141			139			44			45

6763

Table of Contents

Note 4—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 5—Securities Financing Arrangements

The Company enters into derivative transactions, securities purchased under agreements to resell, securities sold under agreements to repurchase, securities borrowed and securities loaned transactions. The Company executes these transactions to facilitate customer match-book activity, cover short positions and fund the Company's trading inventory. The Company manages credit exposure from certain transactions by entering into master netting agreements and collateral arrangements with counterparties. The relevant agreements allow for the efficient closeout of the transaction, liquidation and set-off of collateral against the net amount owed by the counterparty following a default. In certain cases the Company may agree for collateral to be posted to a third party custodian under a tri-party arrangement that enables the Company to take control of such collateral in the event of a counterparty default. Default events generally include, among other things, failure to pay, insolvency or bankruptcy of a counterparty.

The Company primarily enters into derivative contracts, repurchase agreements and securities lending agreements with counterparties utilizing standard International Swaps and Derivatives Association Master Agreements, Master Repurchase Agreements, and Master Securities Lending 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 ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016:~~2017:


	September 30, 2017										March 31, 2018
							Gross Amounts Not Offset in Balance Sheet										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		Net Amount		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	$	1,379	$	613	$	766	$	30	$	736	$	952	$	284	$	668	$	14	$	—	$	654
Securities borrowed or purchased under resale agreements	31,006		9,115		21,891		21,817		74		31,926		12,024		19,902		19,837		—		65
Total	$	32,385	$	9,728	$	22,657	$	21,847	$	810	$	32,878	$	12,308	$	20,570	$	19,851	$	—	$	719
Financial Liabilities:
Derivative liabilities	$	1,168	$	691	$	477	$	154	$	323	$	950	$	420	$	530	$	107	$	—	$	423
Securities loaned or sold under repurchase agreements	36,422		9,115		27,307		26,639		668		38,415		12,024		26,391		25,635		—		756
Total	$	37,590	$	9,806	$	27,784	$	26,793	$	991	$	39,365	$	12,444	$	26,921	$	25,742	$	—	$	1,179

6864

Table of Contents

Note 5—Securities Financing Arrangements (Continued)


	December 31, 2016												December 31, 2017
							Gross Amounts Not Offset in Balance Sheet												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		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	$	1,626	$	770	$	856	$	20	$	—	$	836	$	1,322	$	607	$	715	$	25	$	—	$	690
Securities borrowed or purchased under resale agreements	31,386		11,639		19,747		19,657		—		90		31,845		10,951		20,894		20,816		—		78
Total	$	33,012	$	12,409	$	20,603	$	19,677	$	—	$	926	$	33,167	$	11,558	$	21,609	$	20,841	$	—	$	768
Financial Liabilities:
Derivative liabilities	$	1,684	$	1,047	$	637	$	176	$	5	$	456	$	1,127	$	620	$	507	$	142	$	—	$	365
Securities loaned or sold under repurchase agreements	36,255		11,639		24,616		23,812		—		804		37,388		10,951		26,437		25,639		—		798
Total	$	37,939	$	12,686	$	25,253	$	23,988	$	5	$	1,260	$	38,515	$	11,571	$	26,944	$	25,781	$	—	$	1,163

The following tables present the gross obligations for securities sold under agreements to repurchase and securities loaned by remaining contractual maturity and class of collateral pledged as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016:~~2017:


	September 30, 2017										March 31, 2018
	Overnight and		Up to		31 - 90		Greater than				Overnight and		Up to		31 - 90		Greater than
(Dollars in millions)	continuous		30 days		days		90 days		Total		continuous		30 days		days		90 days		Total
Securities sold under agreements to repurchase:
U.S. Treasury securities	$	11,553	$	2,083	$	566	$	—	$	14,202	$	10,400	$	1,388	$	1,218	$	366	$	13,372
U.S. agency securities	526		—		—		—		526		40		—		45		—		85
Other sovereign government obligations	—		—		3		—		3		2		—		4		—		6
Money market securities	106		—		—		—		106		6		—		114		—		120
Asset-backed securities	—		1		79		—		80		1		17		195		—		213
Mortgage-backed securities	8,158		4,640		5,315		450		18,563		7,331		4,950		7,149		600		20,030
Corporate bonds	352		364		1,112		—		1,828		851		471		1,020		—		2,342
Municipal securities	304		10		236		—		550		278		75		314		—		667
Equities	50		34		150		—		234		435		32		250		—		717
Total	$	21,049	$	7,132	$	7,461	$	450	$	36,092	$	19,344	$	6,933	$	10,309	$	966	$	37,552
Securities loaned:
Corporate bonds	$	—	$	—	$	—	$	—	$	—	$	—	$	230	$	—	$	—	$	230
Mortgage-backed securities											5		—		—		—		5
Equities	233		—		97		—		330		316		219		93		—		628
Total	$	233	$	—	$	97	$	—	$	330	$	321	$	449	$	93	$	—	$	863

6965

Table of Contents

Note 5—Securities Financing Arrangements (Continued)


	December 31, 2016										December 31, 2017
	Overnight and		Up to		31 - 90		Greater than				Overnight and		Up to		31 - 90		Greater than
(Dollars in millions)	continuous		30 days		days		90 days		Total		continuous		30 days		days		90 days		Total
Securities sold under agreements to repurchase:
U.S. Treasury securities	$	11,419	$	1,523	$	712	$	316	$	13,970	$	8,244	$	2,370	$	1,046	$	1,158	$	12,818
U.S. agency securities	42		30		—		—		72		115		38		63		—		216
Other sovereign government obligations	—		—		16		—		16		—		—		4		—		4
Money market securities											1		—		6		—		7
Asset-backed securities	20		15		66		—		101		32		—		164		—		196
Mortgage-backed securities	8,792		4,450		4,750		—		17,992		8,322		4,972		5,859		250		19,403
Corporate bonds	405		800		909		—		2,114		580		620		1,125		—		2,325
Municipal securities	74		65		299		—		438		283		—		276		—		559
Equities	452		275		164		—		891		416		376		189		—		981
Total	$	21,204	$	7,158	$	6,916	$	316	$	35,594	$	17,993	$	8,376	$	8,732	$	1,408	$	36,509
Securities loaned:
Corporate bonds	$	8	$	—	$	—	$	—	$	8	$	—	$	322	$	—	$	—	$	322
Equities	562		—		91		—		653		446		10		101		—		557
Total	$	570	$	—	$	91	$	—	$	661	$	446	$	332	$	101	$	—	$	879

The Company enters into reverse repurchase agreements, repurchase agreements and securities borrow and loan transactions. Under these agreements and transactions, the Company either receives or provides collateral. The Company receives collateral in the form of securities in connection with reverse repurchase agreements and securities borrowed transactions. In many cases, the Company is permitted to sell or repledge these securities held as collateral and use the securities to secure repurchase agreements or enter into securities lending transactions. For additional information related to securities pledged and received as collateral, refer to Note 2 to these consolidated financial statements.

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)	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Debt issued by MUB
Federal funds purchased, with a weighted average interest rate of 0.50% at December 31, 2016	$	—	$	26
Commercial paper, with a weighted average interest rate of 0.87% and 0.55% at September 30, 2017 and December 31, 2016, respectively	118		263
Federal Home Loan Bank advances, with a weighted average interest rate of 1.10% and 0.59% at September 30, 2017 and December 31, 2016, respectively	5,000		700
Commercial paper, with a weighted average interest rate of 1.61% and 1.26% at March 31, 2018 and December 31, 2017, respectively					$	290	$	347
Federal Home Loan Bank advances, with a weighted average interest rate of 1.72% and 1.42% at March 31, 2018 and December 31, 2017, respectively					7,650		5,750
Total debt issued by MUB	5,118		989		7,940		6,097
Debt issued by other MUAH subsidiaries
Short-term debt due to BTMU, with weighted average interest rates of 1.68% and 0.49% at September 30, 2017 and December 31, 2016, respectively	169		679
Short-term debt due to BTMU, with a weighted average interest rate of 2.04% at September 30, 2017	42		—
Short-term debt due to affiliates, with weighted average interest rates of (0.06)% and (0.04)% at September 30, 2017 and December 31, 2016, respectively	697		692
Short-term debt due to MUFG Bank, Ltd., with weighted average interest rates of 2.36% and 1.88% at March 31, 2018 and December 31, 2017, respectively					153		168
Short-term debt due to affiliates, with weighted average interest rates of (-0.07)% and (-0.09)% at March 31, 2018 and December 31, 2017, respectively					991		801
Total debt issued by other MUAH subsidiaries	908		1,371		1,144		969
Total commercial paper and other short-term borrowings	$	6,026	$	2,360	$	9,084	$	7,066

Short-term debt due to ~~BTMU~~MUFG Bank, Ltd. consists of both secured and unsecured fixed and floating rate borrowings.

MUSA maintains an uncommitted, unsecured lending facility with Mitsubishi UFJ Securities Holdings Co., Ltd. under which it may borrow up to ~~$1.4 billion.~~JPY 160 billion (USD equivalent 1.5 billion). Under the terms of the facility, MUSA can choose to borrow in Japanese Yen or US Dollars. Japanese Yen denominated borrowings include an extension option allowing MUSA to extend the maturity of an individual draw by 100 days at any time prior to its original, stated maturity. At ~~September 30, 2017,~~March 31, 2018, MUSA had ~~¥78~~JPY 105 billion ($~~697~~991 million USD equivalent) drawn under this facility.

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) September 30, 2017 December 31, 2016
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 1.88% at September 30, 2017 and 1.46% at December 31, 2016 $ 250
$ 250
Fixed rate 1.625% notes due February 2018 450
449
Fixed rate 2.25% notes due February 2020 997
997
Fixed rate 3.50% notes due June 2022 397
397
Fixed rate 3.00% notes due February 2025 496
496
Senior debt due to BTMU:
Floating rate debt due March 2020. This note, which bears interest at 0.86% above 3-month LIBOR, had a rate of 2.18% at September 30, 2017 and 1.82% at December 31, 2016 545
545
Floating rate debt due September 2020. This note, which bears interest at 0.85% above 3-month LIBOR, had a rate of 2.18% at September 30, 2017 3,500
—
Floating rate debt due December 2023. This note, which bears interest at 0.76% above 3-month EURIBOR, had a rate of 0.76% at September 30, 2017 24
—
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 2.71% at September 30, 2017 and 2.38% at December 31, 2016 300
300
Junior subordinated debt payable to trusts:
Floating rate note due September 2036. This note had an interest rate of 3.02% at September 30, 2017 and 2.66% at December 31, 2016 36
36
Total debt issued by MUAH 6,995
3,470
Debt issued by MUB
Senior debt:
Floating rate notes due May 2017. These notes, which bear interest at 0.40% above 3-month LIBOR, had a rate of 1.28% at December 31, 2016 —
250
Fixed rate 2.125% notes due June 2017 —
500
Fixed rate 2.625% notes due September 2018 999
999
Fixed rate FHLB of San Francisco advances due between May 2018 and August 2018. These notes bear a combined weighted-average rate of 1.33% at September 30, 2017 600
—
Fixed rate 2.250% notes due May 2019 499
500
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 1.47% at December 31, 2016 —
1,000
Floating rate debt due January 2018. This note, which bears interest at 0.87% above 1-month LIBOR, had a rate of 1.49% at December 31, 2016 —
1,500
Floating rate debt due January 2018. This note, which bears interest at 1.03% above 1-month LIBOR, had a rate of 1.65% at December 31, 2016 —
1,000
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 2.53% at September 30, 2017 and 2.20% at December 31, 2016 750
750
Other 58
58
Total debt issued by MUB 2,906
6,557



(Dollars in millions)	March 31, 2018		December 31, 2017
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 1.97% at December 31, 2017	$	—	$	250
Fixed rate 1.625% notes due February 2018	—		450
Fixed rate 2.25% notes due February 2020	998		998
Fixed rate 3.50% notes due June 2022	398		398
Fixed rate 3.00% notes due February 2025	496		496
Senior debt due to MUFG Bank, Ltd:
Floating rate debt due March 2020. This note, which bears interest at 0.86% above 3-month LIBOR, had a rate of 2.58% at March 31, 2018 and 2.45% at December 31, 2017	545		545
Floating rate debt due September 2020. This note, which bears interest at 0.85% above 3-month LIBOR, had a rate of 2.57% at March 31, 2018 and 2.54% at December 31, 2017	3,500		3,500
Floating rate debt due December 2023. This note, which bears interest at 0.76% above 3-month EURIBOR, had a rate of 0.76% at March 31, 2018 and 0.76% at December 31, 2017	25		24
Subordinated debt due to MUFG Bank, Ltd:
Floating rate subordinated debt due December 2023. This note, which bears interest at 1.38% above 3-month LIBOR, had a rate of 3.10% at March 31, 2018 and 3.07% at December 31, 2017	300		300
Junior subordinated debt payable to trusts:
Floating rate note due September 2036. This note had an interest rate of 3.82% at March 31, 2018 and 3.29% at December 31, 2017	36		36
Total debt issued by MUAH	6,298		6,997

Debt issued by MUB
Senior debt:
Fixed rate 2.63% notes due September 2018	1,000		1,000
Fixed rate FHLB of San Francisco advances due between May 2018 and February 2020. These notes bear a combined weighted-average rate of 1.85% at March 31, 2018 and 1.51% at December 31, 2017	4,250		1,500
Fixed rate 2.25% notes due May 2019	495		497
Subordinated debt due to MUFG Bank, Ltd:
Floating rate subordinated debt due June 2023. This note, which bears interest at 1.20% above 3-month LIBOR, had a rate of 3.49% at March 31, 2018 and 2.89% at December 31, 2017	750		750
Other	46		63
Total debt issued by MUB	6,541		3,810

Debt issued by other MUAH subsidiaries
Senior debt due to MUFG Bank, Ltd:
Various floating rate borrowings due between July 2019 and May 2021. These notes, which bear interest above 3-month LIBOR had a weighted-average interest rate of 2.38% at March 31, 2018 and 1.78% at December 31, 2017	290		291
Various fixed rate borrowings due between February 2019 and December 2024 with a weighted-average interest rate of 2.13% (between 1.5% and 2.65%) at March 31, 2018 and 2.12% (between 1.37% and 2.65%) at December 31, 2017	316		339
Subordinated debt due to Affiliate:
Various floating rate borrowings due between September 2018 and March 2019. These notes, which bear interest above 6-month LIBOR had a weighted-average interest rate of 3.93% (between 3.83% and 3.98%) at March 31, 2018 and 2.95% (between 2.88% and 3.04%) at December 31, 2017	110		185

7268

Table of Contents

Note 7—Long Term Debt (Continued)

Debt issued by other MUAH subsidiaries
Senior Debt due to BTMU:
Various floating rate borrowings due between March 2019 and May 2021. These notes, which bear interest above 3-month LIBOR had a weighted-average interest rate of 1.41% at September 30, 2017 and 0.99% at December 31, 2016 270
250
Various fixed rate borrowings due between February 2019 and June 2023 with a weighted-average interest rate of 2.10% (between 1.37% and 2.65%) at September 30, 2017 and 2.15% (between 1.71% and 2.44%) at December 31, 2016 340
384
Subordinated Debt due to Affiliate:
Various floating rate borrowings due between March 2018 and March 2019. These notes, which bear interest above 6-month LIBOR had a weighted-average interest rate of 2.95% (between 2.88% and 3.04%) at September 30, 2017 and 2.68% (between 2.61% and 2.77%) at December 31, 2016 185
185
Nonrecourse Debt due to BTMU:
Various floating rate nonrecourse borrowings due to BTMU between March 2018 and July 2023. These notes, which bear interest above 1- or 3-month LIBOR had a weighted-average interest rate of 3.32% (between 1.49% and 5.58%) at September 30, 2017 and 1.67% (between 0.25% and 2.41%) at December 31, 2016 247
127
Fixed rate nonrecourse borrowings due to BTMU between January 2019 and March 2023 which had an interest rate of 2.70% at September 30, 2017 82
—
Nonrecourse Debt:
Various floating rate nonrecourse borrowings due between October 2017 and May 2019. These notes, which bear interest above 1- or 3-month LIBOR had a weighted-average interest rate of 2.54% (between 2.08% and 3.35%) at September 30, 2017 and 2.04% (between 0.85% and 2.73%) at December 31, 2016 357
398
Fixed rate nonrecourse borrowings due December 2026 which had an interest rate of 5.34% at September 30, 2017 and December 31, 2016 37
39
Total debt issued by other MUAH subsidiaries 1,518
1,383
Total long-term debt $ 11,419
$ 11,410



Non-recourse debt due to MUFG Bank, Ltd:
Various floating rate non-recourse borrowings due between June 2018 and December 2021. These notes, which bear interest above 1- or 3-month LIBOR had a weighted-average interest rate of 3.39% (between 2.11% and 3.85%) at March 31, 2018 and 3.07% (between 1.49% and 5.58%) at December 31, 2017	81		79
Fixed rate non-recourse borrowings due between June 2018 and July 2023 which had an interest rate of 3.24% at March 31, 2018 and 3.27% at December 31, 2017	229		240
Non-recourse debt:
Various floating rate non-recourse borrowings due between December 2018 and May 2019. These notes, which bear interest above 1- or 3-month LIBOR had a weighted-average interest rate of 3.30% (between 3.01% and 3.85%) at March 31, 2018 and 2.88% (between 2.50% and 3.54%) at December 31, 2017	185		185
Fixed rate non-recourse borrowings due December 2026 which had an interest rate of 5.34% at March 31, 2018 and December 31, 2017	35		36
Total debt issued by other MUAH subsidiaries	1,246		1,355
Total long-term debt	$	14,085	$	12,162

MUAH Senior Debt due to ~~BTMU~~MUFG Bank, Ltd.

During the first quarter of 2017, MUAH borrowed $3.5 billion from ~~BTMU~~MUFG Bank, Ltd. in the form of a senior loan. MUAH may prepay the loan prior to the stated maturity date in whole or in part and in an amount of not less than $500,000. ~~BTMU~~MUFG Bank, Ltd. may accelerate the payment of the loan, in the case of certain events of default. The proceeds of the ~~BTMU Loan~~MUFG Bank, Ltd. loan have funded loans to MUAH’s subsidiaries. Simultaneously with the funding of the ~~BTMU Loan~~MUFG Bank, Ltd. loan on March 31, 2017, ~~the Bank~~MUB prepaid three loans from ~~BTMU~~MUFG Bank, Ltd. totaling $3.5 billion.

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 1211 to the Consolidated Financial Statements in Part II, Item 8. “Financial Statements and Supplementary Data” in our ~~2016~~2017 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 1211 to the Consolidated Financial Statements in Part II, Item 8. “Financial Statements and Supplementary Data” in our ~~2016~~2017 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 1211 to the Consolidated Financial Statements in Part II, Item 8. “Financial Statements and Supplementary Data” in our ~~2016~~2017 Form 10-K.

7470

Table of Contents

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 ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~,2017, by major category and by valuation hierarchy level:



	March 31, 2018
(Dollars in millions)	Level 1			Level 2			Level 3			Netting Adjustment⁽¹⁾			Fair Value
Assets
Trading account assets⁽²⁾:
U.S. Treasury securities	$	—		$	2,594		$	—		$	—		$	2,594
U.S. government-sponsored agency securities	—			98			—			—			98
State and municipal securities	—			66			—			—			66
Commercial paper	—			123			—			—			123
Other sovereign government obligations	—			11			—			—			11
Corporate bonds	—			1,187			—			—			1,187
Asset-backed securities	—			207			—			—			207
Mortgage-backed securities	—			7,436			—			—			7,436
Equities	182			—			—			—			182
Interest rate derivative contracts	9			511			1			(137		)	384
Commodity derivative contracts	—			44			—			(41		)	3
Foreign exchange derivative contracts	1			312			1			(48		)	266
Equity derivative contracts	5			—			53			(50		)	8
Total trading account assets	197			12,589			55			(276		)	12,565
Securities available for sale⁽³⁾:
Asset Liability Management securities:
U.S. Treasury	—			3,434			—			—			3,434
Residential mortgage-backed securities:
U.S government and government-sponsored agencies	—			7,521			—			—			7,521
Privately issued	—			781			—			—			781
Privately issued - commercial mortgage-backed securities	—			929			—			—			929
Collateralized loan obligations	—			1,647			—			—			1,647
Other	—			6			75			—			81
Other debt securities:
Direct bank purchase bonds	—			—			1,411			—			1,411
Other	—			54			20			—			74
Total securities available for sale	—			14,372			1,506			—			15,878
Other assets:
Mortgage servicing rights⁽²⁾	—			—			105			—			105
Interest rate hedging contracts⁽³⁾	—			4			—			—			4
Other derivative contracts⁽²⁾	—			10			1			(8		)	3
Equity securities⁽²⁾	10			—			—			—			10
Total other assets	10			14			106			(8		)	122
Total assets	$	207		$	26,975		$	1,667		$	(284	)	$	28,565
Percentage of total	1		%	95		%	5		%	(1		)%	100		%
Percentage of total Company assets	—		%	17		%	1		%	—		%	18		%
Liabilities
Trading account liabilities⁽²⁾:
Securities sold, not yet purchased:
U.S. Treasury	$	—		$	2,899		$	—		$	—		$	2,899
Other sovereign government obligations	—			3			—			—			3
Corporate bonds	—			388			—			—			388
Equities	60			—			—			—			60
Trading derivatives:
Interest rate derivative contracts	25			629			—			(270		)	384
Commodity derivative contracts	—			30			—			(18		)	12
Foreign exchange derivative contracts	—			202			1			(130		)	73
Equity derivative contracts	2			—			53			—			55
Total trading account liabilities	87			4,151			54			(418		)	3,874
Other liabilities:
FDIC clawback liability⁽²⁾	—			—			114			—			114
Other derivative contracts⁽²⁾	—			3			5			(2		)	6
Total other liabilities	—			3			119			(2		)	120
Total liabilities	$	87		$	4,154		$	173		$	(420	)	$	3,994
Percentage of total	2		%	105		%	4		%	(11		)%	100		%
Percentage of total Company liabilities	—		%	3		%	—		%	—		%	3		%

September 30, 2017
(Dollars in millions) Level 1 Level 2 Level 3
Netting
Adjustment⁽¹⁾
Fair Value
Assets
Trading account assets:
U.S. Treasury securities $ —
$ 2,503
$ —
$ —
$ 2,503
U.S. government-sponsored agency securities —
94
—
—
94
State and municipal securities —
35
—
—
35
Commercial paper —
111
—
—
111
Other sovereign government obligations —
9
—
—
9
Corporate bonds —
848
—
—
848
Asset-backed securities —
84
—
—
84
Mortgage-backed securities —
5,725
—
—
5,725
Equities 51
—
—
—
51
Interest rate derivative contracts 17
880
2
(306 ) 593
Commodity derivative contracts —
74
—
(70 ) 4
Foreign exchange derivative contracts —
240
1
(79 ) 162
Equity derivative contracts 1
—
161
(158 ) 4
Total trading account assets 69
10,603
164
(613 ) 10,223
Securities available for sale:
U.S. Treasury —
2,982
—
—
2,982
U.S. government sponsored agencies —
12
—
—
12
Residential mortgage-backed securities:
U.S government and government-sponsored agencies —
10,046
—
—
10,046
Privately issued —
551
—
—
551
Privately issued - commercial mortgage-backed securities —
742
—
—
742
Collateralized loan obligations —
2,141
—
—
2,141
Other —
5
—
—
5
Other debt securities:
Direct bank purchase bonds —
—
1,545
—
1,545
Other —
56
24
—
80
Equity securities 10
—
—
—
10
Total securities available for sale 10
16,535
1,569
—
18,114
Other assets:
Mortgage servicing rights —
—
56
—
56
Interest rate hedging contracts —
2
—
—
2
Other derivative contracts —
—
1
—
1
Total other assets —
2
57
—
59
Total assets $ 79
    $ 27,140
    $ 1,790
    $ (613 ) $ 28,396
Percentage of total — % 96 % 6 % (2 )% 100 %
Percentage of total Company assets — % 17 % 1 % — % 18 %
Liabilities
Trading account liabilities:
    Securities sold, not yet purchased:
U.S. Treasury $ —
$ 2,257
$ —
$ —
$ 2,257
State and municipal —
105
—
—
105
Other sovereign government obligations —
12
—
—
12
Corporate bonds —
437
—
—
437
Equities 56
—
—
—
56
    Trading derivatives:
Interest rate derivative contracts 1
627
—
(417 ) 211
Commodity derivative contracts —
53
—
(24 ) 29
Foreign exchange derivative contracts 1
137
1
(69 ) 70
Equity derivative contracts —
—
161
—
161
Total trading account liabilities 58
3,628
162
(510 ) 3,338
Other liabilities:
FDIC clawback liability —
—
114
—
114
Interest rate hedging contracts —
164
—
(164 ) —
Other derivative contracts —
18
5
(17 ) 6
Total other liabilities —
182
119
(181 ) 120
Total liabilities $ 58
   $ 3,810
   $ 281
   $ (691 ) $ 3,458
Percentage of total 2 % 110 % 8 % (20 )% 100 %
Percentage of total Company liabilities — % 3 % — % — % 3 %


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


(2)	Fair value through net income.


(3)	Fair value through other comprehensive income.

7571

Table of Contents

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


	December 31, 2016															December 31, 2017
(Dollars in millions)	Level 1			Level 2			Level 3			Netting Adjustment⁽¹⁾			Fair Value			Level 1			Level 2			Level 3			Netting Adjustment⁽¹⁾			Fair Value
Assets
Trading account assets:
Trading account assets⁽²⁾:
U.S. Treasury securities	$	—		$	1,730		$	—		$	—		$	1,730		$	—		$	1,926		$	—		$	—		$	1,926
U.S. government-sponsored agency securities	—			73			—			—			73			—			118			—			—			118
State and municipal securities	—			18			—			—			18			—			11			—			—			11
Commercial paper	—			1			—			—			1			—			7			—			—			7
Other sovereign government obligations	—			16			—			—			16			—			8			—			—			8
Corporate bonds	—			841			—			—			841			—			1,054			—			—			1,054
Asset-backed securities	—			106			—			—			106			—			199			—			—			199
Mortgage-backed securities	—			5,221			—			—			5,221			—			6,339			—			—			6,339
Equities	85			—			—			—			85			193			—			—			—			193
Interest rate derivative contracts	7			1,065			2			(343		)	731			7			870			1			(353		)	525
Commodity derivative contracts	—			144			1			(106		)	39			—			50			—			(49		)	1
Foreign exchange derivative contracts	1			215			1			(138		)	79			—			249			1			(68		)	182
Equity derivative contracts	1			—			164			(163		)	2			2			—			137			(135		)	4
Total trading account assets	94			9,430			168			(750		)	8,942			202			10,831			139			(605		)	10,567
Securities available for sale:
Securities available for sale⁽³⁾:
Asset Liability Management securities:
U.S. Treasury	—			2,505			—			—			2,505			—			3,252			—			—			3,252
Residential mortgage-backed securities:
U.S government and government-sponsored agencies	—			6,695			—			—			6,695			—			9,208			—			—			9,208
Privately issued	—			327			—			—			327			—			694			—			—			694
Privately issued - commercial mortgage-backed securities	—			664			—			—			664			—			822			—			—			822
Collateralized loan obligations	—			2,218			—			—			2,218			—			1,905			—			—			1,905
Other	—			7			—			—			7			—			5			—			—			5
Other debt securities:
Direct bank purchase bonds	—			—			1,613			—			1,613			—			—			1,503			—			1,503
Other	—			82			25			—			107			—			68			96			—			164
Equity securities	5			—			—			—			5			10			—			—			—			10
Total securities available for sale	5			12,498			1,638			—			14,141			10			15,954			1,599			—			17,563
Other assets:
Mortgage servicing rights	—			—			23			—			23
Interest rate hedging contracts	—			22			—			(20		)	2
Other derivative contracts	—			2			1			—			3
Mortgage servicing rights⁽²⁾																—			—			64			—			64
Interest rate hedging contracts⁽³⁾																—			2			—			—			2
Other derivative contracts⁽²⁾																—			2			1			(2		)	1
Total other assets	—			24			24			(20		)	28			—			4			65			(2		)	67
Total assets	$	99		$	21,952		$	1,830		$	(770	)	$	23,111		$	212		$	26,789		$	1,803		$	(607	)	$	28,197
Percentage of total	—		%	95		%	8		%	(3		)%	100		%	1		%	95		%	6		%	(2		)%	100		%
Percentage of total Company assets	—		%	15		%	1		%	(1		)%	15		%	—		%	17		%	1		%	—		%	18		%
Liabilities
Trading account liabilities:
Trading account liabilities⁽²⁾:
Securities sold, not yet purchased:
U.S. Treasury	$	—		$	1,973		$	—		$	—		$	1,973		$	—		$	2,709		$	—		$	—		$	2,709
Other sovereign government obligations	—			11			—			—			11			—			7			—			—			7
Corporate bonds	—			298			—			—			298			—			348			—			—			348
Equities	47			—			—			—			47			35			—			—			—			35
Trading derivatives:
Interest rate derivative contracts	1			987			—			(718		)	270			3			643			—			(382		)	264
Commodity derivative contracts	—			111			1			(68		)	44			—			33			—			(20		)	13
Foreign exchange derivative contracts	1			129			1			(33		)	98			1			144			1			(66		)	80
Equity derivative contracts	—			—			164			—			164			7			—			137			—			144
Total trading account liabilities	49			3,509			166			(819		)	2,905			46			3,884			138			(468		)	3,600
Other liabilities:
FDIC clawback liability	—			—			115			—			115
Interest rate hedging contracts	—			199			—			(199		)	—
Other derivative contracts	—			84			6			(29		)	61
FDIC clawback liability⁽²⁾																—			—			113			—			113
Interest rate hedging contracts⁽³⁾																—			149			—			(149		)	—
Other derivative contracts⁽²⁾																—			3			6			(3		)	6
Total other liabilities	—			283			121			(228		)	176			—			152			119			(152		)	119
Total liabilities	$	49		$	3,792		$	287		$	(1,047	)	$	3,081		$	46		$	4,036		$	257		$	(620	)	$	3,719
Percentage of total	2		%	123		%	9		%	(34		)%	100		%	1		%	109		%	7		%	(17		)%	100		%
Percentage of total Company liabilities	—		%	3		%	—		%	(1		)%	2		%	—		%	3		%	—		%	—		%	3		%


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


(2)	Fair value through net income.


(3)	Fair value through other comprehensive income.

7672

Table of Contents

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 nine~~ months ended ~~September 30, 2017~~March 31, 2018 and ~~2016.~~2017. Level 3 available for sale securities at ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ 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
September 30, 2017 September 30, 2016
(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 $ 171
$ 1,572

$ 49
$ (169 ) $ (118 ) $ 187

$ 1,607

$ 15
$ (186 ) $ (124 )
Total gains (losses) (realized/unrealized):
Included in income before taxes 17
—
(1 ) (17 )    (1 ) 11
—

—
(10 )    —
Included in other comprehensive income —
3
—
—
—
—
(3 ) —
—
—
Purchases/additions —
4
9
—
   —
—

1

2
—
   —
Settlements (24 ) (10 ) —
24
—
(19 ) (5 ) —
20
—
Asset (liability) balance, end of period $ 164
$ 1,569
$ 57
$ (162 ) $ (119 ) $ 179
$ 1,600
$ 17
$ (176 ) $ (124 )
Changes in unrealized gains (losses) included in income before taxes for assets and liabilities still held at end of period $ 17
$ —
$ (1 ) $ (17 )    $ (1 ) $ 11
$ —
$ —
$ (10 )    $ —

~~Table of Contents~~

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



	For the Three Months Ended
	March 31, 2018														March 31, 2017
(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	$	139		$	1,600		$	65	$	(138	)	$	(119	)	$	168		$	1,638		$	24	$	(166	)	$	(121	)
Total gains (losses) (realized/unrealized):
Included in income before taxes	(10		)	—			7		10			—			30			—			—		(28		)	2
Included in other comprehensive income	—			(16		)	—		—			—			—			3			—		—			—
Purchases/additions	—			72			34		—			—			—			1			11		—			—
Sales	—			—			—		—			—			—			—			—		—			—
Settlements	(74		)	(150		)	—		74			—			(26		)	(73		)	—		26			—
Transfers in (out) of level 3	—			—			—		—			—			—			—			—		—			—
Asset (liability) balance, end of period	$	55		$	1,506		$	106	$	(54	)	$	(119	)	$	172		$	1,569		$	35	$	(168	)	$	(119	)
Changes in unrealized gains (losses) included in income before taxes for assets and liabilities still held at end of period	$	(10	)	$	—		$	7	$	10		$	—		$	30		$	—		$	—	$	(28	)	$	2

For the Nine Months Ended
September 30, 2017 September 30, 2016
(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 $ 168
$ 1,638
   $ 24
$ (166 ) $ (121 ) $ 228
$ 1,603
$ 1
$ (223 ) $ (114 )
Total gains (losses) (realized/unrealized):
Included in income before taxes 58
—
(3 ) (57 )    2
12
—
—
(12 ) (10 )
Included in other comprehensive income —
15
—
—
—
—
2
—
—
—
Purchases/additions —
6
36
—
   —
—
81
3
—
—
Settlements (62 ) (90 ) —
61
—
(61 ) (86 ) —
59
—
Transfers in (out) of level 3 —
—
—
—
—
—
—
13
—
—
Asset (liability) balance, end of period $ 164
$ 1,569
$ 57
$ (162 ) $ (119 ) $ 179
$ 1,600
$ 17
$ (176 ) $ (124 )
Changes in unrealized gains (losses) included in income before taxes for assets and liabilities still held at end of period $ 58
$ —
$ (3 ) $ (57 )    $ 2
$ 12
$ —
$ —
$ (12 ) $ (10 )

The following table presents information about significant unobservable inputs related to the Company’s significant Level 3 assets and liabilities at ~~September 30, 2017:~~March 31, 2018:


	September 30, 2017								March 31, 2018
(Dollars in millions)	Level 3 Fair Value		Valuation Technique	Significant Unobservable Input(s)	Range of Inputs		Weighted Average		Level 3 Fair Value		Valuation Technique	Significant Unobservable Input(s)	Range of Inputs		Weighted Average
Securities available for sale:
Direct bank purchase bonds	$	1,545	Return on equity	Market-required return on capital	8.0 - 10.0	%	9.7	%	$	1,411	Return on equity	Market-required return on capital	8.0 - 10.0	%	9.5	%
				Probability of default	0.0 - 25.0	%	0.3	%				Probability of default	0.0 - 25.0	%	0.3	%
				Loss severity	10.0 - 60.0	%	27.4	%				Loss severity	10.0 - 60.0	%	25.0	%

The direct bank purchase bonds generally 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.

7873

Table of Contents

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~~in certain situations, such as impairment, and these measurements are ~~subject~~referred to ~~fair value adjustments that result from the application of the lower of cost or fair value accounting or write-downs of individual assets.~~as nonrecurring. For assets measured at fair value on a nonrecurring basis during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ 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.

September 30, 2017 Gain (Loss) For the Three Months Ended September 30, 2017 Gain (Loss) For the Nine Months Ended September 30, 2017
(Dollars in millions) Fair Value Level 1 Level 2 Level 3
Loans:
Impaired loans $ 97
$ —
$ —
$ 97
$ (21 ) $ (42 )
Other assets:
Software —
—
—
—
(1 ) (4 )
Loans held for sale 7
—
—
7
(1 ) (3 )
Renewable energy investment —
—
—
—
—
2
Consolidated LIHC VIE 81
—
—
81
(3 ) (11 )
Total $ 185
$ —
$ —
$ 185
$ (26 ) $ (58 )



	March 31, 2018								Gain (Loss) For the Three Months Ended March 31, 2018
(Dollars in millions)	Fair Value		Level 1		Level 2		Level 3		Gain (Loss) For the Three Months Ended March 31, 2018
Amortized cost:
Impaired loans	$	69	$	—	$	—	$	69	$	(1	)
Software	—		—		—		—		(2		)
Equity method:
Private equity investments	12		—		—		12		(2		)
Total	$	81	$	—	$	—	$	81	$	(5	)

September 30, 2016 Gain (Loss) For the Three Months Ended September 30, 2016 Gain (Loss) For the Nine Months Ended September 30, 2016
(Dollars in millions) Fair Value Level 1 Level 2 Level 3
Loans:
Impaired loans $ 194
$ —
$ —
$ 194
$ (55 ) $ (198 )
Other assets:
Loans held for sale 4
—
—
4
—
(3 )
OREO 3
—
—
3
—
(1 )
Private equity investments 10
—
—
10
—
(12 )
Software 13
—
—
13
—
(5 )
Intangible assets —
—
—
—
—
(1 )
Consolidated LIHC VIE 118
—
—
118
(27 ) (27 )
Total $ 342
$ —
$ —
$ 342
$ (82 ) $ (247 )



	March 31, 2017								Gain (Loss) For the Three Months Ended March 31, 2017
(Dollars in millions)	Fair Value		Level 1		Level 2		Level 3		Gain (Loss) For the Three Months Ended March 31, 2017
Amortized cost:
Impaired loans	$	139	$	—	$	—	$	139	$	(16	)
Software	—		—		—		—		(3		)
Lower of cost or market:
Loans held for sale	15		—		—		15		(2		)
Equity method:
Renewable energy investment	9		—		—		9		2
Total	$	163	$	—	$	—	$	163	$	(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 commercial loans held for sale may be based on secondary market offerings for loans with similar characteristics or a valuation methodology utilizing the appraised value to outstanding loan balance ratio. The fair value of OREO was primarily based on independent appraisals. The fair value of private equity investments and renewable energy 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 values and market pricing, adjusted for management judgment, as of the measurement date. The fair value of consolidated LIHC VIE investments was determined using a discounted cash flow analysis.

7974

Table of Contents

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, all of which are accounted for at amortized cost, classified by valuation hierarchy level as of ~~September 30, 2017~~March 31, 2018 and as of December 31, ~~2016~~2017:.


	September 30, 2017										March 31, 2018
(Dollars in millions)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3		Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	3,634	$	3,634	$	3,634	$	—	$	—	$	4,617	$	4,617	$	4,617	$	—	$	—
Securities borrowed or purchased under resale agreements	21,891		21,891		—		21,891		—		19,902		19,902		—		19,902		—
Securities held to maturity	10,343		10,349		—		10,349		—		11,423		11,208		—		11,208		—
Loans held for investment ⁽¹⁾	76,512		77,771		—		—		77,771		79,471		79,320		—		—		79,320
Liabilities
Deposits	$	85,349	$	85,328	$	—	$	85,328	$	—
Time deposits											$	5,387	$	5,408	$	—	$	5,408	$	—
Commercial paper and other short-term borrowings	6,026		6,026		—		6,026		—		9,084		9,084		—		9,084		—
Securities loaned or sold under repurchase agreements	27,307		27,307		—		27,307		—		26,391		26,391		—		26,391		—

Long-term debt	11,419		11,452				11,452				14,085		14,067		—		14,067		—
Off-Balance Sheet Instruments
Commitments to extend credit and standby and commercial letters of credit	$	181	$	181	$	—	$	—	$	181	$	162	$	175	$	—	$	—	$	175


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


	December 31, 2016										December 31, 2017
(Dollars in millions)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3		Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	5,753	$	5,753	$	5,753	$	—	$	—	$	3,392	$	3,392	$	3,392	$	—	$	—
Securities borrowed or purchased under resale agreements	19,747		19,747		—		19,747		—		20,894		20,894		—		20,894		—
Securities held to maturity	10,337		10,316		—		10,316		—		9,885		9,799		—		9,799		—
Loans held for investment ⁽¹⁾	75,112		76,257		—		—		76,257		78,023		79,051		—		—		79,051
Other assets													—		—
Liabilities
Deposits	$	86,947	$	86,930	$	—	$	86,930	$	—	$	84,787	$	84,743	$	—	$	84,743	$	—
Commercial paper and other short-term borrowings	2,360		2,360		—		2,360		—		7,066		7,066		—		7,066		—
Securities loaned or sold under repurchase agreements	24,616		24,616		—		24,616		—		26,437		26,437		—		26,437		—
Long-term debt	11,410		11,411		—		11,411		—		12,162		12,162		—		12,162		—
Off-Balance Sheet Instruments
Commitments to extend credit and standby and commercial letters of credit	$	221	$	221	$	—	$	—	$	221	$	174	$	174	$	—	$	—	$	174


(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 12 to the Consolidated Financial Statements in Part II, Item 8. “Financial Statements and Supplementary Data” in our 2016 Form 10-K.

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 ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017, 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.


	September 30, 2017						December 31, 2016						March 31, 2018						December 31, 2017
			Fair Value						Fair Value						Fair Value						Fair Value
	Notional		Asset		Liability		Notional		Asset		Liability		Notional		Asset		Liability		Notional		Asset		Liability
(Dollars in millions)	Amount		Derivatives		Derivatives		Amount		Derivatives		Derivatives		Amount		Derivatives		Derivatives		Amount		Derivatives		Derivatives
Cash flow hedges
Interest rate contracts	$	10,600	$	2	$	164	$	15,459	$	19	$	199	$	2,983	$	4	$	—	$	6,998	$	2	$	149
Fair value hedges
Interest rate contracts	500		—		—		500		3		—		500		—		—		500		—		—
Not designated as hedging instruments:
Trading
Interest rate contracts	154,986		899		628		149,229		1,074		988		118,198		521		654		132,214		878		646
Commodity contracts	1,672		74		53		2,825		145		112		710		44		30		1,244		50		33
Foreign exchange contracts	6,663		241		139		5,981		217		131		8,488		314		203		7,053		250		146
Equity contracts	1,547		162		161		2,385		165		164		912		58		55		1,496		139		144
Other contracts	79		—		—		4		—		—		88		—		—		4		—		—
Total Trading	164,947		1,376		981		160,424		1,601		1,395		128,396		937		942		142,011		1,317		969
Other risk management	1,039		1		23		1,045		3		90		1,389		11		8		1,345		3		9
Total derivative instruments	$	177,086	$	1,379	$	1,168	$	177,428	$	1,626	$	1,684	$	133,268	$	952	$	950	$	150,854	$	1,322	$	1,127

We recognized net ~~losses~~gains of $3$51 million and $9$4 million on other risk management derivatives for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017, ~~respectively, and net gains of $2 million and net losses of $37 million on other risk management derivatives for the three and nine months ended September 30, 2016,~~ respectively, 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.

8176

Table of Contents

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

Cash Flow Hedges

The Company uses interest rate swaps to hedge the risk of changes in cash flows attributable to changes in the designated benchmark interest rate on LIBOR indexed loans, and to a lesser extent, to hedge interest rate risk on rollover debt.

The Company used interest rate swaps with a notional amount of ~~$10.4~~$2.8 billion at ~~September 30, 2017~~March 31, 2018 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. The Company used interest rate swaps with a notional amount of ~~$200~~$183 million at ~~September 30, 2017~~March 31, 2018 to hedge the risk of changes in cash flows attributable to changes in the designated benchmark interest rate on LIBOR indexed short-term borrowings. At ~~September 30, 2017,~~March 31, 2018, the weighted average remaining life of the active cash flow hedges was ~~3.6~~4.1 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 ~~September 30, 2017,~~March 31, 2018, the Company expects to reclassify approximately ~~$11~~$55 million of ~~income~~losses from AOCI as a reduction to net interest income during the twelve months ending ~~September 30, 2018.~~March 31, 2019. This amount could differ from amounts actually realized due to changes in interest rates, hedge terminations and the addition of other hedges subsequent to ~~September 30, 2017.~~March 31, 2018.

The following ~~tables present~~table presents the amount and location of the net gains and losses recorded in the Company’s consolidated statements of income and changes in ~~stockholder’s~~stockholders' equity for derivatives designated as cash flow hedges for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 and ~~2016:~~2017.


	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)				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 September 30,						For the Three Months Ended September 30,					For the Three Months Ended September 30,				For the Three Months Ended March 31,							For the Three Months Ended March 31,					For the Three Months Ended March 31,
(Dollars in millions)	2017		2016			Location	2017		2016		Location	2017		2016		2018			2017			Location	2018		2017		Location	2018		2017
Derivatives in cash flow hedging relationships
						Interest income	$	11	$	43												Interest income	$	—	$	29
Interest rate contracts	$	6	$	(60	)	Interest expense	—		—		Noninterest expense	$	—	$	—	$	(79	)	$	(19	)	Interest expense	—		—		Noninterest expense	$	—	$	2
Total	$	6	$	(60	)		$	11	$	43		$	—	$	—	$	(79	)	$	(19	)		$	—	$	29		$	—	$	2

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 Nine Months Ended September 30, For the Nine Months Ended September 30, For the Nine Months Ended September 30,
(Dollars in millions) 2017 2016 Location 2017 2016 Location 2017 2016
Derivatives in cash flow hedging relationships

Interest income $ 60
$ 127

Interest rate contracts $ 42
$ 341
Interest expense —
—
Noninterest expense $ 3
$ 1
Total $ 42
$ 341
$ 60
$ 127
$ 3
$ 1

~~Table of Contents~~

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

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.

Table of Contents

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 nine~~ months ended ~~September 30, 2017~~March 31, 2018 and ~~2016, respectively:~~2017.

For the Three Months Ended September 30, 2017 For the Nine Months Ended September 30, 2017
(Dollars in millions) Derivative Hedged Item Hedge Ineffectiveness Derivative Hedged Item Hedge Ineffectiveness

Interest rate risk on long-term debt $ (1 ) $ 1
$ —
$ (2 ) $ 1
$ (1 )
Total $ (1 ) $ 1
$ —
$ (2 ) $ 1
$ (1 )



	For the Three Months Ended March 31, 2018
(Dollars in millions)	Derivative			Hedged Item		Hedge Ineffectiveness
(Dollars in millions)	Derivative			Hedged Item		Hedge Ineffectiveness
Interest rate risk on long-term debt	$	(2	)	$	2	$	—
Total	$	(2	)	$	2	$	—

For the Three Months Ended September 30, 2016 For the Nine Months Ended September 30, 2016
(Dollars in millions) Derivative Hedged Item Hedge Ineffectiveness Derivative Hedged Item Hedge Ineffectiveness

Interest rate risk on long-term debt $ (4 ) $ 4
$ —
$ 5
$ (5 ) $ —
Total $ (4 ) $ 4
$ —
$ 5
$ (5 ) $ —



	For the Three Months Ended March 31, 2017
(Dollars in millions)	Derivative			Hedged Item		Hedge Ineffectiveness
(Dollars in millions)	Derivative			Hedged Item		Hedge Ineffectiveness
Interest rate risk on long-term debt	$	(2	)	$	1	$	(1	)
Total	$	(2	)	$	1	$	(1	)

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's market-linked CDs 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 nine~~ months ended ~~September 30, 2017~~March 31, 2018 and ~~2016:~~2017.

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 Nine Months Ended
(Dollars in millions) September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Trading derivatives:
Interest rate contracts $ (11 ) $ 12
$ (69 ) $ (6 )
Equity contracts —
31
—
40
Foreign exchange contracts 11
11
32
29
Commodity contracts —
1
1
2
Total $ —
$ 55
$ (36 ) $ 65

~~Table of Contents~~

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



	Gain or (Loss) Recognized in Income on Derivative Instruments
	For the Three Months Ended
(Dollars in millions)	March 31, 2018		March 31, 2017
Trading derivatives:
Interest rate contracts	$	113	$	(22	)
Equity contracts	17		—
Foreign exchange contracts	9		10
Total	$	139	$	(12	)

Offsetting Assets and Liabilities

The Company primarily enters into derivative contracts and repurchase agreements with counterparties utilizing 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. For additional information related to offsetting of financial assets and liabilities, refer to Note 5 to these ~~consolidated financial statements.~~Consolidated Financial Statements.

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 ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 and ~~2016:~~2017.


(Dollars in millions)	Before Tax Amount			Tax Effect			Net of Tax			Before Tax Amount			Tax Effect			Net of Tax
For the Three Months Ended September 30, 2017
For the Three Months Ended March 31, 2018
Cash flow hedge activities:
Unrealized net gains (losses) on hedges arising during the period	$	6		$	(2	)	$	4		$	(79	)	$	21		$	(58	)
Reclassification adjustment for net (gains) losses on hedges included in interest income for loans and interest expense on long-term debt	(11		)	4			(7		)	—			—			—
Net change	(5		)	2			(3		)	(79		)	21			(58		)
Securities:
Unrealized holding gains (losses) arising during the period on securities available for sale	32			(14		)	18			(262		)	69			(193		)
Reclassification adjustment for net (gains) losses on securities available for sale included in securities gains, net	(6		)	2			(4		)
Less: accretion of fair value adjustment on securities available for sale	(1		)	—			(1		)
Amortization of net unrealized (gains) losses on held to maturity securities	6			(2		)	4			4			(1		)	3
Net change	31			(14		)	17			(258		)	68			(190		)
Foreign currency translation adjustment	7			(3		)	4			(3		)	1			(2		)
Pension and other benefits:
Amortization of prior service credit ⁽¹⁾	(12		)	5			(7		)	(10		)	2			(8		)
Recognized net actuarial (gain) loss⁽¹⁾	21			(7		)	14			24			(6		)	18
Net change	9			(2		)	7			14			(4		)	10
Other	1			—			1			(1		)	—			(1		)
Net change in AOCI	$	43		$	(17	)	$	26		$	(327	)	$	86		$	(241	)


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


(Dollars in millions)	Before Tax Amount			Tax Effect			Net of Tax			Before Tax Amount			Tax Effect			Net of Tax
For the Three Months Ended September 30, 2016
For the Three Months Ended March 31, 2017
Cash flow hedge activities:
Unrealized net gains (losses) on hedges arising during the period	$	(60	)	$	25		$	(35	)	$	(19	)	$	7		$	(12	)
Reclassification adjustment for net (gains) losses on hedges included in interest income for loans and interest expense on long-term debt	(43		)	19			(24		)	(29		)	11			(18		)
Net change	(103		)	44			(59		)	(48		)	18			(30		)
Securities:
Unrealized holding gains (losses) arising during the period on securities available for sale	25			(10		)	15			56			(23		)	33
Reclassification adjustment for net (gains) losses on securities available for sale included in securities gains, net	(24		)	9			(15		)	(2		)	1			(1		)
Amortization of net unrealized (gains) losses on held to maturity securities	6			(2		)	4			5			(2		)	3
Net change	7			(3		)	4			59			(24		)	35
Foreign currency translation adjustment	(2		)	1			(1		)	1			—			1
Pension and other benefits:
Amortization of prior service credit ⁽¹⁾	(8		)	4			(4		)	(12		)	5			(7		)
Recognized net actuarial (gain) loss⁽¹⁾	22			(9		)	13			23			(9		)	14
Pension and other benefits arising during the period	13			(6		)	7
Net change	27			(11		)	16			11			(4		)	7
Other	(1		)	—			(1		)
Net change in AOCI	$	(72	)	$	31		$	(41	)	$	23		$	(10	)	$	13


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

~~Table of Contents~~

~~Note 10—Accumulated Other Comprehensive Income (Continued)~~

(Dollars in millions)
Before
Tax
Amount

Tax
Effect

Net of
Tax
For the Nine Months Ended September 30, 2017
Cash flow hedge activities:
Unrealized net gains (losses) on hedges arising during the period $ 42
$ (16 ) $ 26
Reclassification adjustment for net (gains) losses on hedges included in interest income for loans and interest expense on long-term debt (60 ) 23
(37 )
Net change (18 ) 7
(11 )
Securities:
Unrealized holding gains (losses) arising during the period on securities available for sale 129
(52 ) 77
Reclassification adjustment for net (gains) losses on securities available for sale included in securities gains, net (15 ) 6
(9 )
Less: accretion of fair value adjustment on securities available for sale (1 ) —
(1 )
Amortization of net unrealized (gains) losses on held to maturity securities 15
(6 ) 9
Net change 128
(52 ) 76
Foreign currency translation adjustment 12
(5 ) 7
Pension and other benefits:
Amortization of prior service credit⁽¹⁾
(36 ) 14
(22 )
Recognized net actuarial gain (loss)⁽¹⁾
67
(25 ) 42
Net change 31
(11 ) 20
Other 1
—
1
Net change in AOCI $ 154
$ (61 ) $ 93


~~(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 Nine Months Ended September 30, 2016
Cash flow hedge activities:
Unrealized net gains (losses) on hedges arising during the period $ 341
$ (133 ) $ 208
Reclassification adjustment for net (gains) losses on hedges included in interest income for loans and interest expense on long-term debt (127 ) 50
(77 )
Net change 214
(83 ) 131
Securities:
Unrealized holding gains (losses) arising during the period on securities available for sale 288
(114 ) 174
Reclassification adjustment for net (gains) losses on securities available for sale included in securities gains, net (55 ) 22
(33 )
Amortization of net unrealized (gains) losses on held to maturity securities 13
(4 ) 9
Net change 246
(96 ) 150
Foreign currency translation adjustment 6
(2 ) 4
Pension and other benefits:
Amortization of prior service credit ⁽¹⁾
(21 ) 9
(12 )
Recognized net actuarial gain (loss)⁽¹⁾
66
(26 ) 40
Pension and other benefits arising during the period 13
(6 ) 7
Net change 58
(23 ) 35
Other (1 ) —
(1 )
Net change in AOCI $ 523
$ (204 ) $ 319


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

8679

Table of Contents

Note 10—Accumulated Other Comprehensive Income (Continued)

The following ~~tables present~~table presents the change in accumulated other comprehensive loss ~~balances:~~balances.


For the Three Months Ended September 30, 2016 and 2017:
For the Three Months Ended March 31, 2017 and 2018:																					For the Three Months Ended March 31, 2017 and 2018:
	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				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)															Other			Accumulated Other Comprehensive Loss				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
Balance, June 30, 2016	Net Unrealized Gains (Losses) on Cash Flow Hedges			$	Net Unrealized Gains (Losses) on Securities	228		Foreign Currency Translation Adjustment			$	Pension and Other Postretirement Benefits Adjustment	(6	)	$	(19	)	$	(593	)		$	—		$	(390	)
Balance, December 31, 2016																						$	(77	)	$	(208	)	$	(22	)	$	(589	)	$	—		$	(896	)
Other comprehensive income (loss) before reclassifications	(35		)		19			(1		)		—			—			(17		)		(12		)	36			1			—			—			25
Amounts reclassified from AOCI	(24		)		(15		)	—				16			(1		)	(24		)		(18		)	(1		)	—			7			—			(12		)
Balance, September 30, 2016	$	169			$	(2	)	$	(20	)		$	(577	)	$	(1	)	$	(431	)
Balance, June 30, 2017	$	(85	)		$	(149	)	$	(19	)		$	(576	)	$	—		$	(829	)
Balance, March 31, 2017																						$	(107	)	$	(173	)	$	(21	)	$	(582	)	$	—		$	(883	)
Balance, December 31, 2017																						$	(174	)	$	(233	)	$	(19	)	$	(600	)	$	—		$	(1,026	)
Other comprehensive income (loss) before reclassifications	4				18			4				—			—			26				(58		)	(193		)	(2		)	—			(1		)	(254		)
Amounts reclassified from AOCI	(7		)		(1		)	—				7			1			—				—			3			—			10			—			13
Balance, September 30, 2017	$	(88	)		$	(132	)	$	(15	)		$	(569	)	$	1		$	(803	)
Transfer to additional paid-in capital⁽¹⁾																						—			—			21			—			—			21
Balance, March 31, 2018																						$	(232	)	$	(423	)	$	—		$	(590	)	$	(1	)	$	(1,246	)

For the Nine Months Ended September 30, 2016 and 2017:

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, December 31, 2015 $ 38
$ (152 ) $ (24 ) $ (612 ) $ —
$ (750 )
Other comprehensive income (loss) before reclassifications 208
183
4
—
—
395
Amounts reclassified from AOCI (77 ) (33 ) —
35
(1 ) (76 )
Balance, September 30, 2016 $ 169
$ (2 ) $ (20 ) $ (577 ) $ (1 ) $ (431 )
Balance, December 31, 2016 $ (77 ) $ (208 ) $ (22 ) $ (589 ) $ —
$ (896 )
Other comprehensive income (loss) before reclassifications 26
77
7
—
—
110
Amounts reclassified from AOCI (37 ) (1 ) —
20
1
(17 )
Balance, September 30, 2017 $ (88 ) $ (132 ) $ (15 ) $ (569 ) $ 1
$ (803 )


(1)	Transfer of accumulated foreign currency translation to additional paid-in capital resulted from the transfer of the Company's investment in a Canadian entity to MUFG Bank, Ltd.

Note 11—Employee Pension and Other Postretirement Benefits

The following ~~tables summarize~~table summarizes the components of net periodic benefit cost for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 and ~~2016.~~2017. The components of net periodic benefit cost other than the service cost component are included in other noninterest expense in the income statement.


	Pension Benefits						Other Postretirement Benefits						Superannuation, SERP and ESBP				Pension Benefits						Other Postretirement Benefits						Superannuation, SERP and ESBP
	For the Three Months Ended September 30,						For the Three Months Ended September 30,						For the Three Months Ended September 30,				For the Three Months Ended March 31,						For the Three Months Ended March 31,						For the Three Months Ended March 31,
(Dollars in millions)	2017			2016			2017			2016			2017		2016		2018			2017			2018			2017			2018		2017
Components of net periodic benefit cost:
Service cost	$	18		$	24		$	1		$	2		$	—	$	1	$	19		$	19		$	1		$	2		$	—	$	—
Interest cost	25			25			2			2			1		—		25			25			2			2			1		1
Expected return on plan assets	(64		)	(59		)	(5		)	(5		)	—		—		(67		)	(64		)	(5		)	(5		)	—		—
Amortization of prior service credit	(7		)	(5		)	(5		)	(3		)	—		—		(6		)	(7		)	(4		)	(5		)	—		—
Recognized net actuarial loss	19			19			2			2			—		1		22			19			1			3			1		1
Total net periodic benefit cost	$	(9	)	$	4		$	(5	)	$	(2	)	$	1	$	2
Total net periodic benefit (income) cost																	$	(7	)	$	(8	)	$	(5	)	$	(3	)	$	2	$	2

Pension Benefits Other Postretirement Benefits
Superannuation,
SERP and
ESBP
For the Nine Months Ended September 30, For the Nine Months Ended September 30, For the Nine Months Ended September 30,
(Dollars in millions) 2017 2016 2017 2016 2017 2016
Components of net periodic benefit cost:
Service cost $ 53
$ 69
$ 4
$ 6
$ —
$ 2
Interest cost 75
77
6
7
2
1
Expected return on plan assets (191 ) (177 ) (14 ) (14 ) —
—
Amortization of prior service credit (20 ) (14 ) (16 ) (7 ) —
—
Recognized net actuarial loss 59
57
6
7
2
2
Total net periodic benefit cost $ (24 ) $ 12
$ (14 ) $ (1 ) $ 4
$ 5

Note 12—Commitments, Contingencies and Guarantees

The following table summarizes the Company's commitments:


(Dollars in millions)	September 30, 2017		March 31, 2018
Commitments to extend credit	$	30,425	$	31,294
Issued standby and commercial letters of credit	5,551		5,217
Commitments to enter into forward-starting resale agreements	1,514		1,504
Other commitments	1,577		624

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

Standby and commercial letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit 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 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 September 30, 2017,~~As of March 31, 2018, the carrying amount of the Company's risk participations in bankers' acceptances and standby and commercial letters of credit totaled $3 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 collateralized financing activities, commitments to fund principal investments, other securities, and residual value guarantees.

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 occasionally enters into financial guarantee contracts where a premium is received from another financial institution counterparty to guarantee a portion of the credit risk on interest rate swap contracts entered into between the financial institution and its customer. The Company becomes liable to pay the financial institution only if the financial institution is unable to collect amounts owed to them by their customer. As of ~~September 30, 2017,~~March 31, 2018, the current exposure to loss under these contracts totaled ~~$12~~$2 million, and the maximum potential exposure to loss in the future was estimated at ~~$40~~$27 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.

Note 13—Business Segments

During the second quarter of 2017, the composition of the ~~Company’s~~Company's 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 Investment Banking and Markets segment, including its products and services, into the activities performed within various other segments. ~~We now have~~The Company has four reportable segments: Regional Bank, U.S. Wholesale & Investment Banking, Transaction Banking, and MUFG Securities Americas. Prior period results have been revised to conform to the current period presentation.

Regional Bank

The Regional Bank provides banking products and services to ~~individual~~individuals, businesses, and ~~business~~trust customers ~~in California, Washington and Oregon~~ through five ~~major business lines.~~lines of business.

Consumer Banking serves consumers and small businesses through ~~349~~346 full-service branches, digital channels, call centers, ATMs and alliances with other financial institutions. Products and services include checking and deposit accounts; residential mortgage loans; consumer loans; home equity lines of credit; credit cards; bill and loan payment services; and merchant services.

Commercial Banking provides commercial and asset-based loans to clients across a wide range of industries with annual revenues up to $1 billion. Through partnerships with other areas of the Bank, Commercial Banking clients also have access to non-credit products and services including global treasury management, capital markets solutions, foreign exchange, ~~and~~ interest rate risk and commodity risk management products and services.

Real Estate Industries serves professional real estate investors and developers with products such as construction loans, commercial mortgages, bridge financing and unsecured financing. Property types supported include apartment, office, retail, industrial and single-family residential on the West Coast and in select metropolitan areas across the country. Real Estate Industries also makes tax credit investments in affordable housing projects through its Community Development Finance unit. Through partnerships with other areas of the bank, Real Estate Industries clients also have access to non-credit products and services including global treasury management, capital markets solutions, foreign exchange, ~~and~~ interest rate risk and commodity risk management products and services.

Wealth Markets serves corporate, institutional, non-profit and individual clients. Capabilities include Wealth Planning / Trust & Estate Services; Investment Management through HighMark Capital Management, Inc., an SEC-registered investment advisory firm wholly-owned by the bank; Brokerage through UnionBanc Investment Services, LLC, an SEC-registered broker-dealer/investment advisory firm wholly-owned by the bank; and Private Wealth Management.

PurePoint Financial serves consumers through a national deposit platform offering savings accounts and CD products to customers through an online platform with services provided through a call center and a network of financial centers in New York, Florida, Illinois and Texas.

U.S. Wholesale & Investment Banking

Note 13—Business Segments (Continued)

Transaction Banking

MUFG Securities Americas

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." Certain of the transferred IHC entities are not measured using a "market view" perspective.

"Other" includes the MUFG Fund Services segment, Markets segment, Asian Corporate Banking segment and Corporate Treasury. MUFG Fund Services provides comprehensive investment fund administrative solutions. Markets provides risk management solutions, including foreign exchange, interest rate and energy risk management solutions. 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~~MUFG Bank, Ltd. 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 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 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

Note 13—Business Segments (Continued)

usage. During the normal course of business, the Company occasionally changes or updates its management accounting methodologies or organizational structure. Certain of the transferred IHC entities are not measured using management accounting methodologies.


As of and for the Three Months Ended September 30, 2017:
As of and for the Three Months Ended March 31, 2018:																As of and for the Three Months Ended March 31, 2018:
(Dollars in millions)	Regional Bank		U.S. Wholesale & Investment Banking			Transaction Banking			MUSA		Other			MUFG Americas Holdings Corporation			Regional Bank		U.S. Wholesale & Investment Banking			Transaction Banking			MUSA		Other			MUFG Americas Holdings Corporation
Results of operations - Market View ⁽¹⁾
Net interest income (expense)	$	511	$	110		$	146		$	61	$	(12	)	$	816		$	523	$	103		$	150		$	54	$	(5	)	$	825
Noninterest income (expense)	113		88			45			100		169			515			117		(106		)	38			88		245			382
Total revenue	624		198			191			161		157			1,331			640		(3		)	188			142		240			1,207
Noninterest expense	500		93			114			119		156			982			502		99			119			116		248			1,084
(Reversal of) provision for credit losses	20		(5		)	(1		)	—		4			18			8		(15		)	(1		)	—		6			(2		)
Income (loss) before income taxes and including noncontrolling interests	104		110			78			42		(3		)	331			130		(87		)	70			26		(14		)	125
Income tax expense (benefit)	22		16			30			16		25			109			23		(53		)	18			7		(37		)	(42		)
Net income (loss) including noncontrolling interests	82		94			48			26		(28		)	222			107		(34		)	52			19		23			167
Deduct: net loss from noncontrolling interests	—		—			—			—		10			10
Deduct: net (income) loss from noncontrolling interests																	—		—			—			—		(1		)	(1		)
Net income (loss) attributable to MUAH	$	82	$	94		$	48		$	26	$	(18	)	$	232		$	107	$	(34	)	$	52		$	19	$	22		$	166

Total assets, end of period	$	66,152	$	21,853		$	1,728		$	32,538	$	32,581		$	154,852		$	69,119	$	20,977		$	1,584		$	32,661	$	32,969		$	157,310


(1)	The transferred IHC entities are not measured using a "market view" perspective.


As of and for the Three Months Ended September 30, 2016:
As of and for the Three Months Ended March 31, 2017:														As of and for the Three Months Ended March 31, 2017:
(Dollars in millions)	Regional Bank		U.S. Wholesale & Investment Banking		Transaction Banking		MUSA		Other			MUFG Americas Holdings Corporation			Regional Bank		U.S. Wholesale & Investment Banking			Transaction Banking		MUSA		Other			MUFG Americas Holdings Corporation
Results of operations - Market View ⁽¹⁾
Net interest income (expense)	$	481	$	132	$	125	$	46	$	(11	)	$	773		$	498	$	115		$	136	$	59	$	(13	)	$	795
Noninterest income (expense)	118		109		39		96		208			570			112		97			39		84		156			488
Total revenue	599		241		164		142		197			1,343			610		212			175		143		143			1,283
Noninterest expense	459		96		110		99		188			952			496		101			120		105		184			1,006
(Reversal of) provision for credit losses	23		19		1		—		30			73			2		(10		)	—		—		(22		)	(30		)
Income (loss) before income taxes and including noncontrolling interests	117		126		53		43		(21		)	318			112		121			55		38		(19		)	307
Income tax expense (benefit)	29		31		21		17		(1		)	97			25		17			22		15		4			83
Net income (loss) including noncontrolling interests	88		95		32		26		(20		)	221			87		104			33		23		(23		)	224
Deduct: net (income) loss from noncontrolling interests	—		—		—		—		39			39			—		—			—		—		5			5
Net income (loss) attributable to MUAH	$	88	$	95	$	32	$	26	$	19		$	260		$	87	$	104		$	33	$	23	$	(18	)	$	229

Total assets, end of period	$	63,343	$	25,646	$	1,907	$	30,526	$	29,677		$	151,099		$	63,987	$	23,292		$	2,122	$	30,472	$	29,805		$	149,678


(1)	The transferred IHC entities are not measured using a "market view" perspective.

~~Note 13—Business Segments (Continued)~~

As of and for the Nine Months Ended September 30, 2017:
(Dollars in millions) Regional Bank U.S. Wholesale & Investment Banking Transaction Banking MUSA Other MUFG Americas Holdings Corporation
Results of operations - Market View ⁽¹⁾

Net interest income (expense) $ 1,514
$ 337
$ 421
$ 178
$ (45 ) $ 2,405
Noninterest income (expense) 341
265
124
272
490
1,492
Total revenue 1,855
602
545
450
445
3,897
Noninterest expense 1,505
281
348
336
475
2,945
(Reversal of) provision for loan losses 40
(53 ) (1 ) —
(20 ) (34 )
Income (loss) before income taxes and including noncontrolling interests 310
374
198
114
(10 ) 986
Income tax expense (benefit) 68
56
78
45
8
255
Net income (loss) including noncontrolling interests 242
318
120
69
(18 ) 731
Deduct: net loss from noncontrolling interests —
—
—
—
25
25
Net income (loss) attributable to MUAH $ 242
$ 318
$ 120
$ 69
$ 7
$ 756

Total assets, end of period $ 66,152
$ 21,853
$ 1,728
$ 32,538
$ 32,581
$ 154,852

~~(1)~~

~~The transferred IHC entities are not measured using a "market view" perspective.~~

As of and for the Nine Months Ended September 30, 2016:
(Dollars in millions) Regional Bank U.S. Wholesale & Investment Banking Transaction Banking MUSA Other MUFG Americas Holdings Corporation
Results of operations - Market View ⁽¹⁾

Net interest income (expense) $ 1,427
$ 422
$ 350
$ 106
$ (54 ) $ 2,251
Noninterest income (expense) 344
277
130
255
603
1,609
Total revenue 1,771
699
480
361
549
3,860
Noninterest expense 1,355
296
338
278
559
2,826
(Reversal of) provision for loan losses 17
148
—
—
31
196
Income (loss) before income taxes and including noncontrolling interests 399
255
142
83
(41 ) 838
Income tax expense (benefit) 104
36
56
33
15
244
Net income (loss) including noncontrolling interests 295
219
86
50
(56 ) 594
Deduct: net (income) loss from noncontrolling interests —
(1 ) —
—
63
62
Net income (loss) attributable to MUAH $ 295
$ 218
$ 86
$ 50
$ 7
$ 656

Total assets, end of period $ 63,343
$ 25,646
$ 1,907
$ 30,526
$ 29,677
$ 151,099


~~(1)~~	~~The transferred IHC entities are not measured using a "market view" perspective.~~

~~Note 14—Related Party Transactions~~

MUAH is a financial holding company, bank holding company and intermediate holding company whose principal subsidiaries are MUFG Union Bank, N.A. and MUFG Securities Americas Inc. (formerly Mitsubishi UFJ Securities (USA), Inc.). It is owned by BTMU and MUFG. BTMU is a wholly-owned subsidiary of MUFG.

On July 1, 2016, MUFG 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. On July 1, 2017, MUFG transferred interests in its remaining U.S. subsidiaries to MUAH. The transferred subsidiaries had assets of $1.0 billion, including goodwill and intangibles of $196 million, and liabilities of $601 million, all of which were transferred at carrying value. In consideration for the transferred assets and liabilities, MUAH issued 3,267,433 shares to BTMU and MUFG.

The Company provides various business, banking, financial, administrative and support services, and facilities for BTMU in connection with the operation and administration of BTMU's business in the U.S. (including BTMU's U.S. branches). The Bank and BTMU participate in a master services agreement whereby the Bank earns fee income in exchange for services and facilities provided.

In addition to the above, the Company conducts transactions with affiliates which include BTMU, MUFG and other entities which are directly or indirectly owned by MUFG. The transactions include capital market transactions, facilitating securities transactions, secured financing transactions, advisory services, clearing and operational support. Under services level agreements the Company provides services to and receives services from various affiliates. The Company also has referral agreements with its affiliates and pays referral fees from investment banking revenue earned.

~~Related party transactions reflect market-based pricing. These transactions are subject to federal and state statutory and regulatory restrictions and limitations.~~

~~The tables and discussion below represent the more significant related party balances and income (expenses) generated by related party transactions.~~

~~As of September 30, 2017 and December 31, 2016, assets and liabilities with affiliates consisted of the following:~~

(Dollars in millions) September 30, 2017 December 31, 2016
Assets:
Cash and cash equivalents $ 43
$ 102
Securities borrowed or purchased under resale agreements
3,345
2,765
Other assets 118
161
Liabilities:
Deposits $ 379
$ 623
Securities loaned or sold under repurchase agreements
1,144
385
Commercial paper and other short-term borrowings 909
1,372
Long-term debt 6,243
6,042
Other liabilities 47
63

~~Table of Contents~~

~~Note 14—Related Party Transactions (Continued)~~

~~Revenue and expenses with affiliates for the three and nine months ended September 30, 2017 were as follows:~~

For the Three Months Ended
September 30, For the Nine Months Ended September 30,
(Dollars in millions) 2017 2017
Interest Income
Securities borrowed or purchased under resale agreements
$ 13
$ 28
Interest Expense
Commercial paper and other short-term borrowings 2
5
Long-term debt 37
97
Securities loaned or sold under repurchase agreements
1
4
Noninterest Income
Fees from affiliates 209
639
Other, net 3
(9 )
Noninterest Expense
Other 34
79

~~At September 30, 2017, the Company had $1.4 billion in uncommitted, unsecured borrowing facilities~~ ~~with affiliates. See Note 6 and Note 7 to these consolidated financial statements for more information on debt due to affiliates.~~

At September 30, 2017 and December 31, 2016, the Company had derivative contracts with affiliates totaling $2.7 billion and $1.6 billion, respectively, in notional balances, with $2 million and $72 million in net unrealized gains at September 30, 2017 and December 31, 2016, respectively.

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 ~~2016~~2017 Form 10-K, which is incorporated by reference ~~herein; in addition to the following information.~~

~~Industry Factors~~

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

We are subject to significant federal and state banking and securities regulation and supervision, which is primarily for the benefit and protection of our depositors and other customers and the Federal Deposit Insurance Fund and not for the benefit of investors in our securities. In the past, our business has been materially affected by these regulations. This can be expected to continue in the future. Laws, regulations or policies, including accounting standards and interpretations, currently affecting us and our subsidiaries may change at any time. Regulatory authorities may also change their interpretation of and intensify their examination of compliance with these statutes and regulations. Therefore, our business may be adversely affected by changes in laws, regulations, policies or interpretations or regulatory approaches to compliance and enforcement, as well as by supervisory action or criminal proceedings taken as a result of noncompliance, which could result in the imposition of significant penalties or fines. Changes in laws and regulations may also increase our expenses by imposing additional supervision, fees, taxes or restrictions on our operations. Compliance with laws and regulations, especially new laws and regulations, increases our operating expenses and may divert management attention from our business operations.

In July 2010, President Obama signed into law the Dodd-Frank Act. The Dodd-Frank Act was adopted in response to the financial crisis that ensued in 2008. The Act, among other things, created a new CFPB with broad powers to regulate consumer financial products such as credit cards and mortgages, created a Financial Stability Oversight Council comprised of the heads of other regulatory agencies, has led to new capital requirements from U.S. federal banking agencies, placed new limits on electronic debit card interchange fees, and required the SEC and national stock exchanges to adopt significant new corporate governance and executive compensation reforms.

This important legislation has affected U.S. financial institutions, including MUAH and MUB, in many ways, some of which have increased, or may increase in the future, the cost of doing business and present other challenges to the financial services industry. For additional information regarding the impact on our business of the Dodd-Frank Act and related regulations, see "Supervision and Regulation - Principal Federal Banking Laws - Dodd-Frank Act and Related Regulations" in Part I, Item 1. of our 2016 Form 10-K. Due to our size of over $50 billion in assets, we are regarded as systemically significant to the financial health of the U.S. economy and, as a result, are subject to additional regulations as discussed further in "Supervision and Regulation" in Part I, Item 1. of our 2016 Form 10-K.

Following the financial crisis, the Federal Reserve and the other U.S. federal banking agencies adopted final rules making significant changes to the U.S. regulatory capital framework for U.S. banking organizations. For additional information, see Supervision and Regulation - Regulatory Capital and Liquidity Standards in Part I, Item I. in our 2016 Form 10-K and Management’s Discussion and Analysis of Financial Condition and Results of Operations - Regulatory Capital in Part II, Item 7. in our 2016 Form 10-K.

The need to maintain more and higher quality capital under the banking agencies capital rules, as well as greater liquidity, could limit the Company’s business activities, including lending, and its ability to expand,

either organically or through acquisitions. It could also result in the Company taking steps to increase its capital or being limited in its ability to pay dividends or otherwise return capital to its shareholder, or selling or refraining from acquiring assets. In addition, the regulatory liquidity standards could require the Company to increase its holdings of highly liquid short-term investments, thereby reducing the Company’s ability to invest in longer-term or less liquid assets even if more desirable from a balance sheet management perspective.

The capital rules of the U.S. federal banking agencies as well as the various other regulations referred to above, along with other regulations which may be adopted in the future, may also generally increase our cost of doing business or lead us to stop, reduce or modify our offerings of various products.

Proposals to reform the housing finance market in the U.S. could also significantly affect our business. These proposals, among other things, consider reducing or eliminating over time the role of the GSEs (Fannie Mae and Freddie Mac) in guaranteeing mortgages and providing funding for mortgage loans, as well as the implementation of reforms relating to borrowers, lenders, and investors in the mortgage market, including reducing the maximum size of a loan that the GSEs can guarantee, phasing in a minimum down payment requirement for borrowers, improving underwriting standards, and increasing accountability and transparency in the securitization process. While the specific nature of these reforms and their impact on the financial services industry in general, and on MUB in particular, is uncertain at this time, such reforms, if enacted, are likely to have a substantial impact on the mortgage market and could potentially reduce our income from mortgage originations by increasing mortgage costs or lowering originations. The GSE reforms could also reduce real estate prices, which could reduce the value of collateral securing outstanding mortgage loans. This reduction of collateral value could negatively impact the value or perceived collectability of these mortgage loans and may increase our allowance for loan losses. Such reforms may also include changes to the Federal Home Loan Bank System, which could adversely affect a significant source of funding for lending activities by the banking industry, including the Bank. These reforms may also result in higher interest rates on residential mortgage loans, thereby reducing demand, which could have an adverse impact on our residential mortgage lending business. In addition, any impact of such changes upon the credit quality of GSE’s and therefore, upon agency MBS securities held by MUAH could result in material reductions in valuations, as well as impacts upon the agency MBS trading business of MUSA.

Several cities in the United States (including New York, Los Angeles, San Diego, San Francisco, San Jose and Seattle) have adopted responsible banking ordinances and other cities are considering the adoption of similar ordinances. These ordinances generally require banks that hold city government deposits to provide detailed accounts of their lending practices in low-income communities, as well as their participation in foreclosure prevention and home loan principal reduction programs. Performance under these ordinances is used as a basis for awarding the city’s financial services contracts. The adoption of these ordinances by municipalities for which the Bank is a provider of cash management or other banking services could result in increased regulatory and compliance costs and other operational costs and expenses, making this business less desirable to the Bank and potentially resulting in reduced opportunities for the Bank to provide these services. In August of 2015, the United States District Court for the Southern District of New York issued an order which invalidated the New York City ordinance on the ground that it was pre-empted by federal and state banking laws. Whether and to what extent other so-called responsible banking ordinances will be challenged and invalidated cannot be predicted at this time.

International laws, regulations and policies affecting us, our subsidiaries and the business we conduct may change at any time and affect our business opportunities and competitiveness in these jurisdictions. Due to our ownership by MUFG and BTMU, laws, regulations, policies, fines and other supervisory actions adopted or enforced by the Government of Japan, the Federal Reserve and other regulators may adversely affect our activities and investments and those of our subsidiaries in the future.

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

Additionally, our business is affected significantly by the fiscal and monetary policies of the U.S. federal government and its agencies. We are particularly affected by the policies of the Federal Reserve, which regulates the supply of money and credit in the U.S. Under the Dodd-Frank Act and a long-standing policy of the Federal

Reserve, a BHC is expected to act as a source of financial and managerial strength for its subsidiary banks. As a result of that policy, we may be required to commit financial and other resources to our subsidiary bank in circumstances where we might not otherwise do so. Among the instruments of monetary policy available to the Federal Reserve are (a) conducting open market operations in U.S. Government securities, (b) changing the discount rates on borrowings by depository institutions and the federal funds rate, and (c) imposing or changing reserve requirements against certain borrowings by banks and their affiliates. These methods are used in varying degrees and combinations to directly affect the availability of bank loans and deposits, as well as the interest rates charged on loans and paid on deposits. In September 2017, the Federal Reserve announced that, starting in October 2017, it would begin the process of reducing its $4.5 trillion balance sheet by ceasing the reinvestment of principal on the maturing bonds that it holds. The impact of the Federal Reserve’s unwinding of quantitative easing on the U.S. economy and financial markets cannot be predicted with certainty at this time; however, this change in the Federal Reserve’s monetary policy could result in increased interest rates, changes in customer deposit behavior, and volatility in the financial markets. The policies of the Federal Reserve can be expected to have a material effect on our business, prospects, results of operations and financial condition.

~~Refer to "Supervision and Regulation" in Part I, Item 1. in our 2016 Form 10-K for discussion of certain additional existing and proposed laws and regulations that may affect our business.~~

The increasing regulation of the financial services industry has required and can be expected to continue to require significant investments in technology, personnel or other resources. Our competitors may be subject to different or reduced degrees of regulation due to their asset size or types of products offered and may also be able to more efficiently utilize resources to comply with regulations and to more efficiently absorb increased regulatory compliance costs into their existing cost structure.

Neither the presidential administration of the U.S. President, nor the Congress has promulgated detailed proposals with respect to the oversight and regulation of the financial services industry. There could be significant changes in existing laws and regulations relevant to the industry or the introduction of new laws and regulations. In addition, substantial reform of the federal taxation system in the U.S., including a reduction in corporate and personal tax rates, has been mentioned by representatives of the new Administration as an important objective. While such reform could have positive effects on corporate profitability which could benefit the Company and its customers, there could be other potential adverse consequences such as a decrease in the value of tax credits on certain investments we may make. There could also be possible adverse consequences for the economy and the business climate, such as a large increase in federal deficits and increasing interest rates generally, including for the federal government’s borrowing costs. The potential long-run impact of these possible developments remains uncertain.

~~Company Factors~~

~~Adverse California economic conditions could adversely affect our business~~

At times in past years, economic conditions in California have been subject to various challenges, including significant deterioration in the residential real estate sector and the California state government’s budgetary and fiscal difficulties. While California home prices and the California economy in general, have experienced a recovery in recent years, there can be no assurance that the recovery will continue. Recent growth in home prices in some California markets may be unsustainable relative to market fundamentals, and home price declines may occur.

In addition, until 2013, the State of California had experienced budget shortfalls or deficits that led to protracted negotiations between the Governor and the State Legislature over how to address the budget gap. The California electorate approved, in the November 2012 general elections, certain increases in the rate of income taxation in California. However, there can be no assurance that the state’s fiscal and budgetary challenges will not recur. Also, municipalities and other governmental units within California have been experiencing budgetary difficulties, and several California municipalities have filed for protection under the Bankruptcy Code. As a result, concerns also have arisen regarding the outlook for the governmental obligations of California municipalities and other governmental units.

A substantial majority of our assets, deposits and interest and fee income is generated in California. As a result, poor economic conditions in California may cause us to incur losses associated with higher default rates and decreased collateral values in our loan portfolio. If the budgetary and fiscal difficulties of the California state government and California municipalities and other governmental units were to recur or economic conditions in

California decline, we expect that our level of problem assets could increase and our prospects for growth could be impaired. For approximately the past five years, California experienced severe drought conditions. While rainfall levels have improved since 2015, there can be no assurance that the drought will not return with consequent difficulties for the California economy, particularly in the agricultural sector. The long-run impact of this and other measures in response to the drought on the California economy cannot be predicted.

In addition, in October 2017, wildfires occurred in a number of California counties where the Bank has branches and does business. The fires resulted in numerous fatalities and injuries and substantial property damage to homes, businesses and infrastructure in several communities. The Bank’s management is actively assessing the potential adverse consequences for its business from these events. California and other Western states where the Bank does business have been the subject of other major wildfires or natural disasters and it can be expected that these events will continue to occur from time to time in the areas served by the Bank.

Item 6. Exhibits

EXHIBIT INDEX



Exhibit No.		Description
31.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002⁽¹⁾
31.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002⁽¹⁾
32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002⁽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⁽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 ~~September 30, 2017,~~March 31, 2018, 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 Stockholders' Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Financial Statements⁽¹⁾


(1)	Filed herewith.

(2)

Furnished herewith. 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.

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: ~~November 8, 2017~~May 9, 2018	By:	/s/ STEPHEN E. CUMMINGS
		Stephen E. Cummings President and Chief Executive Officer (Principal Executive Officer)
Date: ~~November 8, 2017~~May 9, 2018	By:	/s/ JOHANNES WORSOE
		Johannes Worsoe Chief Financial Officer (Principal Financial Officer)
Date: ~~November 8, 2017~~May 9, 2018	By:	/s/ ROLLAND D. JURGENS
		Rolland D. Jurgens Controller and Chief Accounting Officer (Principal Accounting Officer)

~~101~~88





Debt issued by other MUAH subsidiaries
Senior Debt due to BTMU:
Various floating rate borrowings due between March 2019 and May 2021. These notes, which bear interest above 3-month LIBOR had a weighted-average interest rate of 1.41% at September 30, 2017 and 0.99% at December 31, 2016	270		250
Various fixed rate borrowings due between February 2019 and June 2023 with a weighted-average interest rate of 2.10% (between 1.37% and 2.65%) at September 30, 2017 and 2.15% (between 1.71% and 2.44%) at December 31, 2016	340		384
Subordinated Debt due to Affiliate:
Various floating rate borrowings due between March 2018 and March 2019. These notes, which bear interest above 6-month LIBOR had a weighted-average interest rate of 2.95% (between 2.88% and 3.04%) at September 30, 2017 and 2.68% (between 2.61% and 2.77%) at December 31, 2016	185		185
Nonrecourse Debt due to BTMU:
Various floating rate nonrecourse borrowings due to BTMU between March 2018 and July 2023. These notes, which bear interest above 1- or 3-month LIBOR had a weighted-average interest rate of 3.32% (between 1.49% and 5.58%) at September 30, 2017 and 1.67% (between 0.25% and 2.41%) at December 31, 2016	247		127
Fixed rate nonrecourse borrowings due to BTMU between January 2019 and March 2023 which had an interest rate of 2.70% at September 30, 2017	82		—
Nonrecourse Debt:
Various floating rate nonrecourse borrowings due between October 2017 and May 2019. These notes, which bear interest above 1- or 3-month LIBOR had a weighted-average interest rate of 2.54% (between 2.08% and 3.35%) at September 30, 2017 and 2.04% (between 0.85% and 2.73%) at December 31, 2016	357		398
Fixed rate nonrecourse borrowings due December 2026 which had an interest rate of 5.34% at September 30, 2017 and December 31, 2016	37		39
Total debt issued by other MUAH subsidiaries	1,518		1,383
Total long-term debt	$	11,419	$	11,410



	September 30, 2017								Gain (Loss) For the Three Months Ended September 30, 2017			Gain (Loss) For the Nine Months Ended September 30, 2017
(Dollars in millions)	Fair Value		Level 1		Level 2		Level 3		Gain (Loss) For the Three Months Ended September 30, 2017			Gain (Loss) For the Nine Months Ended September 30, 2017
Loans:
Impaired loans	$	97	$	—	$	—	$	97	$	(21	)	$	(42	)
Other assets:
Software	—		—		—		—		(1		)	(4		)
Loans held for sale	7		—		—		7		(1		)	(3		)
Renewable energy investment	—		—		—		—		—			2
Consolidated LIHC VIE	81		—		—		81		(3		)	(11		)
Total	$	185	$	—	$	—	$	185	$	(26	)	$	(58	)



	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 Nine Months Ended September 30,					For the Nine Months Ended September 30,					For the Nine Months Ended September 30,
(Dollars in millions)	2017		2016		Location	2017		2016		Location	2017		2016
Derivatives in cash flow hedging relationships
					Interest income	$	60	$	127
Interest rate contracts	$	42	$	341	Interest expense	—		—		Noninterest expense	$	3	$	1
Total	$	42	$	341		$	60	$	127		$	3	$	1