MUFG Americas (UB) 10-Q 2014 Q1 Quarterly report

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TABLE OF CONTENTS

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

FORM 10-Q

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2014
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                        to

Commission File Number: 1-15081

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

Delaware	94-1234979
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
400 California Street, San Francisco, California	94104-1302
(Address of principal executive offices)	(Zip Code)
(Registrant's telephone number, including area code) (415) 765-2969

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

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate 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 þ    No o

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

Large accelerated filero	Accelerated filero
Non-accelerated filerþ(Do not check if a smaller reporting company)	Smaller reporting companyo

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

        Number of shares of Common Stock outstanding at April 30, 2014: 136,330,830

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

UnionBanCal Corporation and Subsidiaries

Table of Contents

PART I. FINANCIAL INFORMATION	41
Item 1. Financial Statements	41
Consolidated Statements of Income (Unaudited)	41
Consolidated Statements of Comprehensive Income (Unaudited)	42
Consolidated Balance Sheets (Unaudited)	43
Consolidated Statements of Changes in Stockholder's Equity (Unaudited)	44
Consolidated Statements of Cash Flows (Unaudited)	45
Note 1—Summary of Significant Accounting Policies, Nature of Operations and Other Developments	46
Note 2—Correction of Prior Period Amounts	47
Note 3—Business Combinations	48
Note 4—Securities	49
Note 5—Loans and Allowance for Loan Losses	56
Note 6—Variable Interest Entities	66
Note 7—Commercial Paper and Other Short-Term Borrowings	67
Note 8—Long-Term Debt	68
Note 9—Fair Value Measurement and Fair Value of Financial Instruments	69
Note 10—Derivative Instruments and Other Financial Instruments Used For Hedging	75
Note 11—Accumulated Other Comprehensive Loss	79
Note 12—Employee Pension and Other Postretirement Benefits	80
Note 13—Commitments, Contingencies and Guarantees	81
Note 14—Business Segments	82
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	6
Consolidated Financial Highlights	6
Introduction	8
Executive Overview	8
Financial Performance	11
Balance Sheet Analysis	14
Capital Management	16
Risk Management	21
Business Segments	32
Critical Accounting Estimates	38
Item 3. Quantitative and Qualitative Disclosures About Market Risk	40
Item 4. Controls and Procedures	40
PART II. OTHER INFORMATION	86
Item 1. Legal Proceedings	86
Item 1A. Risk Factors	86
Item 6. Exhibits	95
SIGNATURES	96

2

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 2013 Annual Report on 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 2013 Annual Report on Form 10-K, for factors to be considered when reading any forward-looking statements in this filing.

        This report includes forward-looking statements, which are subject to the "safe harbor" created by section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended. We may make forward-looking statements in our Securities and Exchange Commission (SEC) filings, press releases, news articles and when we are speaking on behalf of UnionBanCal Corporation. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. Often, they include the words "believe," "expect," "target," "anticipate," "intend," "plan," "seek," "estimate," "potential," "project," "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, our strategy to manage our interest rate risk profile, our outlook for short-term and long-term interest rates and their effect on our net interest margin, investment portfolio and our borrowers' ability to service their loans and on residential mortgage loans and refinancing

•

Our sensitivity to and management of market risk, including changes in interest rates, and the economic outlook within specific industries, for the U.S. in general, West Coast states in particular and foreign countries (including Japan and the Eurozone)

•

Pending and recent legislative and regulatory actions, and future legislative and regulatory developments, including the effects of legislation and other governmental measures, including the monetary policies of the Federal Reserve introduced in response to the 2008-2009 financial crises, and the following recession affecting the banking system, financial markets and the U.S. economy, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), changes to the deposit insurance assessment policies of the Federal Deposit Insurance Corporation (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

3

•

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

•

Regulatory 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 and credit migration trends and loss factors

•

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

•

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

•

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

•

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

•

Tax rates and taxes, the possible effect of changes in taxable profits of the U.S. operations of Mitsubishi UFJ Financial Group, Inc. (MUFG) on our state tax obligations and of expected tax credits or benefits

•

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

•

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

•

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

•

The impact of changes in our credit rating

•

Maintenance of casualty and liability insurance coverage appropriate for our operations

•

The relationship between our business and that of The Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU) and MUFG, the impact of their credit ratings, operations or prospects on our credit ratings and actions that may or may not be taken by BTMU and MUFG

•

Threats to the banking sector and our business due to cybersecurity issues and attacks

•

The reorganization of our affiliated HighMark Funds into shares of unaffiliated mutual funds and the impact on our business and activities

4

•

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

•

The objectives of our integrated business initiative and its near term effect on our balance sheet, earnings and capital ratios

•

The effect of the drought being experienced in California on its economy

•

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 Annual Report on 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.

5

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

Consolidated Financial Highlights

	For the Three Months Ended
(Dollars in millions)	March 31, 2014			March 31, 2013(1)			Percent Change
Results of operations:
Net interest income	$	683		$	653			5	%
Noninterest income		181			251			(28	)
Total revenue		864			904			(4	)
Noninterest expense		660			713			(7	)
Pre-tax, pre-provision income(2)		204			191			7
(Reversal of) provision for loan losses		(16	)		(3	)		(433	)
Income before income taxes and including noncontrolling interests		220			194			13
Income tax expense		50			50			—
Net income including noncontrolling interests		170			144			18
Deduct: Net loss from noncontrolling interests		5			4			25
Net income attributable to UnionBanCal Corporation (UNBC)	$	175		$	148			18
Balance sheet (period average):
Total assets	$	106,491		$	96,649			10	%
Total securities		22,611			21,824			4
Total loans held for investment		69,293			60,553			14
Earning assets		96,100			87,055			10
Total deposits		80,433			74,256			8
UNBC Stockholder's equity		14,390			12,584			14
Performance ratios:
Return on average assets(3)		0.66	%		0.61	%
Return on average UNBC stockholder's equity(3)		4.87			4.68
Efficiency ratio(4)		76.38			78.84
Adjusted efficiency ratio(5)		67.95			67.72
Net interest margin(3)(6)		2.87			3.04
Net loans charged-off (recovered) to average total loans held for investment(3)		(0.04	)		0.10
Net loans charged-off (recovered) to average total loans held for investment, excluding purchased credit-impaired loans and FDIC covered other real estate owned (OREO)(3)(12)		(0.04	)		0.08

	As of
	March 31, 2014			December 31, 2013
Balance sheet (end of period):
Total assets	$	107,237		$	105,894		1	%
Total securities		23,192			22,326		4
Total loans held for investment		69,933			68,312		2
Nonperforming assets		506			499		1
Core deposits(7)		70,665			69,155		2
Total deposits		81,179			80,101		1
Long-term debt		6,545			6,547		—
UNBC Stockholder's equity		14,460			14,215		2
Credit ratios:
Allowance for loan losses to total loans held for investment(8)		0.80	%		0.83	%
Allowance for loan losses to nonaccrual loans(8)		119.58			128.42
Allowance for credit losses to total loans held for investment(9)		1.01			1.02
Allowance for credit losses to nonaccrual loans(9)		151.35			158.30
Nonperforming assets to total loans held for investment and OREO		0.72			0.74
Nonperforming assets to total assets		0.47			0.48
Nonaccrual loans to total loans held for investment		0.67			0.65
Credit ratios, excluding purchased credit-impaired loans and FDIC covered OREO(10):
Allowance for loan losses to total loans held for investment(8)		0.80	%		0.84	%
Allowance for loan losses to nonaccrual loans(8)		123.14			132.82
Allowance for credit losses to total loans held for investment(9)		1.02			1.04
Allowance for credit losses to nonaccrual loans(9)		156.05			163.78
Nonperforming assets to total loans held for investment and OREO		0.68			0.66
Nonperforming assets to total assets		0.44			0.43
Nonaccrual loans to total loans held for investment		0.65			0.63
Capital ratios:
Common equity tier 1 risk-based capital ratio(11)		12.59	%		n/a
Tier 1 risk-based capital ratio(11)		12.62			12.41	%
Total risk-based capital ratio(11)		14.75			14.61
Tier 1 leverage ratio(11)		11.26			11.27
Tier 1 common capital ratio(12)		12.57			12.34
Tangible common equity ratio(13)		10.65			10.54
Common equity tier 1 risk-based capital ratio (U.S. Basel III standardized approach; fully phased-in)(14)		11.42			11.14

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(1)

During the third quarter of 2013, the Company corrected prior period errors related to the recognition of income and expense associated with market-linked certificates of deposits. The Company concluded that these errors were not material to the periods in which the corrections were made. For additional information, see Note 2 to our Consolidated Financial Statements in Part I, Item 1 "Financial Statements" of this Form 10-Q.

(2)

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 loan losses through a credit cycle.

(3)

Annualized.

(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 privatization-related expenses and fair value amortization/accretion, foreclosed asset expense and other credit costs, (reversal of) provision for losses on unfunded credit commitments, low income housing credit (LIHC) investment amortization expense, expenses of the LIHC consolidated variable interest entities (VIEs), merger costs related to acquisitions, certain costs related to productivity initiatives, and intangible asset amortization) as a percentage of adjusted total revenue (net interest income (taxable-equivalent basis) and noninterest income), excluding the impact of privatization, gains from productivity initiatives related to the sale of certain business units and premises, and other credit costs. 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. Refer to Part I, Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations"—"Noninterest Income and Noninterest Expense" of this Form 10-Q for further information.

(6)

Net interest margin is presented on a taxable-equivalent basis using the federal statutory tax rate of 35 percent.

(7)

Core deposits exclude brokered deposits, foreign time deposits and domestic time deposits greater than $250,000.

(8)

The allowance for loan losses ratios are calculated using the allowance for loan losses against end of period total loans held for investment or total nonaccrual loans, as appropriate.

(9)

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

(10)

These ratios exclude the impact of all purchased credit-impaired loans and FDIC covered OREO. Purchased credit-impaired loans and OREO related to the April 2010 acquisitions of certain assets and assumption of certain liabilities of Frontier Bank and Tamalpais Bank are covered under loss share agreements between Union Bank, N.A. and the Federal Deposit Insurance Corporation. Management believes the exclusion of purchased credit-impaired loans and FDIC covered OREO from certain asset quality ratios that include nonperforming loans, nonperforming assets, net loans charged-off, total loans held for investment and the allowance for loan losses or credit losses in the numerator or denominator provides a better perspective into underlying asset quality trends.

(11)

The capital ratios displayed as of March 31, 2014 are calculated in accordance with the transition guidelines set forth in the U.S. federal banking agencies' revised capital framework for implementing the final U.S. Basel III regulatory capital rules. The capital ratios as of December 31, 2012 are calculated under Basel I rules.

(12)

The Tier 1 common capital ratio is the ratio, calculated under Basel I rules, of Tier 1 capital, less qualifying trust preferred securities, to risk-weighted assets. The Tier 1 common capital ratio, a non-GAAP financial measure, 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. 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.

(13)

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. 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.

(14)

Common equity tier 1 risk-based capital 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 U.S. Basel III rules (standardized approach on a fully phased-in basis, which includes accumulated other comprehensive loss elements as prescribed by the U.S. Basel III rules) were effective at December 31, 2013. Management reviews common equity tier 1 risk-based capital along with other measures of capital as part of its financial analyses and has included this non-GAAP financial information, and the corresponding reconciliation from Tier 1 capital determined in accordance with Basel I regulatory requirements, because of current interest in such information on the part of market participants.

n/a

not applicable

7

        Please refer to our Consolidated Financial Statements and the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2013 (2013 Form 10-K) along with the following discussion and analysis of our consolidated financial position and results of operations for the period ended March 31, 2014 in this Form 10-Q. Averages, as presented in the following tables, are substantially all based upon daily average balances.

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

Introduction

        We are a California-based financial holding company and bank holding company whose principal subsidiary is Union Bank, N.A. (the Bank or Union Bank). We are a wholly-owned subsidiary of The Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU) which is a wholly-owned subsidiary of Mitsubishi UFJ Financial Group, Inc. (MUFG). BTMU's global network includes the BTMU Headquarters for the Americas (BTMU HQA), which oversees the branches and certain subsidiaries of BTMU's operations in the Americas.

        We provide a wide range of financial services to consumers, small businesses, middle-market companies and major corporations, both nationally and internationally. We had consolidated assets of $107.2 billion at March 31, 2014.

        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.

        In November 2013, we completed the acquisition of First Bank Association Bank Services, a unit of First Bank, which provides a full range of banking services to homeowners associations and community management companies. We acquired approximately $570 million in deposits in this transaction.

        In the second quarter of 2013, we completed the purchase of PB Capital Corporation's (PB Capital) $3.5 billion institutional commercial real estate (CRE) lending portfolio. The acquisition expanded our CRE presence in the U.S., and provided geographic and asset class diversification.

Executive Overview

        We are providing you with an overview of what we believe are the most significant factors and developments that affected our first quarter 2014 results and that could influence our future results. Further detailed information can be found elsewhere in this Form 10-Q. In addition, we ask that you carefully read this entire document and any other reports that we refer to in this Form 10-Q for more detailed information that will assist your understanding of trends, events and uncertainties that impact us.

        Our sources of revenue are net interest income and noninterest income (collectively "total revenue"). Net interest income is generated predominantly from interest earned from loans, investment securities and other interest-earning assets, less interest incurred on deposits and borrowings. The primary sources of noninterest income are revenues from service charges on deposit accounts, trust and investment management fees, trading account activities, credit facility fees and merchant banking fees. In the first quarter of 2014, revenue was comprised of 79 percent net interest income and 21 percent noninterest income. Changes in interest rates, credit quality, economic trends and the capital markets are primary factors that affect our revenue sources. 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 and domestic time deposits greater than $250,000. Wholesale funding includes unsecured funds raised from interbank and other sources, both domestic and international, and secured funds raised by selling securities under repurchase agreements and by borrowing from the Federal

8

Home Loan Bank of San Francisco (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.

Business Integration Initiative

        Following the 2013 formation of BTMU Americas Holdings, an operating management structure to oversee all BTMU operations in the Americas region, the respective Boards and management bodies of UnionBanCal and Union Bank, as well as their direct and indirect parent entities, BTMU and MUFG, approved the further integration in the first quarter of 2014 of BTMU's and the Company's management and operations in the Americas. Effective July 1, 2014, subject to regulatory review, UnionBanCal and Union Bank will be renamed "MUFG Americas Holdings Corporation" and "MUFG Union Bank, N.A.," respectively. MUFG Americas Holdings Corporation, managed by the integrated executive committee, will oversee BTMU's Americas region, replacing the previous role of BTMU Americas Holdings. MUFG Union Bank, N.A., the principal subsidiary of MUFG Americas Holdings Corporation, will be the primary operating entity of BTMU in the U.S. The U.S. employees of BTMU will become employees of MUFG Union Bank, N.A.

        MUFG Union Bank, N.A. will service Corporate Banking, Investment Banking & Markets, and certain Transaction Banking customers through the MUFG brand and continue to serve Retail Banking & Wealth Markets, Commercial Banking and Transaction Banking customers through the Union Bank brand. MUFG Union Bank, N.A.'s leadership will be bi-coastal with Retail Banking & Wealth Markets, Commercial Banking, and Transaction Banking leaders remaining on the West Coast. Corporate Banking and Investment Banking & Markets leaders will be based in New York City. The corporate headquarters (principal executive office) for MUFG Union Bank, N.A. and MUFG Americas Holdings Corporation will be in New York City. MUFG Union Bank, N.A.'s main banking office will remain in San Francisco.

        BTMU's New York, Chicago and Los Angeles branches will continue to record transactions and maintain customer relationships supported by the consolidated workforce at MUFG Union Bank, N.A. The BTMU branches will also retain their functions and current roles in the foreign exchange and settlement businesses, and continue to provide services to Japanese customers. The operation of businesses in the Americas located outside of the U.S. (in Latin America and Canada) will remain unchanged.

        As the business integration does not involve a legal entity combination, but rather is an integration of personnel, certain operations and management, the integration is not expected to have a significant impact on MUFG Union Bank, N.A.'s capital ratios in the near term. The impacts on the balance sheet and earnings of MUFG Americas Holdings Corporation and MUFG Union Bank N.A. are also not expected to be significant in the near term.

        Through this business integration, MUFG, BTMU, UnionBanCal and Union Bank aim to deliver enhanced products and services, strengthened U.S. dollar funding capabilities, and an advanced governance and risk management structure, which will also help the integrated company comply with the Federal Reserve's recently released enhanced prudential standards for foreign banking organizations operating in the U.S. For additional information, see "Supervision and Regulation—Principal Federal Banking Laws—Dodd-Frank Act" in Part 1, Item 1 of our 2013 Form 10-K.

Performance Highlights

        In the first quarter of 2014, net income attributable to UnionBanCal was $175 million, compared with $148 million in the first quarter of 2013 driven primarily by higher net interest income and lower noninterest expense. Net interest income was $683 million in the first quarter of 2014, compared with $653 million in the first quarter of 2013. The increase in net interest income was primarily due to organic loan growth and acquisitions. This increase was partially offset by a 17 basis point decline in the net interest margin, which was primarily due to lower yields on loans and securities. Compared with the first quarter 2013, noninterest expense was down $53 million, or 7 percent. This decline was largely driven by lower current quarter merger costs and employee benefits. Noninterest income was $181 million in the first quarter of 2014, down

9

$70 million, or 28 percent, from the first quarter of 2013, primarily due to lower net gains on the sale of securities.

        Credit quality remained strong. For the quarter ended March 31, 2014, the overall provision for credit losses was zero compared with a provision of $12 million for the quarter ended March 31, 2013. The allowance for credit losses as a percentage of total loans, excluding PCI loans, was 1.02 percent at March 31, 2014, compared with 1.04 percent at December 31, 2013.

Capital Ratios

        The Common equity tier 1, Tier 1 and Total risk-based capital ratios, calculated in accordance with the transition guidelines set forth in the U.S. federal banking agencies' revised capital framework for implementing the final U.S. Basel III regulatory capital rules, were 12.59 percent, 12.62 percent and 14.75 percent, respectively, at March 31, 2014. The tangible common equity ratio was 10.65 percent at March 31, 2014.

10

Financial Performance

Net Interest Income

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

	For the Three Months Ended
	March 31, 2014								March 31, 2013
(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)
Assets
Loans held for investment:(3)
Commercial and industrial	$	23,969		$	198		3.34	%	$	21,341		$	177		3.37	%
Commercial mortgage		13,230			119		3.61			9,898			101		4.10
Construction		946			8		3.67			650			8		5.21
Lease financing		849			11		5.41			1,062			7		2.49
Residential mortgage		25,990			238		3.66			22,858			222		3.88
Home equity and other consumer loans		3,233			32		3.99			3,602			34		3.84
Loans, before purchased credit-impaired loans		68,217			606		3.58			59,411			549		3.72
Purchased credit-impaired loans		1,076			61		22.90			1,142			80		28.33
Total loansTotal loans held for investment		69,293			667		3.88			60,553			629		4.19
Securities		22,611			120		2.12			21,824			121		2.21
Interest bearing deposits in banks		3,565			2		0.25			4,223			3		0.25
Federal funds sold and securities purchased under resale agreements		131			—		0.18			171			—		0.19
Trading account assets		267			2		3.08			151			—		0.29
Other earning assets		233			1		1.40			133			—		0.64
Total earning assets		96,100			792		3.31			87,055			753		3.48
Allowance for loan losses		(577	)							(653	)
Cash and due from banks		1,499								1,399
Premises and equipment, net		645								705
Other assets		8,824								8,143
Total assets	$	106,491							$	96,649
Liabilities
Interest bearing deposits:
Transaction and money market accounts	$	37,519		$	36		0.38		$	31,705		$	22		0.28
Savings		5,572			1		0.11			5,855			2		0.14
Time		11,214			25		0.92			12,314			36		1.17
Total interest bearing deposits		54,305			62		0.47			49,874			60		0.49
Commercial paper and other short-term borrowings(4)		2,632			1		0.21			1,837			1		0.21
Long-term debt		6,546			41		2.47			5,406			36		2.68
Total borrowed funds		9,178			42		1.82			7,243			37		2.05
Total interest bearing liabilities		63,483			104		0.66			57,117			97		0.68
Noninterest bearing deposits		26,128								24,382
Other liabilities		2,237								2,302
Total liabilities		91,848								83,801
Equity
UNBC Stockholder's equity		14,390								12,584
Noncontrolling interests		253								264
Total equity		14,643								12,848
Total liabilities and equity	$	106,491							$	96,649
Net interest income/spread (taxable-equivalent basis)					688		2.65	%					656		2.80	%
Impact of noninterest bearing deposits							0.19								0.20
Impact of other noninterest bearing sources							0.03								0.04
Net interest margin							2.87								3.04
Less: taxable-equivalent adjustment					5								3
Net interest income				$	683							$	653

(1)

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

(2)

Annualized.

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(3)

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

(4)

Includes interest bearing trading liabilities.

        Net interest income for the first quarter of 2014 increased $30 million, compared with the first quarter of 2013. The increase was primarily due to growth in total loans held for investment, reflecting the impact from both organic growth and the PB Capital acquisition. The increase in net interest income was partially offset by contraction in the net interest margin, reflecting declining yields on total loans held for investment and securities.

        Average total loans held for investment increased $8.7 billion for the quarter ended March 31, 2014 compared with the quarter ended March 31, 2013, primarily due to organic growth in residential mortgage loans, commercial and industrial loans, and the PB Capital acquisition. Average interest-bearing deposits increased $4.4 billion, and average noninterest-bearing deposits increased $1.7 billion, in the first quarter of 2014 compared with the first quarter of 2013, due to organic growth.

Noninterest Income and Noninterest Expense

        The following tables detail our noninterest income and noninterest expense for the first quarters of 2014 and 2013:

Noninterest Income

	For the Three Months Ended
						Increase (Decrease)
	March 31, 2014		March 31, 2013
(Dollars in millions)						Amount			Percent
Service charges on deposit accounts	$	51	$	53		$	(2	)		(4	)%
Credit facility fees		28		26			2			8
Trust and investment management fees		26		35			(9	)		(26	)
Merchant banking fees		24		16			8			50
Trading account activities		16		5			11			220
Brokerage commissions and fees		13		11			2			18
Other investment income		12		3			9			300
Card processing fees, net		8		9			(1	)		(11	)
Securities gains, net		2		96			(94	)		(98	)
Other		1		(3	)		4			133
Total noninterest income	$	181	$	251		$	(70	)		(28	)%

        Noninterest income in the first quarter of 2014 was $181 million, compared with $251 million in the first quarter of 2013. The decrease was primarily attributable to lower gains on the sale of securities and lower gains on the sale of other investments, which are included within other noninterest income. This decrease was partially offset by an increase in trading account activities due to increased customer activity and also lower FDIC indemnification asset amortization expense, which is included within other noninterest income.

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Noninterest Expense

	For the Three Months Ended
					Increase (Decrease)
	March 31, 2014		March 31, 2013
(Dollars in millions)					Amount			Percent
Salaries and other compensation	$	301	$	312	$	(11	)		(4	)%
Employee benefits		87		109		(22	)		(20	)
Salaries and employee benefits		388		421		(33	)		(8	)
Net occupancy and equipment		71		75		(4	)		(5	)
Professional and outside services		55		58		(3	)		(5	)
Software		20		21		(1	)		(5	)
Low income housing credit investment amortization		20		15		5			33
(Reversal of) provision for losses on unfunded credit commitments		16		15		1			7
Regulatory assessments		15		20		(5	)		(25	)
Intangible asset amortization		13		16		(3	)		(19	)
Communications		11		11		—			—
Data processing		8		11		(3	)		(27	)
Advertising and public relations		7		17		(10	)		(59	)
Other		36		33		3			9
Total noninterest expense	$	660	$	713	$	(53	)		(7	)%

        Noninterest expense in the first quarter of 2014 was $660 million compared with $713 million in the first quarter of 2013. Salaries and employee benefits decreased largely due to lower pension expense and acquisition-related staff expenses. Advertising expense was lower in the first quarter of 2014 due to a large advertising campaign in the first quarter of 2013.

        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 business activities. Productivity initiative costs primarily consist of salaries and benefits associated with operational

13

efficiency enhancements. The following table shows the calculation of this ratio for the first quarters of 2014 and 2013:

	For the Three Months Ended
(Dollars in millions)	March 31, 2014			March 31, 2013
Noninterest Expense	$	660		$	713
Less: Foreclosed asset expense and other credit costs		—			(1	)
Less: (Reversal of) provision for losses on off-balance sheet commitments		16			15
Less: Productivity initiative costs		1			4
Less: LIHC investment amortization expense		20			15
Less: Expenses of the LIHC consolidated VIEs		8			6
Less: Merger costs related to acquisitions		17			40
Less: Net adjustments related to privatization transaction		10			14
Less: Intangible asset amortization		3			3
Net noninterest expense, as adjusted (a)	$	585		$	617
Total Revenue	$	864		$	904
Add: Net interest income taxable-equivalent adjustment		5			3
Less: Accretion related to privatization-related fair value adjustments		6			5
Less: Other credit costs		2			(9	)
Total revenue, as adjusted (b)	$	861		$	911
Adjusted efficiency ratio (a)/(b)		67.95	%		67.72	%
		67.94	%		67.73	%

Income Tax Expense

        The effective income tax rate was 23 percent in the first quarter of 2014 compared with 26 percent in the first quarter of 2013. The overall decrease in the effective tax rate for the first quarter of 2014 was primarily driven by the proportionately larger impact of low-income housing and alternative energy income tax benefits on pre-tax income.

        For further information regarding income tax expense, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Income Tax Expense" and "Changes in our tax rates could affect our future results" in "Risk Factors" in Part I, Item 1A and Note 18 to the Consolidated Financial Statements in Part II, Item 8 "Financial Statements and Supplementary Data" in our 2013 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 residential mortgage-backed securities and commercial mortgage-backed securities (CMBS), cash flow collateralized loan obligations (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. government and government-sponsored agency residential and CMBS, U.S. Treasury bonds and U.S. government-sponsored agencies.

        The amortized cost, gross unrealized gains, gross unrealized losses and fair values of securities are detailed in Note 4 to our Consolidated Financial Statements included in this Form 10-Q.

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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)
	March 31, 2014		December 31, 2013
(Dollars in millions)					Amount			Percent
Loans held for investment:
Commercial and industrial	$	23,654	$	23,528	$	126			1	%
Commercial mortgage		13,568		13,092		476			4
Construction		1,019		905		114			13
Lease financing		845		854		(9	)		(1	)
Total commercial portfolio		39,086		38,379		707			2
Residential mortgage		26,602		25,547		1,055			4
Home equity and other consumer loans		3,194		3,280		(86	)		(3	)
Total consumer portfolio		29,796		28,827		969			3
Total loans held for investment, before purchased credit-impaired loans		68,882		67,206		1,676			2
Purchased credit-impaired loans		1,051		1,106		(55	)		(5	)
Total loans held for investment	$	69,933	$	68,312	$	1,621			2	%

        Loans held for investment increased from December 31, 2013 to March 31, 2014, due to organic growth in the residential mortgage and commercial mortgage portfolios.

Cross-Border Outstandings

        Our cross-border outstandings reflect certain additional economic and political risks that are not reflected in domestic outstandings. These risks include those arising from exchange rate fluctuations and restrictions on the transfer of funds. Our total cross-border outstandings for Canada, the only country where such outstandings exceeded one percent of total assets, were $1.4 billion at both March 31, 2014 and December 31, 2013, respectively. The cross-border outstandings are based on category and domicile of ultimate risk and are comprised of balances with banks, trading account assets, securities available for sale, securities purchased under resale agreements, loans, accrued interest receivable, acceptances outstanding and investments with foreign entities.

        As of March 31, 2014, our sovereign and non-sovereign debt exposure to European countries was not material.

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Deposits

        The table below presents our deposits as of March 31, 2014 and December 31, 2013.

					Increase (Decrease)
	March 31, 2014		December 31, 2013
(Dollars in millions)					Amount			Percent
Interest checking	$	4,043	$	3,978	$	65			2	%
Money market		33,634		32,639		995			3
Total interest bearing transaction and money market accounts		37,677		36,617		1,060			3
Savings		5,621		5,495		126			2
Time		11,000		11,494		(494	)		(4	)
Total interest bearing deposits		54,298		53,606		692			1
Noninterest bearing deposits		26,881		26,495		386			1
Total deposits	$	81,179	$	80,101	$	1,078			1	%
Total interest bearing deposits include the following brokered deposits:
Interest bearing transaction and money market accounts	$	2,963	$	3,109	$	(146	)		(5	)%
Time		3,226		3,384		(158	)		(5	)
Total brokered deposits	$	6,189	$	6,493	$	(304	)		(5	)%
Core Deposits:
Total deposits	$	81,179	$	80,101	$	1,078			1	%
Less: Total brokered deposits		6,189		6,493		(304	)		(5	)
Less: Total foreign deposits and non-brokered domestic time deposits of over $250,000		4,325		4,453		(128	)		(3	)
Total core deposits	$	70,665	$	69,155	$	1,510			2	%

        Total deposits and core deposits increased $1.1 billion and $1.5 billion, respectively, from December 31, 2013 to March 31, 2014, primarily due to organic retail deposit growth. Core deposits as a percentage of total deposits were 87 percent and 86 percent at March 31, 2014 and December 31, 2013, respectively.

Capital Management

        Both the Company and Union Bank are subject to various capital adequacy regulations issued by the federal banking agencies, including requirements to file an annual capital plan and to maintain minimum regulatory capital ratios. As of March 31, 2014, management believes the capital ratios of the Company and Union Bank met all regulatory requirements of "well-capitalized" institutions.

        The Company timely filed its annual capital plan under the Federal Reserve's Comprehensive Capital Analysis and Review (CCAR) program in January 2014. The CCAR evaluates capital planning processes and assesses capital adequacy levels under various scenarios to determine if bank holding companies would have sufficient capital to continue operations throughout times of economic and financial market stress. In March 2014, the Company disclosed the results of its annual company-run capital stress test in accordance with regulatory requirements and was subsequently informed by the Federal Reserve that it did not object to the Company's capital plan.

        The Company and Union Bank 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

16

rules to implement the Basel Committee on Banking Supervision 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.

        Consistent with the Collins Amendment to the Dodd-Frank Act, banking organizations that have been approved by the Federal Reserve to use the U.S. Basel III advanced approaches methodology to determine applicable minimum risk-based capital ratios must use the higher of their risk-weighted assets as calculated under (i) the U.S. Basel III advanced approaches rules, and (ii) from January 1, 2014 to December 31, 2014, the general Basel I risk-based capital rules and, commencing on January 1, 2015 and thereafter, the risk weightings under the U.S. Basel III standardized approach. Banking organizations not subject to the advanced approaches rules are required to comply with the standardized approach capital rules beginning January 2015.

        Union Bank and UnionBanCal Corporation have opted-in to the advanced approaches risk-based capital rules in the U.S. Therefore, the Bank is required to comply with the U.S. Basel III capital rules beginning January 2014, with certain provisions subject to phase-in periods. However, UnionBanCal Corporation has initiated discussions with the Federal Reserve to explore opting-out of the advanced approaches for the holding company only. Union Bank's status as an advanced approaches institution will not be affected by the outcome of these discussions. Should the holding company receive approval to opt out, UnionBanCal Corporation would no longer be subject to the advanced approaches rules. We expect these discussions to be completed in the second quarter of 2014.

        The following tables summarize the calculation of UnionBanCal Corporation's and Union Bank's risk-based capital ratios as of March 31, 2014 in accordance with the transition guidelines set forth in the U.S. Basel III rules. Risk-based capital, risk-weighted assets, and risk-based capital ratios as of December 31, 2013 were calculated in accordance with the Basel I rules.

UnionBanCal Corporation

	U.S. Basel III		Basel I
(Dollars in millions)	March 31, 2014		December 31, 2013
Capital Components
Common equity tier 1 capital	$	11,640		n/a
Tier 1 capital		11,673	$	11,471
Tier 2 capital		1,970		2,028
Total risk-based capital	$	13,643	$	13,499
Risk-weighted assets	$	92,476	$	92,410
Average total assets for leverage capital purposes	$	103,633	$	101,813

	U.S. Basel III					Basel I
	March 31, 2014					December 31, 2013					March 31, 2014 Minimum Regulatory Requirement
(Dollars in millions)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Capital Ratios
Common equity tier 1 capital (to risk-weighted assets)	$	11,640		12.59	%		n/a		n/a		³$	3,699		4.0	%
Tier 1 capital (to risk-weighted assets)		11,673		12.62			11,471		12.41	%	³	5,086		5.5
Total capital (to risk-weighted assets)		13,643		14.75			13,499		14.61		³	7,398		8.0
Tier 1 leverage(1)		11,673		11.26			11,471		11.27		³	4,145		4.0

(1)

Tier 1 capital divided by average total assets for leverage capital purposes (excluding certain intangible assets).

n/a—not applicable

17

Union Bank, N.A.

	U.S. Basel III		Basel I
(Dollars in millions)	March 31, 2014		December 31, 2013
Capital Components
Common equity tier 1 capital	$	11,485		n/a
Tier 1 capital		11,485	$	11,274
Tier 2 capital		1,709		1,716
Total risk-based capital	$	13,194	$	12,990
Risk-weighted assets	$	87,668	$	87,129
Average total assets for leverage capital purposes	$	103,018	$	101,269

																March 31, 2014 To Be Well-Capitalized Under Prompt Corrective Action Provisions
	U.S. Basel III					Basel I
											March 31, 2014 Minimum Regulatory Requirement
	March 31, 2014					December 31, 2013
(Dollars in millions)	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
Capital Ratios
Common equity tier 1 capital (to risk-weighted assets)	$	11,485		13.10	%		n/a		n/a		³$	3,507		4.0	%		n/a		n/a
Tier 1 capital (to risk-weighted assets)		11,485		13.10		$	11,274		12.94	%	³	4,822		5.5		³$	5,260		6.0	%
Total capital (to risk-weighted assets)		13,194		15.05			12,990		14.91		³	7,013		8.0		³	8,767		10.0
Tier 1 leverage(1)		11,485		11.15			11,274		11.13		³	4,119		4.0		³	5,149		5.0

(1)

Tier 1 capital divided by average total assets for leverage capital purposes (excluding certain intangible assets).

        In addition to capital ratios determined in accordance with regulatory requirements, we consider the tangible common equity ratio and the Tier 1 common capital ratio when evaluating capital utilization and adequacy. These capital ratios are viewed by management, and presented below, to further facilitate the understanding of our capital structure and for use in assessing and comparing the quality and composition of the Company's capital structure to other financial institutions. These ratios are not codified within U.S. GAAP or federal banking regulations in effect at March 31, 2014. Therefore, they are considered non-GAAP financial measures. Our tangible common equity ratio calculation methods may differ from those used by other financial services companies.

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        The following tables summarize the calculation of our tangible common equity and Tier 1 common capital ratios as of March 31, 2014 and December 31, 2013:

(Dollars in millions)	March 31, 2014			December 31, 2013
Total UNBC stockholder's equity	$	14,460		$	14,215
Goodwill		(3,227	)		(3,228	)
Intangible assets, except mortgage servicing rights (MSRs)		(275	)		(288	)
Deferred tax liabilities related to goodwill and intangible assets		102			105
Tangible common equity (a)	$	11,060		$	10,804
Total assets	$	107,237		$	105,894
Goodwill		(3,227	)		(3,228	)
Intangible assets, except MSRs		(275	)		(288	)
Deferred tax liabilities related to goodwill and intangible assets		102			105
Tangible assets (b)	$	103,837		$	102,483
Tangible common equity ratio (a)/(b)		10.65	%		10.54	%

(Dollars in millions)	March 31, 2014
Common equity tier 1 capital under U.S. Basel III (transitional)	$	11,640
Adjustments from U.S. Basel III (transitional) to Basel I		18
Tier 1 capital under Basel I		11,658
Junior subordinated debt payable to trusts		(66	)
Tier 1 common equity (a)	$	11,592
Risk-weighted assets under U.S. Basel III (transitional)	$	92,476
Adjustments from U.S. Basel III (transitional) to Basel I		(268	)
Risk-weighted assets under Basel I (b)	$	92,208
Tier 1 common capital ratio (a)/(b)		12.57	%

(Dollars in millions)	December 31, 2013
Tier 1 capital under Basel I	$	11,471
Junior subordinated debt payable to trusts		(66	)
Tier 1 common equity (a)	$	11,405
Risk-weighted assets under Basel I (b)	$	92,410
Tier 1 common capital ratio (a)/(b)		12.34	%

        The Company's fully phased-in Common equity tier 1 capital ratio calculated under the U.S. Basel III standardized approach at March 31, 2014 and December 31, 2013 was estimated to be 11.42 percent and 11.14 percent, 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 March 31, 2014 and December 31, 2013.

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        The following tables summarize the calculation of our Common equity tier 1 capital to total risk-weighted assets ratio under the U.S. Basel III standardized approach as of March 31, 2014 and December 31, 2013:

Common equity tier 1 capital Under U.S. Basel III (Standardized Approach; Fully Phased-in)

(Dollars in millions)	March 31, 2014 (Estimated)
Common equity tier 1 capital under U.S. Basel III (transitional)	$	11,640
Adjustments from U.S. Basel III (transitional) to U.S. Basel III (standardized approach; fully phased-in):
Accumulated other comprehensive loss related to securities, pension and other benefits		(449	)
Other		(138	)
Total adjustments from U.S. Basel III (transitional) to U.S. Basel III (standardized approach; fully phased-in)		(587	)
Common equity tier 1 capital estimated under U.S. Basel III (standardized approach; fully phased-in) (a)	$	11,053
Risk-weighted assets under U.S. Basel III (transitional)	$	92,476
Adjustments from U.S. Basel III (transitional) to U.S. Basel III (standardized approach; fully phased-in)		4,293
Total risk-weighted assets, estimated under U.S. Basel III (standardized approach; fully phased-in) (b)	$	96,769
Common equity tier 1 capital to total risk-weighted assets estimated under U.S. Basel III (standardized approach; fully phased-in)(1) (a)/(b)		11.42	%

(1)

Common equity tier 1 capital on a 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 fully phased-in U.S. Basel III rules were effective at March 31, 2014. Management reviews Common equity tier 1 capital along with other measures of capital as part of its financial analyses and has included this non-GAAP financial information, and the corresponding reconciliation from common equity tier 1 capital under Basel III (transitional) because of current interest in such information on the part of market participants.

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(Dollars in millions)	December 31, 2013 (Estimated)
Tier 1 capital under Basel I	$	11,471
Junior subordinated debt payable to trusts		(66	)
Basel I Tier 1 common capital		11,405
Adjustments from Basel I to U.S. Basel III:
Accumulated other comprehensive loss related to securities available for sale, pension and other benefits		(522	)
Other		(95	)
Total adjustments from Basel I to U.S. Basel III		(617	)
Common equity tier 1 capital estimated under U.S. Basel III (a)	$	10,788
Risk-weighted assets under Basel I	$	92,410
Adjustments from Basel I to U.S. Basel III		4,444
Total risk-weighted assets, estimated under U.S. Basel III (b)	$	96,854
Common equity tier 1 capital to total risk-weighted assets estimated under U.S. Basel III (standardized approach; fully phased-in)(1) (a)/(b)		11.14	%

(1)

Common equity tier 1 capital on a 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 fully phased-in U.S. Basel III rules were effective at December 31, 2013. Management reviews Common equity tier 1 capital along with other measures of capital as part of its financial analyses and has included this non-GAAP financial information, and the corresponding reconciliation from Tier 1 capital determined in accordance with Basel I, because of current interest in such information on the part of market participants.

        For additional information regarding our regulatory capital requirements, see Part I, Item 1 "Supervision and Regulation—Regulatory Capital and Liquidity Standards" in our 2013 Form 10-K.

Risk Management

        All financial institutions must manage and control a variety of business risks that can significantly affect their financial performance. Some of the key risks the Company must manage include credit, market, liquidity and operational risks. The Board of Directors, directly or through its appropriate committee, provides oversight and approves our various risk management policies. Management has established an enterprise-wide risk management structure that is designed to provide a structured approach for identifying, measuring, monitoring, controlling and reporting on the significant risks faced by the Company.

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 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2013 Form 10-K.

Allowance for Credit Losses

Allowance Policy and Methodology

        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

21

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 2013 Form 10-K. For additional information regarding our allowance for loan losses, refer to Note 5 of our Consolidated Financial Statements in Part I, Item 1 "Financial Statements" of this Form 10-Q.

Total Allowance and Related Provision for Credit Losses

        The allowance for loan losses decreased $11 million to $557 million as of March 31, 2014 compared with $568 million at December 31, 2013. This decrease is primarily due to improving credit quality in our consumer portfolio. The unallocated allowance was $20 million at March 31, 2014, compared with $77 million at December 31, 2013. The allowance for credit losses for the commercial portfolio was updated to reflect various refinements in assumptions underlying 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.

        Our ratio of nonaccrual loans to total loans held for investment was 0.67 percent at March 31, 2014 and 0.65 percent at December 31, 2013. Our ratio of allowance for loan losses to total loans held for investment decreased to 0.80 percent at March 31, 2014 from 0.83 percent at December 31, 2013. Annualized net loans recovered to average total loans held for investment was 0.04 percent for the quarter ended March 31, 2014 compared with an annualized net loans charged off to average total loans held for investment of 0.10 percent for the quarter ended March 31, 2013. Criticized credits in the commercial segment were $1.3 billion at March 31, 2014 and December 31, 2013. Criticized credits are those that have regulatory risk grades of "special mention," "substandard" or "doubtful." Special mention credits are potentially weak, as the borrower has begun to exhibit deteriorating trends, which, if not corrected, could jeopardize repayment of the loan and result in further downgrade. Adversely classified credits are those that are internally risk graded as substandard or doubtful. 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.

22

Change in the Allowance for Loan Losses.

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

	For the Three Months Ended March 31,
(Dollars in millions)	2014			2013
Balance, beginning of period	$	568		$	653
(Reversal of) provision for loan losses, excluding purchased credit-impaired		(18	)		(3	)
Provision for purchased credit-impaired loan losses not subject to FDIC indemnification		2			—
Increase in allowance covered by FDIC indemnification		—			2
Other		(1	)		—
Loans charged-off:
Commercial and industrial		(5	)		(1	)
Commercial mortgage		(1	)		(2	)
Total commercial portfolio		(6	)		(3	)
Residential mortgage		(1	)	��	(7	)
Home equity and other consumer loans		(2	)		(6	)
Total consumer portfolio		(3	)		(13	)
Purchased credit-impaired loans		—			(3	)
Total loans charged-off		(9	)		(19	)
Recoveries of loans previously charged-off:
Commercial and industrial		11			3
Construction		3			—
Total commercial portfolio		14			3
Home equity and other consumer loans		1			1
Total consumer portfolio		1			1
Purchased credit-impaired loans		—			1
Total recoveries of loans previously charged-off		15			5
Net loans recovered (charged-off)		6			(14	)
Ending balance of allowance for loan losses	$	557		$	638
Components of allowance for loan losses and credit losses:
Allowance for loan losses, excluding allowance on purchased credit-impaired loans	$	554		$	637
Allowance for loan losses on purchased credit-impaired loans		3			1
Total allowance for loan losses		557			638
Allowance for losses on unfunded credit commitments		148			138
Total allowance for credit losses	$	705		$	776

23

Nonperforming Assets

        Nonperforming assets consist of nonaccrual loans and other real estate owned (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 2013 Form 10-K.

        The following table sets forth an analysis of nonperforming assets:

					Increase (Decrease)
	March 31, 2014		December 31, 2013
(Dollars in millions)					Amount			Percent
Commercial and industrial	$	89	$	44	$	45			102	%
Commercial mortgage		46		51		(5	)		(10	)
Total commercial portfolio		135		95		40			42
Residential mortgage		266		286		(20	)		(7	)
Home equity and other consumer loans		49		46		3			7
Total consumer portfolio		315		332		(17	)		(5	)
Total nonaccrual loans, before purchased credit-impaired loans		450		427		23			5
Purchased credit-impaired loans		16		15		1			7
Total nonaccrual loans		466		442		24			5
OREO, before FDIC covered OREO		17		20		(3	)		(15	)
FDIC covered OREO		23		37		(14	)		(38	)
Total nonperforming assets	$	506	$	499	$	7			1	%
Total nonperforming assets, excluding purchased credit-impaired loans and FDIC covered OREO	$	467	$	447	$	20			4	%
Troubled debt restructurings:
Accruing	$	297	$	367	$	(70	)		(19	)%
Nonaccruing (included in total nonaccrual loans above)	$	209	$	225	$	(16	)		(7	)%
Total troubled debt restructurings	$	506	$	592	$	(86	)		(15	)%

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 classified as impaired and are reviewed for specific reserves either individually or in pools with similar risk characteristics. Our loss mitigation strategies are designed to minimize economic loss and, at times, may result in changes to original terms, including interest rate changes, maturity extensions, principal paydowns, covenant waivers and 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

24

individual assessment of each loan, which may include, among other factors, the consideration of demonstrated performance by the borrower under the previous terms.

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

        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 March 31, 2014 and December 31, 2013. Refer to Note 5 to our Consolidated Financial Statements in this Form 10-Q for more information.

					As a Percentage of Ending Loan Balances
(Dollars in millions)	March 31, 2014		December 31, 2013		March 31, 2014			December 31, 2013
Commercial and industrial	$	135	$	212		0.57	%		0.90	%
Commercial mortgage		32		38		0.24			0.29
Total commercial portfolio		167		250		0.43			0.65
Residential mortgage		312		315		1.17			1.23
Home equity and other consumer loans		25		24		0.78			0.73
Total consumer portfolio		337		339		1.13			1.18
Total restructured loans, excluding purchased credit-impaired loans(1)	$	504	$	589		0.73	%		0.88	%

(1)

Amounts exclude $2 million and $3 million of TDRs covered by FDIC loss share agreements at March 31, 2014 and December 31, 2013, respectively.

Loans 90 Days or More Past Due and Still Accruing

        Loans held for investment 90 days or more past due and still accruing totaled $4 million and $5 million at March 31, 2014 and December 31, 2013, respectively. These amounts exclude purchased credit-impaired loans, which are generally accounted for within loan pools, of $123 million and $124 million at March 31, 2014 and December 31, 2013, respectively. The past due status of individual loans included within purchased credit-impaired loan pools is not a meaningful indicator of credit quality, as potential credit losses are measured at the loan pool level against prior expectations of cash flow performance.

Concentration of Risk

        Commercial and industrial loans are extended principally to corporations, middle-market businesses and small businesses and are originated primarily through our commercial banking offices. We are active in, among other sectors, oil and gas, manufacturing, finance and insurance services, wholesale trade, real estate and leasing, and communications. These industries comprise the majority of our commercial and industrial portfolio. While loans extended within these sectors comprise the majority of our commercial and industrial portfolio, no individual industry sector exceeded 10 percent of our total loans held for investment at either March 31, 2014 or December 31, 2013.

        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 March 31, 2014, 60 percent of the Company's construction loan portfolio was domiciled in California. The commercial mortgage loan portfolio consists of loans secured by commercial income properties. At March 31, 2014, 65 percent of the Company's commercial mortgage loans were made to borrowers located in California, 7 percent to borrowers in New York, and 7 percent to borrowers in the state of Washington.

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

        At March 31, 2014, payment terms on 50 percent of our residential mortgage loans require a monthly payment that covers the full amount of interest due, but does not reduce the principal balance. At origination, these interest-only loans had strong credit profiles and had weighted average loan-to-value (LTV) ratios of approximately 66 percent. The remainder of the portfolio consists of regularly amortizing loans.

        Home equity and other consumer loans are originated principally through our branch network and Private Banking offices. Approximately 33 percent of these home equity loans and lines were supported by first liens on residential properties at March 31, 2014 and December 31, 2013, respectively. To manage risk associated with lending commitments, we review all equity-secured lines annually for creditworthiness and reduce or freeze limits, to the extent permitted by laws and regulations. See Note 5 of our Consolidated Financial Statements in Part II, Item 8 "Financial Statements and Supplementary Data" in our 2013 Form 10-K for additional information on refreshed Fair Isaac Corporation (FICO) scores and refreshed LTV ratios for our residential mortgage loans at December 31, 2013.

Market Risk Management

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

Risk Governance

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

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

        The Treasurer is primarily responsible for the implementation of risk management strategies approved by ALCO and for operational management of market risk through the funding, investment and derivatives hedging activities of Corporate Treasury. The manager of Global Capital Markets (GCM) is responsible for managing price risk through the trading activities conducted in GCM. The Market Risk Management (MRM) unit is

26

responsible for the monitoring of market risk and functions independently of all operating and management units.

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

Interest Rate Risk Management (Other Than Trading)

        ALCO monitors interest rate risk monthly 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 policy measurement typically involves a simulation in which we estimate the net interest income impact of gradual parallel shifts in the yield curve of up and down 200 basis points over a 12-month horizon using a forecasted balance sheet. Due to the current and persistently low interest rate environment, the decrease of 200 basis point parallel scenario was replaced with a decrease of 100 basis point parallel scenario.

Net Interest Income Sensitivity

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

(Dollars in millions)	March 31, 2014			December 31, 2013
Effect on net interest income:
Increase 200 basis points	$	131.7		$	153.3
as a percentage of base case net interest income		4.71	%		5.63	%
Decrease 100 basis points	$	(66.9	)	$	(62.8	)
as a percentage of base case net interest income		(2.39	)%		(2.31	)%

        An increase in rates increases net interest income. During the first quarter of 2014, the Bank's asset sensitive profile decreased slightly due to changes in both the current balance sheet composition and forecasted balance sheet activity over the next twelve months. We believe that our simulation provides management with a comprehensive view of the sensitivity of net interest income to changes in interest rates over the measurement horizon. However, as with any financial model, the underlying assumptions are inherently uncertain and subject to refinement. In particular, two significant models used in interest rate risk measurement address residential mortgage prepayment speeds and non-maturity deposit rate and balance behaviors. The mortgage prepayment model is periodically calibrated to reflect changes in customer behavior, but given the unprecedented rate and credit environment, may be prone to lowered predictive capability when determining the borrower's propensity or ability to prepay their mortgage. The deposit model uses the Company's historical deposit pricing to forecast future deposit pricing in its scenarios. Management's response to future rate scenarios may deviate from historic responses as the 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 extraordinary 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 March 31, 2014 and December 31, 2013, our ALM securities portfolio balances were $21.1 billion and $20.2 billion, respectively. Our ALM securities portfolio consists of securities issued by the U.S. Treasury, U.S. government-sponsored agencies, residential mortgage-backed securities and CMBS, CLOs, and asset-backed securities and had an expected weighted average life of 5.0 years at March 31, 2014. At March 31, 2014, approximately $6.3 billion of the portfolio was pledged to secure trust and public deposits and for other purposes as required or permitted by law. During the first quarter of 2014, we purchased $1.7 billion and sold $0.3 billion of securities, as part of our investment portfolio strategy, while $0.6 billion of ALM securities

27

matured, were paid down, or were called. To reduce the impact of price volatility on accumulated other comprehensive income and in consideration of changes in regulatory capital requirements under U.S. Basel III rules, the Bank increased securities held to maturity from 32 percent of total ALM securities at December 31, 2013 to 37 percent of total ALM securities at March 31, 2014.

        Based on current prepayment projections, the estimated ALM securities portfolio's effective duration was 3.9 years at March 31, 2014, compared to 4.0 years at December 31, 2013. Effective duration is a measure of price sensitivity of a bond portfolio to immediate parallel shifts in interest rates. An effective duration of 3.9 years suggests an expected price decrease of approximately 3.9 percent for an immediate 1.0 percent parallel increase in interest rates.

        In addition to our ALM securities, our securities available for sale portfolio includes approximately $2.0 billion of direct bank purchase bonds that are largely managed within our Commercial Banking operating segment. 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

        Since December 31, 2013, the notional amount of the ALM derivatives portfolio increased by $2.7 billion as we entered into $2.7 billion notional of receive fixed interest rate swap contracts to hedge floating rate commercial loans.

        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 10 to our Consolidated Financial Statements in Part I, Item 1 "Financial Statements" of this Form 10-Q and Note 13 to our Consolidated Financial Statements in Part II, Item 8 "Financial Statements and Supplementary Data" in our 2013 Form 10-K.

(Dollars in millions)	March 31, 2014			December 31, 2013			Increase (Decrease)
Total gross notional amount of ALM and other risk management derivatives
ALM derivatives:
Interest rate swap receive fixed contracts	$	6,950		$	4,300		$	2,650
Total ALM derivatives		6,950			4,300			2,650
Other risk management derivatives		183			185			(2	)
Total ALM and other risk management derivatives	$	7,133		$	4,485		$	2,648
Fair value of ALM and other risk management derivatives
ALM derivatives:
Gross positive fair value	$	9		$	8		$	1
Gross negative fair value		22			13			9
Positive (negative) fair value of ALM derivatives, net		(13	)		(5	)		(8	)
Other risk management derivatives:
Gross positive fair value	$	1		$	2		$	(1	)
Gross negative fair value		4			4			—
Positive (negative) fair value of other risk management derivatives, net		(3	)		(2	)		(1	)
Positive (negative) fair value of ALM and other risk management derivatives, net	$	(16	)	$	(7	)	$	(9	)

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Trading Activities

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

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

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

        As of March 31, 2014, we had notional amounts of $45.8 billion of interest rate derivative contracts, $3.5 billion of foreign exchange derivative contracts and $3.8 billion of commodity derivative contracts. We enter into these agreements for the principal purpose of accommodating the needs of our customers. We generally take offsetting positions in these transactions to mitigate our exposure to market risk. As of March 31, 2014, notional amounts of $1.2 billion, $1.6 billion and $4.1 billion of foreign exchange, commodity and equity contracts, respectively, represented our exposure to the embedded bifurcated derivatives and the related hedges contained in our market-linked certificates of deposit.

        The following table provides the notional value and the fair value of our trading derivatives portfolio as of March 31, 2014 and December 31, 2013, and the change in fair value between March 31, 2014 and December 31, 2013:

(Dollars in millions)	March 31, 2014		December 31, 2013		Increase (Decrease)
Total gross notional amount of positions held for trading purposes:
Interest rate contracts	$	45,773	$	44,427	$	1,346
Commodity contracts		5,397		5,714		(317	)
Foreign exchange contracts(1)		4,684		4,978		(294	)
Equity contracts		4,081		4,027		54
Other contracts		85		140		(55	)
Total	$	60,020	$	59,286	$	734
Fair value of positions held for trading purposes:
Gross positive fair value	$	1,032	$	1,074	$	(42	)
Gross negative fair value		908		952		(44	)
Positive fair value of positions, net	$	124	$	122	$	2

(1)

Excludes spot contracts with a notional amount of $0.7 billion at both March 31, 2014 and December 31, 2013, respectively.

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Liquidity Risk Management

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

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

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

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

        In response to balance sheet changes, wholesale funding decreased to $11.8 billion at March 31, 2014, down $0.1 billion from $11.9 billion at December 31, 2013. Total deposits increased $1.1 billion from $80.1 billion at December 31, 2013 to $81.2 billion at March 31, 2014.

        Core deposits, which exclude brokered deposits, foreign time deposits and domestic time deposits greater than $250,000, provide us with a sizable source of relatively stable and low-cost funds. At March 31, 2014, our core deposits totaled $70.7 billion and our total loan-to-total core deposit ratio was 98.2 percent.

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

•

The Bank has secured borrowing facilities with the FHLB and the Federal Reserve Bank. As of March 31, 2014, the Bank had $0.8 billion of borrowings outstanding with the FHLB, and the Bank had a remaining combined unused borrowing capacity from the FHLB and the Federal Reserve Bank of $37.5 billion.

30

•

Our securities portfolio provides liquidity through either securities sales or repurchase agreements. Total unpledged securities increased by $0.5 billion from $14.1 billion at December 31, 2013 to $14.6 billion at March 31, 2014.

•

The Bank has an $8.0 billion unsecured Bank Note Program. Available funding under the Bank Note Program was $2.65 billion at March 31, 2014. In May 2014, the Bank issued $750 million in Senior Notes under this program.

•

In addition to the funding provided by the Bank, we raise funds at the holding company level. UnionBanCal Corporation has in place a shelf registration statement with the SEC permitting ready access to the public debt markets. As of March 31, 2014, $1.1 billion of debt or other securities were available for issuance under this shelf registration statement. We do not have any firm commitments in place to sell securities under this shelf registration statement.

•

UnionBanCal has access to a $500 million, three year committed line of credit from BTMU, which is available for contingent liquidity or capital purposes.

        We believe that these sources provide a stable funding base. As a result, we have not historically relied on BTMU for our normal funding needs.

        Our costs and ability to raise funds in the capital markets are influenced by our credit ratings. Our credit ratings could be impacted by changes in the credit ratings of BTMU and MUFG. For further information, including information about ratings agency assessments of Japan's credit rating and credit ratings of most major Japanese banks, including BTMU, 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" in Part II, Item 1A. "Risk Factors" in this Form 10-Q. The following table provides our credit ratings as of March 31, 2014:

		Union Bank, N.A.	UnionBanCal Corporation
Standard & Poor's	Long-term	A+	A
	Short-term	A-1	A-1
Moody's	Long-term	A2	A3
	Short-term	P-1	—
Fitch	Long-term	A	A
	Short-term	F1	F1

        On October 24, 2013, the OCC, the Federal Reserve, and the FDIC jointly issued a proposed rule that would implement a standardized quantitative liquidity requirement generally consistent with the liquidity coverage ratio (LCR) standards established by the Basel Committee on Banking Supervision. The LCR would generally apply to banking organizations with $250 billion or more in total consolidated assets or $10 billion or more in on-balance sheet foreign exposure. The proposal also would apply a modified LCR to bank holding companies with total assets between $50 billion and $250 billion. Under the modified LCR, which is expected to apply to the Company, an institution would be required to hold minimum amounts of high-quality, liquid assets, such as central bank reserves and government and corporate debt that can be readily converted into cash in an amount equal to or greater than its projected net cash outflows during a short-term stress period. The proposed LCR (or the ratio of the institution's liquid assets to its projected net cash outflow) is more stringent than the Basel Committee's LCR standard in several respects, and the proposed transition period, which would begin on January 1, 2015 and require institutions to be fully compliant by January 1, 2017, is shorter than that included in the Basel Committee's standards.

        The Company is currently evaluating the proposal and its potential impact on its businesses; however, the Company expects to meet or exceed the final LCR requirement within the regulatory timelines. For information regarding this proposed rule, see"The effects of changes or increases in, or supervisory enforcement of,

31

banking or other laws and regulations or governmental fiscal or monetary policies could adversely affect us" in Part II, Item 1A. "Risk Factors" of our 2013 Form 10-K.

Operational Risk Management

        Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This definition includes legal risk, which includes exposure to fines, penalties, or punitive damages resulting from supervisory actions, as well as private settlements, but excludes strategic and reputational risk. In particular, information security is a significant operational risk element for the Company, and includes the risk of losses resulting from cyber attacks. See "We are subject to operational risks, including cybersecurity risks" in Part I, Item 1A. "Risk Factors" of our 2013 Form 10-K. Operational risk is mitigated through a system of internal controls that are designed to keep operating risks at appropriate levels.

Business Segments

        During the fourth quarter 2013, the composition of the Company's reportable segments was revised to reflect our new internal management structure resulting from the BTMU Americas Holdings business integration initiative announced in 2013. We now have five reportable segments: Retail Banking & Wealth Markets, Commercial Banking, Corporate Banking, Transaction Banking, and Investment Banking & Markets. Prior period segment results have been revised to conform to the current period presentation. For a more detailed description of these reportable segments, refer to Note 14 to our Consolidated Financial Statements included in Part I, Item 1 "Financial Statements" of this Form 10-Q.

        Unlike accounting principles generally accepted in the United States of America (U.S. 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. For a description of these methodologies, see Note 14 to our Consolidated Financial Statements included in Part I, Item 1 "Financial Statements" of this Form 10-Q.

Retail Banking & Wealth Markets

        Retail Banking & Wealth Markets offers a range of banking products and services to individuals and small businesses, including high net worth individuals and institutional clients, delivered generally through a network of branches, private banking offices, ATMs, broker mortgage referrals, telephone services, and web-based and mobile banking applications. These products and services include mortgages, home equity lines of credit, consumer and commercial loans, deposit accounts, financial planning and investments.

32

        The following tables set forth the results for the Retail Banking & Wealth Markets segment:

Retail Banking & Wealth Markets

	For the Three Months Ended March 31,						Increase (Decrease)
(Dollars in millions)	2014			2013			Amount			Percent
Results of operations—Market View
Net interest income	$	347		$	337		$	10			3	%
Noninterest income		79			93			(14	)		(15	)
Total revenue		426			430			(4	)		(1	)
Noninterest expense		335			364			(29	)		(8	)
(Reversal of) provision for loan losses		(6	)		(8	)		2			25
Income before income taxes and including noncontrolling interests		97			74			23			31
Income tax expense		38			29			9			31
Net income attributable to UnionBanCal	$	59		$	45		$	14			31
Average balances—Market View
Total loans held for investment	$	33,177		$	30,452		$	2,725			9	%
Total assets		34,741			32,218			2,523			8
Total deposits		40,306			35,529			4,777			13

        Net interest income increased due to organic loan growth. Offsetting this increase was a decrease in noninterest income largely driven by a decrease in asset management fees due primarily to the reorganization of the affiliated HighMark Funds into shares of unaffiliated mutual funds completed in the third quarter of 2013. The decrease in noninterest expense was primarily driven by a decrease in total staff expenses. The reversal of the provision for loan losses was due to an improvement in customer credit quality.

        Average asset growth for the first quarter of 2014 compared with the first quarter of 2013, was primarily driven by a 9 percent increase in average loans held for investment, mainly in residential mortgages. Average deposits increased 13 percent during the first quarter of 2014 compared with the first quarter of 2013, driven by organic deposit generation.

Commercial Banking

        Commercial Banking provides credit products including commercial loans, and accounts receivable, inventory, project, trade and real estate financing to corporate customers with revenues generally less than $2 billion. Commercial Banking also offers its customers a range of noncredit services and products, which include global treasury management and capital markets solutions, foreign exchange and various interest rate risk and commodity risk management products through cooperation with other segments. Commercial Banking provides these products and services to U.S.-based middle-market businesses located in California, Oregon and Washington, as well as nationally through its Petroleum, Expansion Markets, Real Estate and Specialized Products divisions.

33

        The following tables set forth the results for the Commercial Banking segment:

Commercial Banking

	For the Three Months Ended March 31,				Increase (Decrease)
(Dollars in millions)	2014		2013		Amount			Percent
Results of operations—Market View
Net interest income	$	227	$	206	$	21			10	%
Noninterest income		48		43		5			12
Total revenue		275		249		26			10
Noninterest expense		105		97		8			8
Provision for loan losses		16		27		(11	)		(41	)
Income before income taxes and including noncontrolling interests		154		125		29			23
Income tax expense		34		29		5			17
Net income attributable to UnionBanCal	$	120	$	96	$	24			25
Average balances—Market View
Total loans held for investment	$	29,516	$	22,998	$	6,518			28	%
Total assets		33,406		25,665		7,741			30
Total deposits		12,806		11,844		962			8

        Net interest income increased as a result of strong asset growth, including our PB Capital acquisition. The increase in noninterest income was primarily driven by an increase in merchant banking fee income. The increase in noninterest expense was largely driven by an increase in low-income housing credit investment amortization expense and expenses related to our PB Capital acquisition. The first quarter 2014 provision for loan losses reflected modest deterioration in certain customers' credit quality. The first quarter 2013 provision for loan losses includes the impact of an extension of the wholesale loss emergence period, which previously had been estimated within the unallocated allowance.

        Average asset growth for the first quarter of 2014 compared to the first quarter of 2013 was largely driven by a 28% increase in average loans held for investment reflecting both organic growth and our PB Capital acquisition.

Corporate Banking

        Corporate Banking provides commercial lending products, including commercial loans, lines of credit and project financing, to corporate customers with revenues generally greater than $2 billion. 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, Public Finance, and Financial Institutions (predominantly Insurance and Asset Managers). By working with the Company's other segments, Corporate Banking offers its customers a range of noncredit services, which include global treasury management and capital market solutions, and foreign exchange and various interest rate risk and commodity risk management products.

34

        The following tables set forth the results for the Corporate Banking segment:

Corporate Banking

	For the Three Months Ended March 31,					Increase (Decrease)
(Dollars in millions)	2014			2013		Amount			Percent
Results of operations—Market View
Net interest income	$	31		$	29	$	2			7	%
Noninterest income		18			17		1			6
Total revenue		49			46		3			7
Noninterest expense		15			14		1			7
(Reversal of) provision for loan losses		(16	)		6		(22	)		(367	)
Income before income taxes and including noncontrolling interests		50			26		24			92
Income tax expense		19			11		8			73
Net income attributable to UnionBanCal	$	31		$	15	$	16			107
Average balances—Market View
Total loans held for investment	$	4,167		$	3,655	$	512			14	%
Total assets		4,460			3,900		560			14
Total deposits		3,336			2,324		1,012			44

        The reversal of the provision for loan losses was driven by an improvement in customer credit quality.

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. This segment also manages the digital banking channels for retail, small business, wealth management and commercial clients, as well as commercial product development. The client base consists of financial institutions, corporations, government agencies, insurance companies, mutual funds, investment managers and non-profit organizations.

35

        The following tables set forth the results for the Transaction Banking segment:

Transaction Banking

	For the Three Months Ended March 31,				Increase (Decrease)
(Dollars in millions)	2014		2013		Amount			Percent
Results of operations—Market View
Net interest income	$	100	$	111	$	(11	)		(10	)%
Noninterest income		40		38		2			5
Total revenue		140		149		(9	)		(6	)
Noninterest expense		89		93		(4	)		(4	)
Provision for loan losses		1		1		—			—
Income before income taxes and including noncontrolling interests		50		55		(5	)		(9	)
Income tax expense		19		21		(2	)		(10	)
Net income attributable to UnionBanCal	$	31	$	34	$	(3	)		(9	)
Average balances—Market View
Total loans held for investment	$	174	$	50	$	124			248	%
Total assets		1,497		1,477		20			1
Total deposits		33,609		32,413		1,196			4

        Transaction Banking earns revenue primarily from a net interest income transfer pricing credit on deposit liabilities, as well as service charges on deposit accounts and trust management fees. Net interest income decreased as a result of a lower funds transfer pricing credit on Transaction Banking's deposit liabilities due to a lower cost of funds partially offset by larger average deposit balances. During the first quarter of 2014, average deposits increased 4 percent compared to the first quarter of 2013, reflecting organic growth and the impact of our First Bank Association Bank Services acquisition.

Investment Banking & Markets

        Investment Banking & Markets, which includes Global Capital Markets, works with the Company's other segments to provide customers structured credit services, including project finance; foreign exchange, interest rate and energy risk management solutions; and to facilitate merchant and investment banking-related transactions. Additionally, the segment's leasing arm provides lease and other financing services to corporate customers.

36

        The following tables set forth the results for the Investment Banking & Markets segment:

Investment Banking & Markets

	For the Three Months Ended March 31,					Increase (Decrease)
(Dollars in millions)	2014		2013			Amount			Percent
Results of operations—Market View
Net interest income	$	46	$	46		$	—			—	%
Noninterest income		50		47			3			6
Total revenue		96		93			3			3
Noninterest expense		27		25			2			8
(Reversal of) provision for loan losses		15		(3	)		18			nm
Income before income taxes and including noncontrolling interests		54		71			(17	)		(24	)
Income tax expense		11		19			(8	)		(42	)
Net income attributable to UnionBanCal	$	43	$	52		$	(9	)		(17	)
Average balances—Market View
Total loans held for investment	$	4,141	$	4,287		$	(146	)		(3	)%
Total assets		6,534		6,895			(361	)		(5	)
Total deposits		3,549		3,277			272			8
nm = not meaningful

        Noninterest expense increased primarily due to increased staff expenses and expenses related to compliance with regulatory requirements. The provision for loan losses increased due to modest deterioration in certain customers' credit quality.

Other

        "Other" is comprised of certain corporate activities of the Company; the funds transfer pricing center and credits allocated to the reportable segments; the residual costs of support groups; 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; and the difference between the marginal tax rate and the consolidated effective tax rate. In addition, "Other" includes the Asian Corporate Banking segment, which offers a range of credit, deposit, and investment management products and services to companies located primarily in the U.S. that are affiliated with companies headquartered in Japan and other Asian countries; Corporate Treasury, which is responsible for ALM, wholesale funding, and the ALM investment securities and derivatives hedging portfolios; and the FDIC covered assets.

37

        The following tables set forth the results for Other:

Other

	For the Three Months Ended March 31,						Increase (Decrease)
(Dollars in millions)	2014			2013			Amount			Percent
Results of operations—Market View
Net interest income	$	12		$	1		$	11			nm	%
Noninterest income		(7	)		54			(61	)		(113	)
Total revenue		5			55			(50	)		(91	)
Noninterest expense		124			153			(29	)		(19	)
(Reversal of) provision for loan losses		(15	)		(27	)		12			44
Income (loss) before income taxes and including noncontrolling interests		(104	)		(71	)		(33	)		(46	)
Income tax expense (benefit)		(39	)		(24	)		(15	)		(63	)
Net income (loss) including noncontrolling interest		(65	)		(47	)		(18	)		(38	)
Deduct: net loss from noncontrolling interests		5			4			1			25
Net income attributable to UnionBanCal	$	(60	)	$	(43	)	$	(17	)		(40	)
Average balances—Market View
Total loans held for investment	$	318		$	443		$	(125	)		(28	)%
Total assets		28,489			28,240			249			1
Total deposits		4,724			4,613			111			2

nm = not meaningful

        Noninterest income decreased primarily due to a decrease in gains on the sale of securities, partially offset by a decrease in the amortization of the FDIC indemnification asset. Noninterest expense decreased primarily due to lower pension expense during the first quarter of 2014 compared to the first quarter of 2013. The reversal of the provision for loan losses in the first quarter of 2014 and 2013 reflect the decrease in the unallocated allowance which is included in Other. During the first quarter of 2014 the business segments' allowances for loan losses were updated to reflect various refinements in assumptions underlying the methodology used to measure credit risk ascribed to their loan portfolios, which previously had been estimated within the unallocated allowance. During the first quarter of 2013 Commercial Banking's allowance for loan losses was updated to reflect an extension of the wholesale loss emergence period, which previously had been estimated within the unallocated allowance.

Critical Accounting Estimates

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

38

expected cash flows related to our acquired loans and FDIC indemnification asset, the assumptions used in measuring our pension obligations, and assumptions regarding our effective tax rates.

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

        Understanding our accounting policies is fundamental to understanding our consolidated financial condition and consolidated results of operations. Accordingly, both our critical accounting estimates and our significant accounting policies are discussed in detail in our 2013 Form 10-K. There have been no material changes to these critical accounting estimates during the first quarter of 2014.

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 U.S. 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 March 31, 2014, a non-U.S. affiliate of MUFG engaged in business activities with entities in or affiliated with Iran, including counterparties owned or controlled by the Iranian government. These activities were consistent with rules and regulations applicable to MUFG's non-U.S. affiliate. Specifically, MUFG's non-U.S. banking subsidiary, BTMU, issued letters of credit and guarantees and provided remittance and other settlement services mainly in connection with customer transactions related to the purchase and exportation of Iranian crude oil to Japan, and in some cases, in connection with other petroleum-related transactions with Iran by its customers. These transactions did not involve U.S. dollars nor clearing services of U.S. banks for the settlement of payments, and were reviewed for compliance with applicable U.S. and non-U.S. laws and regulations. For the quarter ended March 31, 2014, the aggregate interest and fee income relating to these transactions was less than ¥50 million, representing less than 0.005 percent of MUFG's total interest and fee income. Some of these transactions were conducted through the use of non-U.S. dollar correspondent accounts and other similar settlement accounts maintained with BTMU outside the United States by Iranian financial institutions and other entities in or affiliated with Iran. In addition to such accounts, BTMU receives deposits in Japan from and provides settlement services in Japan to fewer than ten Iranian government-related entities and fewer than 100 Iranian government-related individuals such as Iranian diplomats, and maintains settlement accounts outside the United States for certain other financial institutions specified in Executive Order 13382, which settlement accounts were frozen in accordance with applicable laws and regulations. For the quarter ended March 31, 2014, the average aggregate balance of deposits held in these accounts represented less than 0.01 percent of the average balance of MUFG's total deposits. The fee income from the transactions attributable to these account holders was less than ¥1 million, representing less than 0.001 percent of MUFG's total fee income. BTMU also holds loans that were arranged prior to changes in applicable laws and regulations to borrowers in or affiliated with Iran, including entities owned by the Iranian government, the outstanding balance of which was less than 500 million, representing less than 0.001 percent of MUFG's total loans, as of March 31, 2014. For the quarter ended March 31, 2014, the aggregate gross interest and fee income relating to these loan transactions was less than ¥25 million, representing less than 0.005 percent of MUFG's total interest and fee income.

        We understand that BTMU will continue to limit its participation in these types of transactions mainly to arrange financing transactions relating to customer imports of Iranian crude oil into Japan, maintain accounts in Japan of Iranian entities and individuals, and obtain interest and fee income and repayment of principal in

39

connection with existing loans to borrowers in or affiliated with Iran, in each case to the extent permitted by applicable laws and regulations.

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 "Market Risk Management" and to Part II, Item 1A of this Form 10-Q under the caption "Risk Factors."

Item 4.   Controls and Procedures

        Disclosure Controls and Procedures.    Our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) have concluded that the design and operation of our disclosure controls and procedures are effective as of March 31, 2014. This conclusion is based on an evaluation conducted under the supervision, and with the participation, of management. Disclosure controls and procedures are those controls and procedures that are designed to ensure that information required to be disclosed in this filing is recorded, processed, summarized and reported in a timely manner and in accordance with the SEC's rules and regulations and to ensure that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

        Internal Control Over Financial Reporting.    During the first quarter of 2014, 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.

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PART I. FINANCIAL INFORMATION

Item 1.   Financial Statements

UnionBanCal Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)

	For the Three Months Ended
(Dollars in millions)	March 31, 2014			March 31, 2013
Interest Income
Loans	$	667		$	629
Securities		115			118
Other		5			3
Total interest income		787			750
Interest Expense
Deposits		62			60
Commercial paper and other short-term borrowings		1			1
Long-term debt		41			36
Total interest expense		104			97
Net Interest Income		683			653
(Reversal of) provision for loan losses		(16	)		(3	)
Net interest income after (reversal of) provision for loan losses		699			656
Noninterest Income
Service charges on deposit accounts		51			53
Trust and investment management fees		26			35
Trading account activities		16			5
Securities gains, net		2			96
Credit facility fees		28			26
Merchant banking fees		24			16
Brokerage commissions and fees		13			11
Card processing fees, net		8			9
Other, net		13			—
Total noninterest income		181			251
Noninterest Expense
Salaries and employee benefits		388			421
Net occupancy and equipment		71			75
Professional and outside services		55			58
Regulatory assessments		15			20
Intangible asset amortization		13			16
Provision for losses on unfunded credit commitments		16			15
Other		102			108
Total noninterest expense		660			713
Income before income taxes and including
noncontrolling interests		220			194
Income tax expense		50			50
Net Income including Noncontrolling Interests		170			144
Deduct: Net loss from noncontrolling interests		5			4
Net Income attributable to UnionBanCal Corporation (UNBC)	$	175		$	148

See accompanying notes to Consolidated Financial Statements.

41

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

	For the Three Months Ended March 31,
(Dollars in millions)	2014			2013
Net Income Attributable to UNBC	$	175		$	148
Other Comprehensive Income (Loss), Net of Tax:
Net change in cash flow hedges		(9	)		—
Net change in securities		68			(64	)
Net change in foreign currency translation adjustments		(2	)		(1	)
Net change in pension and other postretirement benefits		8			18
Total other comprehensive income (loss)		65			(47	)
Comprehensive Income (Loss) Attributable to UNBC		240			101
Comprehensive loss from noncontrolling interests		(5	)		(4	)
Total Comprehensive Income (Loss)	$	235		$	97

See accompanying notes to Consolidated Financial Statements.

42

UnionBanCal Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)

(Dollars in millions except for per share amount)	March 31, 2014			December 31, 2013
Assets
Cash and due from banks	$	1,792		$	1,863
Interest bearing deposits in banks		2,883			4,329
Federal funds sold and securities purchased under resale agreements		32			11
Total cash and cash equivalents		4,707			6,203
Trading account assets (includes $9 at March 31, 2014 and $8 at December 31, 2013 of assets pledged as collateral)		841			851
Securities available for sale		15,366			15,817
Securities held to maturity (Fair value: March 31, 2014, $7,810; December 31, 2013, $6,439)		7,826			6,509
Loans held for investment		69,933			68,312
Allowance for loan losses		(557	)		(568	)
Loans held for investment, net		69,376			67,744
Premises and equipment, net		641			688
Goodwill		3,227			3,228
Other assets		5,253			4,854
Total assets	$	107,237		$	105,894
Liabilities
Deposits:
Noninterest bearing	$	26,881		$	26,495
Interest bearing		54,298			53,606
Total deposits		81,179			80,101
Commercial paper and other short-term borrowings		2,660			2,563
Long-term debt		6,545			6,547
Trading account liabilities		531			540
Other liabilities		1,611			1,675
Total liabilities		92,526			91,426
Commitments, contingencies and guarantees—See Note 13
Equity
UNBC stockholder's equity:
Preferred stock:
Authorized 5,000,000 shares; no shares issued or outstanding		—			—
Common stock, par value $1 per share:
Authorized 300,000,000 shares, 136,330,830 shares issued and outstanding as of March 31, 2014 and December 31, 2013		136			136
Additional paid-in capital		7,196			7,191
Retained earnings		7,687			7,512
Accumulated other comprehensive loss		(559	)		(624	)
Total UNBC stockholder's equity		14,460			14,215
Noncontrolling interests		251			253
Total equity		14,711			14,468
Total liabilities and equity	$	107,237		$	105,894

See accompanying notes to Consolidated Financial Statements.

43

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

	UNBC Stockholder's Equity
(in millions, except shares)	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests			Total Equity
Balance December 31, 2012	$	136	$	5,994	$	6,845	$	(514	)	$	264		$	12,725
Net income (loss)						148					(4	)		144
Other comprehensive income (loss), net of tax								(47	)					(47	)
Compensation—restricted stock units				3										3
Other											10			10
Net change		—		3		148		(47	)		6			110
Balance March 31, 2013	$	136	$	5,997	$	6,993	$	(561	)	$	270		$	12,835
Balance December 31, 2013	$	136	$	7,191	$	7,512	$	(624	)	$	253		$	14,468
Net income (loss)						175					(5	)		170
Other comprehensive income (loss), net of tax								65						65
Compensation—restricted stock units				5										5
Other											3			3
Net change		—		5		175		65			(2	)		243
Balance March 31, 2014	$	136	$	7,196	$	7,687	$	(559	)	$	251		$	14,711

See accompanying notes to Consolidated Financial Statements.

44

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

	For the Three Months Ended March 31,
(Dollars in millions)	2014			2013
Cash Flows from Operating Activities:
Net income including noncontrolling interests	$	170		$	144
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
(Reversal of) provision for loan losses		(16	)		(3	)
Provision for losses on unfunded credit commitments		16			15
Depreciation, amortization and accretion, net		101			128
Stock-based compensation—restricted stock units		5			3
Deferred income taxes		92			(18	)
Net gains on sales of securities		(2	)		(96	)
Net decrease (increase) in trading account assets		11			89
Net decrease (increase) in other assets		(205	)		663
Net increase (decrease) in trading account liabilities		(9	)		(153	)
Net increase (decrease) in other liabilities		(179	)		(477	)
Loans originated for sale		(68	)		(34	)
Net proceeds from sale of loans originated for sale		69			43
Pension and other benefits adjustment		(92	)		(345	)
Other, net		(3	)		(3	)
Total adjustments		(280	)		(188	)
Net cash provided by (used in) operating activities		(110	)		(44	)
Cash Flows from Investing Activities:
Proceeds from sales of securities available for sale		334			5,098
Proceeds from paydowns and maturities of securities available for sale		511			1,043
Purchases of securities available for sale and held to maturity		(1,810	)		(6,018	)
Proceeds from paydowns and maturities of securities held to maturity		161			93
Purchases of premises and equipment		(25	)		(29	)
Proceeds from sales of loans		33			160
Net decrease (increase) in loans		(1,689	)		(1,009	)
Proceeds from FDIC loss share agreements		(8	)		3
Other, net		(70	)		(7	)
Net cash provided by (used in) investing activities		(2,563	)		(666	)
Cash Flows from Financing Activities:
Net increase (decrease) in deposits		1,078			(265	)
Net increase (decrease) in commercial paper and other short-term borrowings		97			865
Repayment of long-term debt		—			(300	)
Change in noncontrolling interests		2			10
Net cash provided by (used in) financing activities		1,177			310
Net change in cash and cash equivalents		(1,496	)		(400	)
Cash and cash equivalents at beginning of period		6,203			5,491
Cash and cash equivalents at end of period	$	4,707		$	5,091
Cash Paid During the Period For:
Interest	$	93		$	80
Income taxes, net		(5	)		(27	)
Supplemental Schedule of Noncash Investing and Financing Activities:
Net transfer of loans held for investment to loans held for sale		65			148
Transfer of loans held for investment to other real estate owned assets (OREO)		2			8

See accompanying notes to Consolidated Financial Statements.

45

Note 1—Summary of Significant Accounting Policies, Nature of Operations and Other Developments

        The unaudited Consolidated Financial Statements of UnionBanCal Corporation, its subsidiaries, and its consolidated variable interest entities (the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Rules and Regulations of the Securities and Exchange Commission (SEC). However, they do not include all of the disclosures necessary for annual financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. The results of operations for the first quarter of 2014 are not necessarily indicative of the operating results anticipated for the full year. These unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements included in UnionBanCal Corporation's Annual Report on Form 10-K for the year ended December 31, 2013 (2013 Form 10-K).

        The preparation of financial statements in conformity with U.S. GAAP also requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Although such estimates contemplate current conditions and management's expectations of how they may change in the future, it is reasonably possible that actual results could differ significantly from those estimates. This could materially affect the Company's results of operations and financial condition in the near term. Significant estimates made by management in the preparation of the Company's financial statements include, but are not limited to, the fair value of assets acquired and liabilities assumed (Note 3), the evaluation of other-than-temporary impairment on investment securities (Note 4), the allowance for credit losses (Note 5), purchased credit-impaired loans (Note 5), goodwill impairment, pension accounting (Note 12), income taxes, fair value of financial instruments (Note 9), and hedge accounting (Note 10).

        UnionBanCal Corporation is a financial holding company and bank holding company whose principal subsidiary is Union Bank, N.A. (the Bank or Union Bank). The Company provides a wide range of financial services to consumers, small businesses, middle-market companies and major corporations nationally and internationally.

Recently Issued Accounting Pronouncements That Are Not Yet Effective

Accounting for Investments in Qualified Affordable Housing Projects

        In January 2014, the FASB issued ASU 2014-01,Accounting for Investments in Qualified Affordable Housing Projects, which amends guidance on the accounting for investments in qualified affordable housing projects and permits reporting entities to make an accounting policy election to account for investments in qualified affordable housing projects using the proportional amortization method, if certain conditions are met. Under the proportional amortization method, reporting entities amortize the initial cost of the investment in proportion to tax credits and tax benefits received and recognize the amortization as a component of income tax expense. This guidance is effective for interim and annual periods beginning on January 1, 2015. The guidance is required to be applied retrospectively to all periods presented. Management is currently assessing the impact of this guidance on the Company's financial position and results of operations, and expects to adopt the standard in 2014.

Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure

        In January 2014, the FASB issued ASU 2014-04,Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure, which provides guidance on when an in substance repossession or foreclosure of residential real estate has occurred and when a creditor should

46

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

derecognize the consumer mortgage loan and recognize the residential real estate. The guidance clarifies that an in-substance repossession or foreclosure occurs upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure, or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. In addition, the standard requires additional interim and annual disclosures. The guidance is effective for interim and annual periods beginning on January 1, 2015, with early adoption permitted. Management does not expect the adoption of this guidance to significantly impact the Company's financial position or results of operations.

Presentation of Financial Statements and Property, Plant and Equipment and Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity

        In April 2014, the FASB issued ASU 2014-08,Presentation of Financial Statements and Property, Plant and Equipment and Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which amends FASB Accounting Standards Codifications Topic 205 and 360, changes the criteria for reporting discontinued operations and requires additional disclosures for discontinued operations which meet the new criteria. The amendments in ASU 2014-08 limit discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have or will have a major effect on an entity's operations and financial results. The guidance is effective for interim and annual periods beginning on January 1, 2015 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.

Note 2—Correction of Prior Period Amounts

        During the third quarter of 2013, the Company corrected prior period errors related to the recognition of income and expense associated with market-linked certificates of deposit. These errors affected historical periods beginning in 2009 through June 30, 2013. The Company recognized certain noninterest income amounts in the period in which the market-linked certificates of deposit originated. These amounts should have been deferred and recognized as a reduction of interest expense over the contractual term of the related certificates of deposit. These errors were not material to any of the Company's previously issued financial statements. In accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 108,Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108), the consolidated statements of income and comprehensive income for the first quarter of 2013 and changes in stockholder's equity for first quarter of 2013 have been adjusted to reflect the correction of these errors.

47

Note 2—Correction of Prior Period Amounts (Continued)

        The following tables show the affected line items within the Consolidated Financial Statements:

Consolidated Statements of Income:

	For the Three Months Ended March 31, 2013
(Dollars in millions)	As Previously Reported		Adjustment			As Corrected
Net Interest Income
Interest expense—deposits	$	65	$	(5	)	$	60
Noninterest Income
Trading account activities		8		(3	)		5
Brokerage commissions and fees		12		(1	)		11
Income before income taxes and including noncontrolling interests		193		1			194
Net Income Attributable to UnionBanCal Corporation		147		1			148

Statements of Changes in Stockholder's Equity:

	December 31, 2012
(Dollars in millions)	As Previously Reported		Adjustment			As Corrected
Retained earnings	$	6,875	$	(30	)	$	6,845

Note 3—Business Combinations

Acquisition of PB Capital

        During the second quarter of 2013, the Company acquired PB Capital Corporation's (PB Capital) institutional commercial real estate (CRE) lending division for $3.7 billion in cash. The acquisition expands the Company's CRE presence in the U.S., and provides geographic and asset class diversification. Excluding the effects of purchase accounting adjustments, the Company acquired approximately $3.5 billion in loans. The assets acquired were recorded at acquisition date fair values of $3.4 billion, resulting in goodwill as of the acquisition date of $227 million, which was allocated to the Company's Commercial Banking reportable business segment. The fair value estimates of the loans acquired are considered provisional and are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available. During the quarter ended March 31, 2014, no measurement period adjustments were applied to the acquisition date fair values, resulting in no change in goodwill.

48

Note 4—Securities

Securities Available for Sale

        At March 31, 2014 and December 31, 2013, the amortized cost, gross unrealized gains, gross unrealized losses, and fair values of securities are presented below.

	March 31, 2014
(Dollars in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Asset Liability Management securities:
U.S. government-sponsored agencies	$	72	$	—	$	—	$	72
Residential mortgage-backed securities:
U.S. government agency and government-sponsored agencies		8,754		1		226		8,529
Privately issued		207		5		2		210
Privately issued—commercial mortgage-backed securities		1,876		9		55		1,830
Collateralized loan obligations		2,642		22		22		2,642
Asset-backed and other		24		1		—		25
Asset Liability Management securities		13,575		38		305		13,308
Other debt securities:
Direct bank purchase bonds		1,986		40		39		1,987
Other		67		—		4		63
Equity securities		7		1		—		8
Total securities available for sale	$	15,635	$	79	$	348	$	15,366

	December 31, 2013
(Dollars in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Asset Liability Management securities:
U.S. government-sponsored agencies	$	73	$	—	$	—	$	73
Residential mortgage-backed securities:
U.S. government agency and government-sponsored agencies		9,194		2		296		8,900
Privately issued		220		4		2		222
Privately issued—commercial mortgage-backed securities		1,947		8		85		1,870
Collateralized loan obligations		2,670		25		22		2,673
Asset-backed and other		34		1		—		35
Asset Liability Management securities		14,138		40		405		13,773
Other debt securities:
Direct bank purchase bonds		1,968		35		43		1,960
Other		81		—		5		76
Equity securities		7		1		—		8
Total securities available for sale	$	16,194	$	76	$	453	$	15,817

49

Note 4—Securities (Continued)

        The Company's securities available for sale with a continuous unrealized loss position at March 31, 2014 and December 31, 2013 are shown below, identified for periods less than 12 months and 12 months or more.

	March 31, 2014
	Less than 12 months				12 months or more				Total
(Dollars in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Asset Liability Management securities:
Residential mortgage-backed securities:
U.S. government agency and government-sponsored agencies	$	8,075	$	223	$	155	$	3	$	8,230	$	226
Privately issued		65		1		19		1		84		2
Privately issued—commercial mortgage-backed securities		1,077		43		206		12		1,283		55
Collateralized loan obligations		1,833		22		10		—		1,843		22
Asset-backed and other		—		—		1		—		1		—
Asset Liability Management securities		11,050		289		391		16		11,441		305
Other debt securities:
Direct bank purchase bonds		490		15		795		24		1,285		39
Other		12		1		22		3		34		4
Equity securities		5		—		—		—		5		—
Total securities available for sale	$	11,557	$	305	$	1,208	$	43	$	12,765	$	348

50

Note 4—Securities (Continued)

	December 31, 2013
	Less than 12 months				12 months or more				Total
(Dollars in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Asset Liability Management securities:
Residential mortgage-backed securities:
U.S. government agency and government-sponsored agencies	$	8,508	$	293	$	147	$	3	$	8,655	$	296
Privately issued		72		2		18		—		90		2
Privately issued—commercial mortgage-backed securities		1,274		80		58		5		1,332		85
Collateralized loan obligations		1,879		21		10		1		1,889		22
Asset-backed and other		—		—		1		—		1		—
Asset Liability Management securities		11,733		396		234		9		11,967		405
Other debt securities:
Direct bank purchase bonds		537		18		778		25		1,315		43
Other		15		1		34		4		49		5
Equity securities		5		—		—		—		5		—
Total securities available for sale	$	12,290	$	415	$	1,046	$	38	$	13,336	$	453

        At March 31, 2014, 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 corporation or a government-sponsored enterprise (GSE) such as Fannie Mae, Freddie Mac, and Ginnie Mae. These securities are collateralized by residential mortgage loans and may be prepaid at par prior to maturity. The unrealized losses on agency residential mortgage-backed securities resulted from changes in interest rates and not from changes in credit quality. At March 31, 2014, the Company expects to recover the entire amortized cost basis of these securities because the Company determined that the strength of the issuers' guarantees through direct obligations or support from the U.S. government is sufficient to protect the Company from losses.

        Commercial mortgage-backed securities are collateralized by commercial mortgage loans and are generally subject to prepayment penalties. The unrealized losses on commercial mortgage-backed securities resulted from higher market yields since purchase. The Company estimated the unrealized loss for each security by assessing the loans collateralizing each security. The Company estimates the portion of loss attributable to credit based on the expected cash flows of the underlying collateral using estimates of current key assumptions, such as default rates, loss severity and prepayment rates. Based on the analysis performed as of March 31, 2014, 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

51

Note 4—Securities (Continued)

bonds were purchased. The Company estimated 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 March 31, 2014, 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.

	March 31, 2014
(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. government-sponsored agencies	$	72	$	—	$	—	$	—	$	72
Residential mortgage-backed securities:
U.S. government agency and government-sponsored agencies		1		39		573		7,916		8,529
Privately issued		—		—		5		205		210
Privately issued—commercial mortgage-backed securities		—		—		35		1,795		1,830
Collateralized loan obligations		—		306		566		1,770		2,642
Asset-backed and other		—		17		8		—		25
Asset Liability Management securities		73		362		1,187		11,686		13,308
Other debt securities:
Direct bank purchase bonds		136		375		990		486		1,987
Other		—		22		4		37		63
Total debt securities available for sale	$	209	$	759	$	2,181	$	12,209	$	15,358

        The proceeds from sales of securities available for sale and gross realized gains and losses are shown below. The specific identification method is used to calculate realized gains and losses on sales.

	For the Three Months Ended March 31,
(Dollars in millions)	2014		2013
Proceeds from sales	$	334	$	5,098
Gross realized gains		2		99

52

Note 4—Securities (Continued)

Securities Held to Maturity

        The securities held to maturity consist of U.S. Treasury securities, commercial mortgage-backed securities, residential mortgage-backed securities and U.S. government-sponsored agencies. Management has asserted the positive intent and ability to hold these securities to maturity. At March 31, 2014 and December 31, 2013, the amortized cost, gross unrealized gains and losses recognized in other comprehensive income (OCI), carrying amount, gross unrealized gains and losses not recognized in OCI, and fair values of securities held to maturity are presented below.

	March 31, 2014
			Recognized in OCI						Not Recognized in OCI
(Dollars in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Carrying Amount		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. government agency and government-sponsored agencies—residential mortgage backed securities	$	5,533	$	7	$	74	$	5,466	$	16	$	39	$	5,443
U.S. government agency and government-sponsored agencies—commercial mortgage-backed securities		1,841		—		90		1,751		19		8		1,762
U.S. Treasury		484		—		—		484		—		3		481
U.S. government-sponsored agencies		125		—		—		125		—		1		124
Total securities held to maturity	$	7,983	$	7	$	164	$	7,826	$	35	$	51	$	7,810

	December 31, 2013
			Recognized in OCI						Not Recognized in OCI
(Dollars in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Carrying Amount		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. government agency and government-sponsored agencies—residential mortgage backed securities	$	5,065	$	7	$	77	$	4,995	$	8	$	69	$	4,934
U.S. government agency and government-sponsored agencies—commercial mortgage-backed securities		1,606		—		92		1,514		3		12		1,505
Total securities held to maturity	$	6,671	$	7	$	169	$	6,509	$	11	$	81	$	6,439

        For securities held to maturity, the amount recognized in OCI primarily reflects the unrealized gain or loss at date of transfer to the held to maturity classification, net of amortization. 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.

53

Note 4—Securities (Continued)

        The Company's securities held to maturity with a continuous unrealized loss position at March 31, 2014 and December 31, 2013 are shown below, separately for periods less than 12 months and 12 months or more.

	March 31, 2014
	Less than 12 months						12 months or more						Total
			Unrealized Losses						Unrealized Losses						Unrealized Losses
(Dollars in millions)	Fair Value		Recognized in OCI		Not Recognized in OCI		Fair Value		Recognized in OCI		Not Recognized in OCI		Fair Value		Recognized in OCI		Not Recognized in OCI
U.S. government agency and government-sponsored agencies—residential mortgage backed securities	$	3,585	$	63	$	35	$	272	$	11	$	4	$	3,857	$	74	$	39
U.S. government agency and government-sponsored agencies—commercial mortgage-backed securities		960		31		7		702		59		1		1,662		90		8
U.S. Treasury		481		—		3		—		—		—		481		—		3
U.S. government-sponsored agencies		99		—		1		—		—		—		99		—		1
Total securities held to maturity	$	5,125	$	94	$	46	$	974	$	70	$	5	$	6,099	$	164	$	51

	December 31, 2013
	Less than 12 months						12 months or more						Total
			Unrealized Losses						Unrealized Losses						Unrealized Losses
(Dollars in millions)	Fair Value		Recognized in OCI		Not Recognized in OCI		Fair Value		Recognized in OCI		Not Recognized in OCI		Fair Value		Recognized in OCI		Not Recognized in OCI
U.S. government agency and government-sponsored agencies—residential mortgage backed securities	$	3,873	$	76	$	68	$	54	$	1	$	1	$	3,927	$	77	$	69
U.S. government agency and government-sponsored agencies—commercial mortgage-backed securities		1,016		46		10		489		46		2		1,505		92		12
Total securities held to maturity	$	4,889	$	122	$	78	$	543	$	47	$	3	$	5,432	$	169	$	81

54

Note 4—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.

	March 31, 2014
	Over One Year Through Five Years				Over Five Years Through Ten Years				Over Ten Years				Total
(Dollars in millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
U.S. government agency and government-sponsored agencies—residential mortgage backed securities	$	3	$	3	$	—	$	—	$	5,463	$	5,440	$	5,466	$	5,443
U.S. government agency and government-sponsored agencies—commercial mortgage backed securities		—		—		837		851		914		911		1,751		1,762
U.S. Treasury		100		99		384		382		—		—		484		481
U.S. government-sponsored agencies		—		—		125		124		—		—		125		124
Total securities held to maturity	$	103	$	102	$	1,346	$	1,357	$	6,377	$	6,351	$	7,826	$	7,810

Securities Pledged as Collateral

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

        The Company separately identifies in the consolidated balance sheets, securities pledged as collateral in secured borrowings and other arrangements when the secured party can sell or repledge the securities. If the secured party cannot resell or repledge the securities that have been placed as collateral, those securities are not separately identified. At March 31, 2014, the Company had $6.3 billion of securities available for sale pledged as collateral where the secured party cannot resell or repledge such securities. Available for sale securities of $0.7 billion have been pledged to secure borrowings, $0.2 billion to support unrealized losses on derivative transactions reported in trading liabilities and $5.4 billion to secure public and trust deposits.

        At March 31, 2014 and December 31, 2013, the Company accepted securities as collateral that it is permitted by contract to sell or repledge of $31 million (none of which has been repledged) and $10 million (none of which has been repledged), respectively. These securities were received as collateral for secured lending.

55

Note 5—Loans and Allowance for Loan Losses

        The following table provides the outstanding balances of loans at March 31, 2014 and December 31, 2013:

(Dollars in millions)	March 31, 2014			December 31, 2013
Loans held for investment:
Commercial and industrial	$	23,654		$	23,528
Commercial mortgage		13,568			13,092
Construction		1,019			905
Lease financing		845			854
Total commercial portfolio		39,086			38,379
Residential mortgage		26,602			25,547
Home equity and other consumer loans		3,194			3,280
Total consumer portfolio		29,796			28,827
Total loans held for investment, before purchased credit-impaired loans		68,882			67,206
Purchased credit-impaired loans(1)		1,051			1,106
Total loans held for investment(2)		69,933			68,312
Allowance for loan losses		(557	)		(568	)
Loans held for investment, net	$	69,376		$	67,744

(1)

Includes $228 million and $251 million as of March 31, 2014 and December 31, 2013, respectively, of loans for which the Company will be reimbursed a substantial portion of any future losses under the terms of the FDIC loss share agreements. Of these FDIC covered loans, $16 million and $15 million as of March 31, 2014 and December 31, 2013, respectively, were not accounted for under accounting guidance for loans acquired with deteriorated credit quality.

(2)

Includes $114 million and $88 million at March 31, 2014 and December 31, 2013, 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 March 31, 2014
(Dollars in millions)	Commercial			Consumer			Purchased Credit- Impaired		Unallocated			Total
Allowance for loan losses, beginning of period	$	421		$	69		$	1	$	77		$	568
(Reversal of) provision for loan losses		51			(12	)		—		(57	)		(18	)
Provision for purchased credit-impaired loan losses not subject to FDIC indemnification		—			—			2		—			2
Other		(1	)		—			—		—			(1	)
Loans charged-off		(6	)		(3	)		—		—			(9	)
Recoveries of loans previously charged-off		14			1			—		—			15
Allowance for loan losses, end of period	$	479		$	55		$	3	$	20		$	557

56

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

	For the Year Ended December 31, 2013
(Dollars in millions)	Commercial			Consumer			Purchased Credit- Impaired			Unallocated			Total
Allowance for loan losses, beginning of period	$	418		$	124		$	1		$	110		$	653
(Reversal of) provision for loan losses		18			(29	)		—			(33	)		(44	)
(Reversal of) Provision for purchased credit-impaired loan losses not subject to FDIC indemnification		—			—			(1	)		—			(1	)
Decrease in allowance covered by FDIC indemnification		—			—			(8	)		—			(8	)
Loans charged-off		(44	)		(30	)		(3	)		—			(77	)
Recoveries of loans previously charged-off		29			4			12			—			45
Allowance for loan losses, end of period	$	421		$	69		$	1		$	77		$	568

        The following tables show the allowance for loan losses and related loan balances by portfolio segment as of March 31, 2014 and December 31, 2013:

	March 31, 2014
(Dollars in millions)	Commercial		Consumer		Purchased Credit- Impaired		Unallocated		Total
Allowance for loan losses:
Individually evaluated for impairment	$	42	$	21	$	—	$	—	$	63
Collectively evaluated for impairment		437		34		—		20		491
Purchased credit-impaired loans		—		—		3		—		3
Total allowance for loan losses	$	479	$	55	$	3	$	20	$	557
Loans held for investment:
Individually evaluated for impairment	$	224	$	337	$	2	$	—	$	563
Collectively evaluated for impairment		38,862		29,459		—		—		68,321
Purchased credit-impaired loans		—		—		1,049		—		1,049
Total loans held for investment	$	39,086	$	29,796	$	1,051	$	—	$	69,933

	December 31, 2013
(Dollars in millions)	Commercial		Consumer		Purchased Credit- Impaired		Unallocated		Total
Allowance for loan losses:
Individually evaluated for impairment	$	19	$	20	$	—	$	—	$	39
Collectively evaluated for impairment		402		49		—		77		528
Purchased credit-impaired loans		—		—		1		—		1
Total allowance for loan losses	$	421	$	69	$	1	$	77	$	568
Loans held for investment:
Individually evaluated for impairment	$	266	$	339	$	3	$	—	$	608
Collectively evaluated for impairment		38,113		28,488		—		—		66,601
Purchased credit-impaired loans		—		—		1,103		—		1,103
Total loans held for investment	$	38,379	$	28,827	$	1,106	$	—	$	68,312

57

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

Nonaccrual and Past Due Loans

        The following table presents nonaccrual loans as of March 31, 2014 and December 31, 2013:

(Dollars in millions)	March 31, 2014		December 31, 2013
Commercial and industrial	$	89	$	44
Commercial mortgage		46		51
Total commercial portfolio		135		95
Residential mortgage		266		286
Home equity and other consumer loans		49		46
Total consumer portfolio		315		332
Total nonaccrual loans, before purchased credit-impaired loans		450		427
Purchased credit-impaired loans		16		15
Total nonaccrual loans	$	466	$	442
Troubled debt restructured loans that continue to accrue interest	$	297	$	367
Troubled debt restructured nonaccrual loans (included in the total nonaccrual loans above)	$	209	$	225

        The following table shows an aging of the balance of loans held for investment, excluding purchased credit-impaired loans, by class as of March 31, 2014 and December 31, 2013:

	March 31, 2014
	Aging Analysis of Loans
(Dollars in millions)	Current		30 to 89 Days Past Due		90 Days or More Past Due		Total Past Due		Total
Commercial and industrial	$	24,483	$	11	$	5	$	16	$	24,499
Commercial mortgage		13,541		19		8		27		13,568
Construction		1,019		—		—		—		1,019
Total commercial portfolio		39,043		30		13		43		39,086
Residential mortgage		26,408		108		86		194		26,602
Home equity and other consumer loans		3,155		22		17		39		3,194
Total consumer portfolio		29,563		130		103		233		29,796
Total loans held for investment, excluding purchased credit-impaired loans	$	68,606	$	160	$	116	$	276	$	68,882

58

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

	December 31, 2013
	Aging Analysis of Loans
(Dollars in millions)	Current		30 to 89 Days Past Due		90 Days or More Past Due		Total Past Due		Total
Commercial and industrial	$	24,310	$	66	$	6	$	72	$	24,382
Commercial mortgage		13,004		68		20		88		13,092
Construction		891		14		—		14		905
Total commercial portfolio		38,205		148		26		174		38,379
Residential mortgage		25,342		114		91		205		25,547
Home equity and other consumer loans		3,238		23		19		42		3,280
Total consumer portfolio		28,580		137		110		247		28,827
Total loans held for investment, excluding purchased credit-impaired loans	$	66,785	$	285	$	136	$	421	$	67,206

        Loans 90 days or more past due and still accruing totaled $4 million and $5 million at March 31, 2014 and December 31, 2013, respectively. Purchased credit-impaired loans that were 90 days or more past due and still accruing totaled $123 million and $124 million at March 31, 2014 and December 31, 2013, respectively.

Credit Quality Indicators

        Management analyzes the Company's loan portfolios by applying specific monitoring policies and procedures that vary according to the relative risk profile and other characteristics within the various loan portfolios. For further information related to the credit quality indicators the Company uses to monitor the portfolio, see Note 5 to the Consolidated Financial Statements in Part II, Item 8 "Financial Statements and Supplementary Data" in our 2013 Form 10-K.

59

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

        The following tables summarize the loans in the commercial portfolio segment and commercial loans within the purchased credit-impaired loans segment monitored for credit quality based on internal ratings, excluding $194 million and $213 million covered by Federal Deposit Insurance Corporation (FDIC) loss share agreements, at March 31, 2014 and December 31, 2013, respectively. The amounts presented reflect unpaid principal balances less charge-offs.

	March 31, 2014
(Dollars in millions)	Pass		Special Mention		Classified		Total
Commercial and industrial	$	23,466	$	595	$	342	$	24,403
Construction		1,021		9		—		1,030
Commercial mortgage		13,014		151		221		13,386
Total commercial portfolio		37,501		755		563		38,819
Purchased credit-impaired loans		54		186		347		587
Total	$	37,555	$	941	$	910	$	39,406

	December 31, 2013
(Dollars in millions)	Pass		Special Mention		Classified		Total
Commercial and industrial	$	23,346	$	576	$	313	$	24,235
Construction		879		14		—		893
Commercial mortgage		12,562		142		228		12,932
Total commercial portfolio		36,787		732		541		38,060
Purchased credit-impaired loans		48		204		362		614
Total	$	36,835	$	936	$	903	$	38,674

        The Company monitors the credit quality of its consumer portfolio segment and consumer loans within the purchased credit-impaired loans segment based primarily on payment status. The following tables summarize the loans in the consumer portfolio segment and purchased credit-impaired loans segment, which excludes $34 million and $38 million of loans covered by FDIC loss share agreements, at March 31, 2014 and December 31, 2013, respectively:

	March 31, 2014
(Dollars in millions)	Accrual		Nonaccrual		Total
Residential mortgage	$	26,336	$	266	$	26,602
Home equity and other consumer loans		3,145		49		3,194
Total consumer portfolio		29,481		315		29,796
Purchased credit-impaired loans		236		—		236
Total	$	29,717	$	315	$	30,032

60

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

	December 31, 2013
(Dollars in millions)	Accrual		Nonaccrual		Total
Residential mortgage	$	25,261	$	286	$	25,547
Home equity and other consumer loans		3,234		46		3,280
Total consumer portfolio		28,495		332		28,827
Purchased credit-impaired loans		242		—		242
Total	$	28,737	$	332	$	29,069

        The Company also monitors the credit quality for substantially all of its consumer portfolio segment using credit scores provided by Fair Isaac Corporation (FICO) and refreshed loan-to-value (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 (HPI) data available for the property location.

        The following tables summarize the loans in the consumer portfolio segment and consumer loans within the purchased credit-impaired loans segment monitored for credit quality based on refreshed FICO scores and refreshed LTV ratios at March 31, 2014 and December 31, 2013. These tables exclude loans covered by FDIC loss share agreements, as discussed above. The amounts presented reflect unpaid principal balances less partial charge-offs.

	March 31, 2014
	FICO scores
(Dollars in millions)	720 and Above			Below 720			No FICO Available(1)			Total
Residential mortgage	$	20,479		$	5,425		$	506		$	26,410
Home equity and other consumer loans		2,217			811			80			3,108
Total consumer portfolio		22,696			6,236			586			29,518
Purchased credit-impaired loans		93			129			14			236
Total	$	22,789		$	6,365		$	600		$	29,754
Percentage of total		77	%		21	%		2	%		100	%

(1)

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

	December 31, 2013
	FICO scores
(Dollars in millions)	720 and Above			Below 720			No FICO Available(1)			Total
Residential mortgage	$	19,614		$	5,301		$	459		$	25,374
Home equity and other consumer loans		2,283			839			81			3,203
Total consumer portfolio		21,897			6,140			540			28,577
Purchased credit-impaired loans		94			135			15			244
Total	$	21,991		$	6,275		$	555		$	28,821
Percentage of total		76	%		22	%		2	%		100	%

(1)

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

61

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

	March 31, 2014
	LTV ratios
(Dollars in millions)	Less than 80 Percent			80-100 Percent			Greater than 100 Percent			No LTV Available(1)			Total
Residential mortgage	$	24,187		$	1,955		$	208		$	60		$	26,410
Home equity loans		2,437			335			186			52			3,010
Total consumer portfolio		26,624			2,290			394			112			29,420
Purchased credit-impaired loans		152			55			26			—			233
Total	$	26,776		$	2,345		$	420		$	112		$	29,653
Percentage of total		90	%		8	%		2	%		—	%		100	%

(1)

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

	December 31, 2013
	LTV ratios
(Dollars in millions)	Less than 80 Percent			80-100 Percent			Greater than 100 Percent			No LTV Available(1)			Total
Residential mortgage	$	23,209		$	1,884		$	228		$	53		$	25,374
Home equity loans		2,487			362			202			52			3,103
Total consumer portfolio		25,696			2,246			430			105			28,477
Purchased credit-impaired loans		152			57			31			—			240
Total	$	25,848		$	2,303		$	461		$	105		$	28,717
Percentage of total		90	%		8	%		2	%		—	%		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 troubled debt restructurings (TDRs) as of March 31, 2014 and December 31, 2013. The summary includes those TDRs that are on nonaccrual status and those that continue to accrue interest. The Company had $35 million and $43 million in commitments to lend additional funds to borrowers with loan modifications classified as TDRs as of March 31, 2014 and December 31, 2013, respectively.

(Dollars in millions)	March 31, 2014		December 31, 2013
Commercial and industrial	$	135	$	212
Commercial mortgage		32		38
Total commercial portfolio		167		250
Residential mortgage		312		315
Home equity and other consumer loans		25		24
Total consumer portfolio		337		339
Total restructured loans, excluding purchased credit-impaired loans(1)	$	504	$	589

(1)

Amounts exclude $2 million and $3 million of TDRs covered by FDIC loss share agreements at March 31, 2014 and December 31, 2013, respectively.

62

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

        For the first quarter of 2014, TDR modifications in the commercial portfolio segment were primarily composed of interest rate changes, maturity extensions, 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. There were no charge-offs related to TDR modifications for the three months ended March 31, 2014 and for the year ended December 31, 2013. 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.

        The following table provides the pre- and post-modification outstanding recorded investment amounts of TDRs as of the date of the restructuring that occurred during the first quarter of 2014 and 2013:

	For the Three Months Ended March 31, 2014				For the Three Months Ended March 31, 2013
(Dollars in millions)	Pre-Modification Outstanding Recorded Investment(1)		Post-Modification Outstanding Recorded Investment(2)		Pre-Modification Outstanding Recorded Investment(1)		Post-Modification Outstanding Recorded Investment(2)
Commercial and industrial	$	4	$	4	$	76	$	74
Commercial mortgage		11		11		11		11
Total commercial portfolio		15		15		87		85
Residential mortgage		6		5		25		24
Home equity and other consumer loans		2		2		1		1
Total consumer portfolio		8		7		26		25
Total	$	23	$	22	$	113	$	110

(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.

        The following table provides the recorded investment amounts of TDRs at the date of default, for which there was a payment default during the first quarter of 2014 and 2013, and where the default occurred within the first twelve months after modification into a TDR. A payment default is defined as the loan being 60 days or more past due.

(Dollars in millions)	For the Three Months Ended March 31, 2014		For the Three Months Ended March 31, 2013
Commercial and industrial	$	—	$	5
Total commercial portfolio		—		5
Residential mortgage		2		2
Home equity and other consumer loans		1		—
Total consumer portfolio		3		2
Total	$	3	$	7

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

63

Note 5—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, commercial mortgage loan portfolios, and loans modified in a TDR. When the value of an impaired loan is less than the recorded investment in the loan, the Company records an impairment allowance.

        The following tables show information about impaired loans by class as of March 31, 2014 and December 31, 2013:

	March 31, 2014
	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	$	182	$	10	$	192	$	40	$	187	$	11
Commercial mortgage		28		4		32		2		31		4
Total commercial portfolio		210		14		224		42		218		15
Residential mortgage		220		92		312		21		236		106
Home equity and other consumer loans		4		21		25		—		5		34
Total consumer portfolio		224		113		337		21		241		140
Total, excluding purchased credit-impaired loans		434		127		561		63		459		155
Purchased credit-impaired loans		2		—		2		—		2		5
Total	$	436	$	127	$	563	$	63	$	461	$	160

	December 31, 2013
	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	$	117	$	104	$	221	$	16	$	121	$	114
Commercial mortgage		33		12		45		3		36		15
Total commercial portfolio		150		116		266		19		157		129
Residential mortgage		220		95		315		20		236		108
Home equity and other consumer loans		4		20		24		—		4		34
Total consumer portfolio		224		115		339		20		240		142
Total, excluding purchased credit-impaired loans		374		231		605		39		397		271
Purchased credit-impaired loans		2		1		3		—		2		6
Total	$	376	$	232	$	608	$	39	$	399	$	277

64

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

        The following table presents the average recorded investment in impaired loans and the amount of interest income recognized for impaired loans during the first quarters of 2014 and 2013 for the commercial, consumer and purchased credit-impaired loans portfolio segments.

	For the Three Months Ended March 31,
	2014				2013
(Dollars in millions)	Average Recorded Investment		Recognized Interest Income		Average Recorded Investment		Recognized Interest Income
Commercial and industrial	$	206	$	3	$	241	$	3
Commercial mortgage		36		2		63		—
Construction		—		—		18		—
Total commercial portfolio		242		5		322		3
Residential mortgage		313		3		275		3
Home equity and other consumer loans		25		1		21		—
Total consumer portfolio		338		4		296		3
Total, excluding purchased credit-impaired loans		580		9		618		6
Purchased credit-impaired loans		3		—		5		—
Total	$	583	$	9	$	623	$	6

        The Company transferred a net $65 million and $148 million of loans from held for investment to held for sale and sold $33 million and $160 million in loans during the three months ended March 31, 2014 and 2013, respectively.

Loans Acquired in Business Combinations

        The Company accounts for certain loans acquired in business combinations in accordance with accounting guidance related to loans acquired with deteriorated credit quality (purchased credit-impaired loans). The following table presents the outstanding balances and carrying amounts of the Company's purchased credit-impaired loans as of March 31, 2014 and December 31, 2013.

(Dollars in millions)	March 31, 2014		December 31, 2013
Total outstanding balance	$	1,637	$	1,733
Carrying amount		1,035		1,091

        The accretable yield for purchased credit-impaired loans for the first quarters of 2014 and 2013 was as follows:

	For the Three Months Ended March 31,
(Dollars in millions)	2014			2013
Accretable yield, beginning of period	$	378		$	590
Accretion		(60	)		(79	)
Reclassifications from nonaccretable difference during the period		64			(10	)
Accretable yield, end of period	$	382		$	501

65

Note 6—Variable Interest Entities

        In the normal course of business, the Company has certain financial interests in entities which have been determined to be variable interest entities (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 March 31, 2014.

	March 31, 2014
	Consolidated Assets
									Consolidated Liabilities
	Interest Bearing Deposits in Banks		Loans Held for Investment, net
(Dollars in millions)					Other Assets		Total Assets		Long-Term Debt		Other Liabilities		Total Liabilities
Low-income housing credit investments	$	9	$	—	$	260	$	269	$	4	$	—	$	4
Leasing investments		4		739		93		836		—		77		77
Total consolidated VIEs	$	13	$	739	$	353	$	1,105	$	4	$	77	$	81

Low-Income Housing Credit (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 a primary beneficiary and has consolidated these investments because the Company has the power to direct activities that most significantly impact the funds' economic performances and also has the obligation to absorb losses of the funds that could potentially be significant to the funds. Neither creditors nor equity investors in the LIHC investments have any recourse to the general credit of the Company, and the Company's creditors do not have any recourse to the assets of the consolidated LIHC investments.

Leasing Investments

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

Unconsolidated VIEs

        The following table presents the Company's carrying amounts related to the unconsolidated VIEs and location on the consolidated balance sheets at March 31, 2014. The table also presents the Company's maximum exposure to loss resulting from its involvement with these VIEs. The maximum exposure to loss

66

Note 6—Variable Interest Entities (Continued)

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.

	March 31, 2014
	Unconsolidated Assets										Unconsolidated Liabilities
(Dollars in millions)	Trading Account Assets		Securities Available for Sale		Loans Held for Investment		Other Assets		Total Assets		Other Liabilities		Total Liabilities		Maximum Exposure to Loss
LIHC investments	$	—	$	71	$	157	$	1,047	$	1,275	$	474	$	474	$	1,275
Leasing investments		—		—		43		738		781		—		—		797
Other investments		85		—		28		29		142		2		2		142
Total unconsolidated VIEs	$	85	$	71	$	228	$	1,814	$	2,198	$	476	$	476	$	2,214

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, and therefore is not considered the primary beneficiary and does not consolidate these investments.

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 a third party sponsor. 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 activities of the LLCs, and therefore is not considered the primary beneficiary and does not consolidate these entities.

Other Investments

        Through a subsidiary, the Company has mezzanine debt investments and direct equity 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 entities.

Note 7—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)	March 31, 2014		December 31, 2013
Federal funds purchased and securities sold under repurchase agreements with weighted average interest rates of 0.05% and 0.07% at March 31, 2014 and December 31, 2013, respectively	$	106	$	39
Commercial paper, with weighted average interest rates of 0.17% and 0.19% at March 31, 2014 and December 31, 2013, respectively		2,554		2,524
Total commercial paper and other short-term borrowings	$	2,660	$	2,563

67

Note 8—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)	March 31, 2014		December 31, 2013
Debt issued by UnionBanCal Corporation
Senior debt:
Fixed rate 3.50% notes due June 2022	$	397	$	397
Subordinated debt:
Floating rate subordinated debt due December 2023. This note, which bears interest at 1.38% above 3-month LIBOR, had a rate of 1.61% at March 31, 2014 and 1.63% at December 31, 2013		300		300
Junior subordinated debt payable to trusts(1):
Floating rate notes with maturities ranging from March 2033 to September 2036. These notes bear a combined weighted-average rate of 2.58% at March 31, 2014 and 2.60% at December 31, 2013		66		66
Total debt issued by UnionBanCal Corporation		763		763
Debt issued by Union Bank, N.A. and other subsidiaries
Senior debt:
Fixed and floating rate Federal Home Loan Bank advances with maturities ranging from February 2015 to February 2016. These notes bear a combined weighted-average rate of 2.55% at March 31, 2014 and December 31, 2013	$	800	$	800
Floating rate notes due June 2014. These notes, which bear interest at 0.95% above 3-month LIBOR, had a rate of 1.19% at March 31, 2014 and December 31, 2013		300		300
Fixed rate 3.00% notes due June 2016		699		699
Fixed rate 1.50% notes due September 2016		499		499
Floating rate notes due September 2016. These notes, which bear interest at 0.75% above 3-month LIBOR, had a rate of 0.99% at March 31, 2014 and 1.00% at December 31, 2013		500		500
Fixed rate 2.125% notes due June 2017		499		499
Fixed rate 2.625% notes due September 2018		1,000		1,000
Note payable:
Fixed rate 6.03% notes due July 2014 (related to consolidated VIE)		4		4
Subordinated debt:
Fixed rate 5.95% notes due May 2016		717		718
Subordinated debt due to The Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU):
Floating rate subordinated debt due June 2023. This note, which bears interest at 1.2% above 3-month LIBOR, had a rate of 1.43% at March 31, 2014 and 1.45% at December 31, 2013		750		750
Capital lease obligations with a combined weighted average interest rate of 4.88% at March 31, 2014 and December 31, 2013(1)		14		15
Total debt issued by Union Bank, N.A. and other subsidiaries		5,782		5,784
Total long-term debt	$	6,545	$	6,547

(1)

Long-term debt assumed through the acquisition of Pacific Capital Bancorp

68

Note 9—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 creditworthiness in determining the fair value of its trading liabilities. For further information related to the valuation methodologies used for certain financial assets and financial liabilities measured at fair value, see Note 12 to the Consolidated Financial Statements in Part II, Item 8 "Financial Statements and Supplementary Data" in our 2013 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 U.S. 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 12 to the Consolidated Financial Statements in Part II, Item 8 "Financial Statements and Supplementary Data" in our 2013 Form 10-K.

Valuation Processes

        The Company has established a Valuation Committee (VC) to oversee its valuation framework for measuring fair value and to establish valuation policies and procedures. The VC'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 VC reports to the Company's Risk & Capital Committee and meets at least quarterly.

        Independent Price Verification (IPV) 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 IPV procedures, the Company compares pricing sources, tests data variance 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 VC. For further information related to valuation processes, see Note 12 to the Consolidated Financial Statements in Part II, Item 8 "Financial Statements and Supplementary Data" in our 2013 Form 10-K.

69

Note 9—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 March 31, 2014 and December 31, 2013, by major category and by valuation hierarchy level:

	March 31, 2014
(Dollars in millions)	Level 1			Level 2			Level 3			Netting Adjustment(1)			Fair Value
Assets
Trading account assets:
U.S. Treasury	$	—		$	92		$	—		$	—		$	92
U.S. government-sponsored agencies		—			39			—			—			39
State and municipal		—			26			—			—			26
Other loans		—			85			—			—			85
Interest rate derivative contracts		—			661			7			(163	)		505
Commodity derivative contracts		—			67			11			(53	)		25
Foreign exchange derivative contracts		1			30			2			(15	)		18
Equity derivative contracts		—			—			253			(202	)		51
Total trading account assets		1			1,000			273			(433	)		841
Securities available for sale:
U.S. government-sponsored agencies		—			72			—			—			72
Residential mortgage-backed securities:
U.S. government and government-sponsored agencies		—			8,529			—			—			8,529
Privately issued		—			210			—			—			210
Privately issued—commercial mortgage-backed securities		—			1,830			—			—			1,830
Collateralized loan obligations		—			2,642			—			—			2,642
Asset-backed and other		—			25			—			—			25
Other debt securities:
Direct bank purchase bonds		—			—			1,987			—			1,987
Other		—			4			59			—			63
Equity securities		8			—			—			—			8
Total securities available for sale		8			13,312			2,046			—			15,366
Other assets:
Interest rate hedging contracts		—			9			—			—			9
Other derivative contracts		—			—			1			—			1
Total other assets		—			9			1			—			10
Total assets	$	9		$	14,321		$	2,320		$	(433	)	$	16,217
Percentage of Total		—	%		88	%		14	%		(2	)%		100	%
Percentage of Total Company Assets		—	%		13	%		2	%		—	%		15	%
Liabilities
Trading account liabilities:
Interest rate derivative contracts	$	3		$	550		$	—		$	(355	)	$	198
Commodity derivative contracts		—			54			11			(42	)		23
Foreign exchange derivative contracts		1			35			2			(12	)		26
Equity derivative contracts		—			—			253			—			253
Securities sold, not yet purchased		—			31			—			—			31
Total trading account liabilities		4			670			266			(409	)		531
Other liabilities:
FDIC clawback liability		—			—			100			—			100
Interest rate hedging contracts		—			22			—			—			22
Other derivative contracts		—			2			2			—			4
Total other liabilities		—			24			102			—			126
Total liabilities	$	4		$	694		$	368		$	(409	)	$	657
Percentage of Total		1	%		105	%		56	%		(62	)%		100	%
Percentage of Total Company Liabilities		—	%		1	%		—	%		—	%		1	%

(1)

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

70

Note 9—Fair Value Measurement and Fair Value of Financial Instruments (Continued)

	December 31, 2013
(Dollars in millions)	Level 1			Level 2			Level 3			Netting Adjustment(1)			Fair Value
Assets
Trading account assets:
U.S. Treasury	$	—		$	8		$	—		$	—		$	8
U.S. government-sponsored agencies		—			116			—			—			116
State and municipal		—			5			—			—			5
Other loans		—			140			—			—			140
Interest rate derivative contracts		1			705			7			(212	)		501
Commodity derivative contracts		—			67			9			(66	)		10
Foreign exchange derivative contracts		1			30			2			(18	)		15
Equity derivative contracts		—			—			253			(197	)		56
Total trading account assets		2			1,071			271			(493	)		851
Securities available for sale:
U.S. government-sponsored agencies		—			73			—			—			73
Residential mortgage-backed securities:
U.S. government and government-sponsored agencies		—			8,900			—			—			8,900
Privately issued		—			222			—			—			222
Privately issued—commercial mortgage-backed securities		—			1,870			—			—			1,870
Collateralized loan obligations		—			2,673			—			—			2,673
Asset-backed and other		—			35			—			—			35
Other debt securities:
Direct bank purchase bonds		—			—			1,960			—			1,960
Other		—			18			58			—			76
Equity securities		8			—			—			—			8
Total securities available for sale		8			13,791			2,018			—			15,817
Other assets:
Interest rate hedging contracts		—			8			—			—			8
Other derivative contracts		—			1			1			—			2
Total other assets		—			9			1			—			10
Total assets	$	10		$	14,871		$	2,290		$	(493	)	$	16,678
Percentage of Total		—	%		89	%		14	%		(3	)%		100	%
Percentage of Total Company Assets		—	%		14	%		2	%		—	%		16	%
Liabilities
Trading account liabilities:
Interest rate derivative contracts	$	3		$	606		$	—		$	(379	)	$	230
Commodity derivative contracts		—			53			8			(33	)		28
Foreign exchange derivative contracts		1			26			2			(11	)		18
Equity derivative contracts		—			—			254			—			254
Securities sold, not yet purchased		—			10			—			—			10
Total trading account liabilities		4			695			264			(423	)		540
Other liabilities:
FDIC clawback liability		—			—			96			—			96
Interest rate hedging contracts		—			13			—			—			13
Other derivative contracts		—			1			3			—			4
Total other liabilities		—			14			99			—			113
Total liabilities	$	4		$	709		$	363		$	(423	)	$	653
Percentage of Total		1	%		109	%		55	%		(65	)%		100	%
Percentage of Total Company Liabilities		—	%		1	%		—	%		—	%		1	%

(1)

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

71

Note 9—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 first quarters of 2014 and 2013. Level 3 available for sale securities at March 31, 2014 and 2013 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
	March 31, 2014
(Dollars in millions)	Trading Assets			Securities Available for Sale			Other Assets		Trading Liabilities			Other Liabilities
Asset (liability) balance, beginning of period	$	271		$	2,018		$	1	$	(264	)	$	(99	)
Total gains (losses) (realized/unrealized):
Included in income before taxes		1			—			—		(1	)		(4	)
Included in other comprehensive income		—			8			—		—			—
Purchases/additions		3			123			—		—			—
Sales		—			—			—		(3	)		—
Settlements		(2	)		(103	)		—		2			—
Transfers into Level 3		—			—			—		—			—
Asset (liability) balance, end of period	$	273		$	2,046		$	1	$	(266	)	$	(103	)
Changes in unrealized gains (losses) included in income before taxes for assets and liabilities still held at end of period	$	1		$	—		$	—	$	(1	)	$	(4	)

	For the Three Months Ended
	March 31, 2013
(Dollars in millions)	Trading Assets		Securities Available for Sale			Other Assets		Trading Liabilities			Other Liabilities
Asset (liability) balance, beginning of period	$	136	$	1,499		$	—	$	(136	)	$	(95	)
Total gains (losses) (realized/unrealized):
Included in income before taxes		47		—			—		(48	)		(1	)
Included in other comprehensive income		—		19			—		—			—
Purchases/additions		3		137			1		—			—
Sales		—		(14	)		—		(3	)		—
Settlements		—		(49	)		—		—			—
Transfers into Level 3		—		—					—			—
Asset (liability) balance, end of period	$	186	$	1,592		$	1	$	(187	)	$	(96	)
Changes in unrealized gains (losses) included in income before taxes for assets and liabilities still held at end of period	$	47	$	—		$	—	$	(48	)	$	(1	)

72

Note 9—Fair Value Measurement and Fair Value of Financial Instruments (Continued)

        The following table presents information about significant unobservable inputs related to the Company's significant Level 3 assets and liabilities at March 31, 2014.

	March 31, 2014
(Dollars in millions)	Level 3 Fair Value		Valuation Technique(s)	Significant Unobservable Input(s)	Range of Inputs			Weighted Average
Securities available for sale:
Direct bank purchase bonds	$	1,987	Return on equity	Market-required return on capital		8.0 - 10.0	%		9.9	%
				Probability of default		0.0 - 25.0	%		0.6	%
				Loss severity		10.0 - 65.0	%		32.5	%
Other liabilities:
FDIC clawback liability	$	100	Discounted cash flow	Probability of default		0.1 - 100.0	%		57.3	%
				Loss severity		11.3 - 100.0	%		38.4	%

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

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

Fair Value Measurement on a Nonrecurring Basis

        Certain assets may be measured at fair value on a nonrecurring basis. These assets are subject to fair value adjustments that result from the application of the lower of cost or fair value accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis during the first quarters of 2014 and 2013 that were still held on the consolidated balance sheet as of the respective periods ended, the following tables present the fair value of such financial instruments by the level of valuation assumptions used to determine each fair value adjustment.

	March 31, 2014
									Loss for the Three Months Ended March 31, 2014
(Dollars in millions)	Fair Value		Level 1		Level 2		Level 3
Loans:
Impaired loans	$	76	$	—	$	—	$	76	$	(29	)
Other assets:
OREO		5		—		—		5		(1	)
Total	$	81	$	—	$	—	$	81	$	(30	)

	March 31, 2013
									Loss for the Three Months Ended March 31, 2013
(Dollars in millions)	Fair Value		Level 1		Level 2		Level 3
Loans:
Impaired loans	$	90	$	—	$	—	$	90	$	(12	)
Other assets:
OREO		38		—		—		38		(3	)
Total	$	128	$	—	$	—	$	128	$	(15	)

73

Note 9—Fair Value Measurement and Fair Value of Financial Instruments (Continued)

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

Fair Value of Financial Instruments Disclosures

        The tables below present the carrying amount and estimated fair value of certain financial instruments by the level of valuation assumptions held by the Company as of March 31, 2014 and as of December 31, 2013:

	March 31, 2014
(Dollars in millions)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	4,707	$	4,707	$	4,707	$	—	$	—
Securities held to maturity		7,826		7,810		—		7,810		—
Loans held for investment, net of allowance for loan losses(1)		68,539		69,863		—		—		69,863
FDIC indemnification asset		123		95		—		—		95
Other assets		3		4		—		—		4
Liabilities
Deposits	$	81,179	$	81,293	$	—	$	81,293	$	—
Commercial paper and other short-term borrowings		2,660		2,660		—		2,660		—
Long-term debt		6,545		6,711		—		6,711		—
Off-Balance Sheet Instruments
Commitments to extend credit and standby and commercial letters of credit	$	288	$	288	$	—	$	—	$	288

(1)

Excludes lease financing, net of related allowance.

74

Note 9—Fair Value Measurement and Fair Value of Financial Instruments (Continued)

	December 31, 2013
(Dollars in millions)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	6,203	$	6,203	$	6,203	$	—	$	—
Securities held to maturity		6,509		6,439		—		6,439		—
Loans held for investment, net of allowance for loan losses(1)		66,898		68,132		—		—		68,132
FDIC indemnification asset		141		95		—		—		95
Other assets		3		3		—		—		3
Liabilities
Deposits	$	80,101	$	80,228	$	—	$	80,228	$	—
Commercial paper and other short-term borrowings		2,563		2,563		—		2,563		—
Long-term debt		6,547		6,709		—		6,709		—
Off-Balance Sheet Instruments
Commitments to extend credit and standby and commercial letters of credit	$	273	$	273	$	—	$	—	$	273

(1)

Excludes lease financing, net of related allowance.

        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 2013 Form 10-K.

Note 10—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 and, subject to certain limits, may take market risk when buying and selling derivatives for its own account. 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 collateral support annex (CSA) agreements. Additionally, the Company considers the potential loss in the event of counterparty default in estimating the fair value amount of the derivative instrument.

        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 and qualifying as hedging instruments as of March 31, 2014 and December 31, 2013, respectively. Asset and liability values are presented gross, excluding the impact of legally enforceable master netting and CSA 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

75

Note 10—Derivative Instruments and Other Financial Instruments Used For Hedging (Continued)

value of asset and liability trading derivatives are included in trading account assets and trading account liabilities, respectively.

	March 31, 2014						December 31, 2013
			Fair Value						Fair Value
(Dollars in millions)	Notional Amount		Asset Derivatives		Liability Derivatives		Notional Amount		Asset Derivatives		Liability Derivatives
Cash flow hedges
Interest rate contracts	$	6,950	$	9	$	22	$	4,300	$	8	$	13
Not designated and qualifying as hedging instruments:
Trading
Interest rate contracts		45,773		668		553		44,427		713		609
Commodity contracts		5,397		78		65		5,714		76		61
Foreign exchange contracts		5,420		33		38		5,645		33		29
Equity contracts		4,081		253		253		4,027		253		254
Other contracts		85		—		—		140		—		—
Total Trading		60,756		1,032		909		59,953		1,075		953
Other risk management		183		1		4		185		2		4
Total derivative instruments	$	67,889	$	1,042	$	935	$	64,438	$	1,085	$	970

        We recognized net losses of $1 million and $4 million on other risk management derivatives for the three months ended March 31, 2014 and 2013, 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, certificates of deposit (CDs), borrowings, and debt issuances. Derivatives that qualify for hedge accounting are designated as either fair value or cash flow hedges. For the first quarters of 2014 and 2013, the Company did not have fair value hedges. For further information related to the Company's hedging strategy, see Note 13 to the Consolidated Financial Statements in Part II, Item 8 "Financial Statements and Supplementary Data" in our 2013 Form 10-K.

Cash Flow Hedges

        The Company used interest rate swaps with a notional amount of $7.0 billion at March 31, 2014 to hedge the risk of changes in cash flows attributable to changes in the designated benchmark interest rate on LIBOR indexed loans. To the extent effective, payments received (or paid) under the swap contract offset fluctuations in interest income on loans caused by changes in the relevant LIBOR index. At March 31, 2014, the weighted average remaining life of the active cash flow hedges was approximately 3.98 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 earnings in the period in which they arise. At March 31, 2014, the Company expects to reclassify approximately $98 million of income from accumulated other comprehensive income to net interest income during the twelve months ending March 31, 2015. This amount could differ from amounts

76

Note 10—Derivative Instruments and Other Financial Instruments Used For Hedging (Continued)

actually realized due to changes in interest rates, hedge terminations and the addition of other hedges subsequent to March 31, 2014.

        The following tables present the amount and location of the net gains and losses recorded in the Company's consolidated statements of income and changes in stockholder's equity for derivatives designated as cash flow hedges for the first quarters of 2014 and 2013:

	Amount of Gain or (Loss) Recognized in OCI on Derivative Instruments (Effective Portion)				Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)					Gain or (Loss) Recognized in Income on Derivative Instruments (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	For the Three Months Ended March 31,					For the Three Months Ended March 31,					For the Three Months Ended March 31,
(Dollars in millions)	2014		2013		Location	2014		2013		Location	2014		2013
Derivatives in cash flow hedging relationships
					Interest income	$	22	$	7
Interest rate contracts	$	8	$	6	Interest expense		1		—	Noninterest expense(1)	$	—	$	—
Total	$	8	$	6		$	23	$	7		$	—	$	—

(1)

Amount recognized was less than $1 million.

Derivatives Not Designated and Qualifying as Hedging Instruments

Trading Derivatives

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

        The Company offers market-linked CDs, which allow the client to earn the higher of either a minimum fixed rate of interest or a return tied to either equity, commodity or currency indices. The Company offsets its exposure to the embedded derivative contained in market-linked CDs with a matched over-the-counter option. Both the embedded derivative 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 statement of income under the heading trading account activities for the first quarters of 2014 and 2013:

	Gain or (Loss) Recognized in Income on Derivative Instruments
	For the Three Months Ended
(Dollars in millions)	March 31, 2014			March 31, 2013
Trading derivatives:
Interest rate contracts	$	10		$	(1	)
Equity contracts		1			—
Foreign exchange contracts		4			3
Commodity contracts		2			(1	)
Other contracts		(1	)		1
Total	$	16		$	2

77

Note 10—Derivative Instruments and Other Financial Instruments Used For Hedging (Continued)

Offsetting Assets and Liabilities

        The Company primarily enters into derivative contracts and repurchase agreements with counterparties utilizing standard International Swaps and Derivatives Association master netting agreements (ISDA MNA) or master repurchase agreements, which 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 March 31, 2014 and December 31, 2013:

	March 31, 2014
							Gross Amounts Not Offset in Balance Sheet
(Dollars in millions)	Gross Amounts of Recognized Assets/Liabilities		Gross Amounts Offset in Balance Sheet		Net Amounts Presented in Balance Sheet		Financial Instruments		Cash Collateral Received/Pledged		Net Amount
Financial Assets:
Derivative assets	$	1,042	$	433	$	609	$	59	$	—	$	550
Securities purchased under resale agreements		32		—		32		32		—		—
Total	$	1,074	$	433	$	641	$	91	$	—	$	550
Financial Liabilities:
Derivative liabilities	$	935	$	409	$	526	$	146	$	—	$	380
Securities sold under repurchase agreements		9		—		9		9		—		—
Total	$	944	$	409	$	535	$	155	$	—	$	380

	December 31, 2013
							Gross Amounts Not Offset in Balance Sheet
(Dollars in millions)	Gross Amounts of Recognized Assets/Liabilities		Gross Amounts Offset in Balance Sheet		Net Amounts Presented in Balance Sheet		Financial Instruments		Cash Collateral Received/Pledged		Net Amount
Financial Assets:
Derivative assets	$	1,085	$	493	$	592	$	79	$	—	$	513
Securities purchased under resale agreements		10		—		10		10		—		—
Total	$	1,095	$	493	$	602	$	89	$	—	$	513
Financial Liabilities:
Derivative liabilities	$	970	$	423	$	547	$	144	$	—	$	403
Securities sold under repurchase agreements		8		—		8		8		—		—
Total	$	978	$	423	$	555	$	152	$	—	$	403

78

Note 11—Accumulated Other Comprehensive Loss

        The following table presents the change in each of the components of accumulated other comprehensive loss and the related tax effect of the change allocated to each component for the three months ended March 31, 2014 and 2013:

(Dollars in millions)	Before Tax Amount			Tax Effect			Net of Tax
For the Three Months Ended March 31, 2013:
Cash flow hedge activities:
Unrealized net gains (losses) on hedges arising during the period	$	6		$	(2	)	$	4
Less: Reclassification adjustment for net (gains) losses on hedges included in interest income for loans and interest expense on long-term debt		(7	)		3			(4	)
Net change		(1	)		1			—
Securities:
Reclassification adjustment for net (gains) losses on securities available for sale included in securities gains, net		(96	)		38			(58	)
Less: accretion of fair value adjustment on securities available for sale		(15	)		6			(9	)
Less: accretion of fair value adjustment on held to maturity securities		(8	)		3			(5	)
Less: amortization of net unrealized (gains) losses on held to maturity securities		14			(6	)		8
Net change		(105	)		41			(64	)
Foreign currency translation adjustment		(2	)		1			(1	)
Pension and other benefits:
Recognized net actuarial gain (loss)(1)		29			(11	)		18
Net change(1)		29			(11	)		18
Net change in accumulated other comprehensive loss	$	(79	)	$	32		$	(47	)
For the Three Months Ended March 31, 2014:
Cash flow hedge activities:
Unrealized net gains (losses) on hedges arising during the period	$	8		$	(3	)	$	5
Less: Reclassification adjustment for net (gains) losses on hedges included in interest income for loans and interest expense on long-term debt		(23	)		9			(14	)
Net change		(15	)		6			(9	)
Securities:
Unrealized holding gains (losses) arising during the period on securities available for sale		116			(46	)		70
Reclassification adjustment for net (gains) losses on securities available for sale included in securities gains, net		(2	)		1			(1	)
Less: accretion of fair value adjustment on securities available for sale		(6	)		2			(4	)
Less: amortization of net unrealized (gains) losses on held to maturity securities		5			(2	)		3
Net change		113			(45	)		68
Foreign currency translation adjustment		(4	)		2			(2	)
Pension and other benefits:
Recognized net actuarial gain (loss)(1)		14			(6	)		8
Net change(1)		14			(6	)		8
Net change in accumulated other comprehensive loss	$	108		$	(43	)	$	65

(1)

These amounts are included in the computation of net periodic pension cost. For further information, see Note 12 to these consolidated financial statements.

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Note 11—Accumulated Other Comprehensive Loss (Continued)

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

(Dollars in millions)	Net Unrealized Gains (Losses) on Cash Flow Hedges			Net Unrealized Gains (Losses) on Securities			Foreign Currency Translation Adjustment			Pension and Other Benefits Adjustment			Accumulated Other Comprehensive Loss
Balance, December 31, 2012	$	24		$	159		$	1		$	(698	)	$	(514	)
Other comprehensive income before reclassifications		4			(6	)		(1	)		—			(3	)
Amounts reclassified from accumulated other comprehensive loss		(4	)		(58	)		—			18			(44	)
Balance, March 31, 2013	$	24		$	95		$	—		$	(680	)	$	(561	)
Balance, December 31, 2013	$	16		$	(328	)	$	(3	)	$	(309	)	$	(624	)
Other comprehensive income before reclassifications		5			70			(2	)		—			73
Amounts reclassified from accumulated other comprehensive loss		(14	)		(2	)		—			8			(8	)
Balance, March 31, 2014	$	7		$	(260	)	$	(5	)	$	(301	)	$	(559	)

Note 12—Employee Pension and Other Postretirement Benefits

        The following tables summarize the components of net periodic benefit cost for the first quarters of 2014 and 2013:

	Pension Benefits						Other Benefits						Superannuation, SERP(1) and ESBP(2)
	For the Three Months Ended March 31,						For the Three Months Ended March 31,						For the Three Months Ended March 31,
(Dollars in millions)	2014			2013			2014			2013			2014		2013
Components of net periodic benefit cost:
Service cost	$	21		$	22		$	3		$	4		$	1	$	—
Interest cost		27			25			3			3			1		1
Expected return on plan assets		(48	)		(41	)		(4	)		(4	)		—		—
Recognized net actuarial loss		14			27			—			1			—		1
Total net periodic benefit cost	$	14		$	33		$	2		$	4		$	2	$	2

(1)

Supplemental Executives Retirement Plan (SERP).

(2)

Executive Supplemental Benefit Plans (ESBP).

        In April 2014, the pension plan was amended. Pension benefits accrued after December 31, 2014 for the majority of eligible employees will be earned under the cash balance plan and benefits earned under the final average pay formula will become fixed as of that date. The cash balance plan accords the same benefits that apply to all eligible employees hired after October 1, 2012. The health benefit plan was also amended in April 2014 to discontinue the availability of retiree health benefits for the majority of employees. The amendments are not expected to significantly impact the Company's statement of financial position or results of operations.

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Note 13—Commitments, Contingencies and Guarantees

        The following table summarizes the Company's commitments.

(Dollars in millions)	March 31, 2014
Commitments to extend credit	$	33,326
Issued standby and commercial letters of credit		5,983
Other commitments		197

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

        Standby and commercial letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party, while commercial letters of credit are issued specifically to facilitate foreign or domestic trade transactions. Additionally, the Company enters into risk participations in bankers' acceptances wherein a fee is received to guarantee a portion of the credit risk on an acceptance of another bank. The majority of these types of commitments have terms of one year or less. At March 31, 2014, the carrying amount of the Company's risk participations in bankers' acceptances and standby and commercial letters of credit totaled $4 million. Estimated exposure to loss related to these commitments is covered by the allowance for losses on unfunded credit commitments. The carrying amounts of the standby and commercial letters of credit and the allowance for losses on unfunded credit commitments are included in other liabilities on the consolidated balance sheet.

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

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

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

        The Company has rental commitments under long-term operating lease agreements. For additional information, see Note 6 to the Consolidated Financial Statements in Part II, Item 8 "Financial Statements and Supplementary Data" in our 2013 Form 10-K.

        The Company occasionally enters into financial guarantee contracts where a premium is received from another financial institution counterparty to guarantee a portion of the credit risk on interest rate swap contracts entered into between the financial institution and its customer. The Company becomes liable to pay the financial institution only if the financial institution is unable to collect amounts owed to them by their customer. As of March 31, 2014, the current exposure to loss under these contracts totaled $16 million, and the maximum potential exposure to loss in the future was estimated at $45 million.

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Note 13—Commitments, Contingencies and Guarantees (Continued)

        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. In addition, 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, operating results or liquidity.

Note 14—Business Segments

        During the fourth quarter 2013, the composition of the Company's reporting segments were revised to reflect a new internal management structure resulting from the BTMU Americas Holdings business integration initiative announced in 2013. The Company now has five reportable segments: Retail Banking & Wealth Markets, Commercial Banking, Corporate Banking, Transaction Banking, and Investment Banking & Markets. Prior period segment results have been revised to conform to current period presentation. Below is a detailed description of these reportable segments.

Retail Banking & Wealth Markets

        Retail Banking & Wealth Markets offers a range of banking products and services to individuals and small businesses, including high net worth individuals and institutional clients, delivered generally through a network of branches, private banking offices, ATMs, broker mortgage referrals, telephone services, and web-based and mobile banking applications. These products and services include mortgages, home equity lines of credit, consumer and commercial loans, deposit accounts, financial planning and investments.

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

        The Community Banking Division serves its customers through 361 full-service branches in California and 45 full-service branches in Washington and Oregon, as well as through ATMs, call centers, web-based and mobile internet banking applications and through alliances with other financial institutions. Community Banking provides checking and deposit products and services; bill and loan payment, merchant, and various types of consumer financing and investment services; and products including credit cards.

        The Wealth Markets Division serves its customers through the Private Bank; UnionBanc Investment Services LLC (UBIS), a subsidiary of Union Bank and a registered broker-dealer and investment advisor; and Asset Management which includes HighMark Capital Management, Inc., a subsidiary of Union Bank and a registered investment advisor. Wealth Markets provides investment management and advisory services to institutional clients, wealth planning, deposits and risk management strategies, trust and estate administration, as well as investment sub-advisory services to unaffiliated funds. Products provided to its customers include traditional brokerage, managed accounts, annuities, mutual funds, fixed income products and insurance and customized lending.

Commercial Banking

        Commercial Banking provides credit products including commercial loans, and accounts receivable, inventory, project, trade and real estate financing to corporate customers with revenues generally less than $2 billion. Commercial Banking also offers its customers a range of noncredit services and products, which include global treasury management and capital markets solutions, foreign exchange and various interest rate risk and commodity risk management products through cooperation with other segments.

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Note 14—Business Segments (Continued)

        Commercial Banking is comprised of five main divisions: Western Markets, which serves companies primarily in California, Oregon and Washington; Petroleum, which serves oil and gas companies; Expansion Markets, which serves clients nationally, outside of the western states, and also targets certain defined industries such as entertainment and technology; Specialized Products, which focuses on specific industries on a national basis including commercial finance, funds finance, environmental services, non-profits, healthcare, and transportation, aerospace and defense; and Real Estate Industries, which serves professional real estate investors and developers. Additionally, through its Community Development Finance unit, tax credit investments are made in affordable housing projects, as well as construction and permanent financing.

Corporate Banking

        Corporate Banking provides commercial lending products, including commercial loans, lines of credit and project financing, to corporate customers with revenues generally greater than $2 billion. 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, Public Finance, and Financial Institutions (predominantly Insurance and Asset Managers). By working with the Company's other segments, Corporate Banking offers its customers a range of noncredit services, which include global treasury management and capital market solutions, and foreign exchange and various interest rate risk and commodity risk management products.

Transaction Banking

        Transaction Banking works alongside the Company's other segments to provide working capital management and asset servicing solutions, including deposits and treasury management, trade finance, and institutional trust and custody, to the Company's customers. This segment also manages the digital banking channels for retail, small business, wealth management and commercial clients, as well as commercial product development. The client base consists of financial institutions, corporations, government agencies, insurance companies, mutual funds, investment managers and non-profit organizations.

Investment Banking & Markets

        Investment Banking & Markets, which includes Global Capital Markets, works with the Company's other segments to provide customers structured credit services, including project finance; foreign exchange, interest rate and energy risk management solutions; and to facilitate merchant and investment banking-related transactions. Additionally, the segment's leasing arm provides lease and other financing services to corporate customers.

Other

        "Other" includes the Asian Corporate Banking segment, Corporate Treasury and the impact of certain corporate activities. 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 2 "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 the funds transfer pricing charges and credits allocated to the reportable segments; the residual costs of support

83

Note 14—Business Segments (Continued)

groups; the unallocated allowance; goodwill, intangible assets, and the related amortization/accretion associated with the Company's privatization transaction; the elimination of the fully taxable-equivalent basis amount; the difference between the marginal tax rate and the consolidated effective tax rate; and the FDIC covered assets.

        The information, set forth in the tables that follow, is prepared using various management accounting methodologies to measure the performance of the individual segments. Unlike U.S. 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 income statement 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 fund 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. The activity-based costing methodology allocates certain indirect costs, such as operations and technology expense, to the segments based on studies of billable unit costs for product or data processing. Other indirect costs, such as corporate overhead, are allocated to the segments based on internal surveys and metrics that serve as proxies for estimated usage. The Company periodically changes or updates its management accounting methodologies in the normal course of business.

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

As of and for the Three Months Ended March 31, 2014:

(Dollars in millions)	Retail Banking & Wealth Markets			Commercial Banking		Corporate Banking			Transaction Banking		Investment Banking & Markets		Other			Reconciling Items			UnionBanCal Corporation
Results of operations—Market View
Net interest income (expense)	$	347		$	227	$	31		$	100	$	46	$	12		$	(80	)	$	683
Noninterest income (expense)		79			48		18			40		50		(7	)		(47	)		181
Total revenue		426			275		49			140		96		5			(127	)		864
Noninterest expense		335			105		15			89		27		124			(35	)		660
(Reversal of) provision for loan losses		(6	)		16		(16	)		1		15		(15	)		(11	)		(16	)
Income (loss) before income taxes and including noncontrolling interests		97			154		50			50		54		(104	)		(81	)		220
Income tax expense (benefit)		38			34		19			19		11		(39	)		(32	)		50
Net income (loss) including noncontrolling interest		59			120		31			31		43		(65	)		(49	)		170
Deduct: net loss from noncontrolling interests		—			—		—			—		—		5			—			5
Net income (loss) attributable to UnionBanCal	$	59		$	120	$	31		$	31	$	43	$	(60	)	$	(49	)	$	175
Total assets, end of period	$	35,355		$	33,751	$	4,359		$	1,657	$	6,524	$	28,324		$	(2,733	)	$	107,237

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Note 14—Business Segments (Continued)

As of and for the Three Months Ended March 31, 2013:

(Dollars in millions)	Retail Banking & Wealth Markets			Commercial Banking		Corporate Banking		Transaction Banking		Investment Banking & Markets			Other			Reconciling Items			UnionBanCal Corporation
Results of operations—Market View
Net interest income (expense)	$	337		$	206	$	29	$	111	$	46		$	1		$	(77	)	$	653
Noninterest income (expense)		93			43		17		38		47			54			(41	)		251
Total revenue		430			249		46		149		93			55			(118	)		904
Noninterest expense		364			97		14		93		25			153			(33	)		713
(Reversal of) provision for loan losses		(8	)		27		6		1		(3	)		(27	)		1			(3	)
Income (loss) before income taxes and including noncontrolling interests		74			125		26		55		71			(71	)		(86	)		194
Income tax expense (benefit)		29			29		11		21		19			(24	)		(35	)		50
Net income (loss) including noncontrolling interest		45			96		15		34		52			(47	)		(51	)		144
Deduct: net loss from noncontrolling interests		—			—		—		—		—			4			—			4
Net income (loss) attributable to UnionBanCal	$	45		$	96	$	15	$	34	$	52		$	(43	)	$	(51	)	$	148
Total assets, end of period	$	32,452		$	25,894	$	3,891	$	1,529	$	6,247		$	28,744		$	(1,782	)	$	96,975

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PART II. OTHER INFORMATION

Item 1.   Legal Proceedings

        We are subject to various pending and threatened legal actions that arise in the normal course of business. We maintain 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 2013 Form 10-K, which is incorporated by reference herein, in addition to the following information:

         Industry Factors

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

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

•

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

•

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

•

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

86

•

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

•

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

•

Competition in our industry could intensify as a result of the increasing consolidation of financial services companies in connection with current market conditions and the enhanced ability of banks to expand across state lines under the Dodd-Frank Act (see "Substantial competition could adversely affect us").

•

We may incur goodwill impairment losses in future periods. See "Critical Accounting Estimates—Annual Goodwill Impairment Analysis" in Part II, Item 7 of this Form 10-K.

•

We have been subject to increased FDIC deposit premiums relative to pre-2008 levels, although our assessment decreased in 2011 compared to 2010 and did not increase in 2012 or 2013, but in future years may be subject to further premium increases which could increase our costs. Refer to "Supervision and Regulation" in Item 1 of this Form 10-K for additional information regarding FDIC actions relating to deposit insurance assessments.

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

        We are subject to significant federal and state banking regulation and supervision, which is primarily for the benefit and protection of our customers and the Federal Deposit Insurance Fund and not for the benefit of investors in our securities. In the past, our business has been materially affected by these regulations. This will continue and likely intensify in the future. Laws, regulations or policies, including accounting standards and interpretations, currently affecting us and our subsidiaries may change at any time. Regulatory authorities may also change their interpretation of 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 civil money penalties or fines. Changes in laws and regulations may also increase our expenses by imposing additional supervision, fees, taxes or restrictions on our operations. Compliance with laws and regulations, especially new laws and regulations, increases our operating expenses and may divert management attention from our business operations.

        On July 21, 2010, President Obama signed into law the Dodd-Frank Act. This important legislation has affected U.S. financial institutions, including UnionBanCal Corporation and Union Bank, in many ways, some of which have increased, or may increase in the future, the cost of doing business and present other challenges to the financial services industry. Due to our size 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 below. Various provisions of the law have been implemented by rules and regulations of the federal banking agencies, but certain provisions of the law are yet to be implemented by the federal banking agencies and therefore the full scope and impact of the law on banking institutions generally and on our business cannot be fully determined at this time. The law contains many provisions that may have particular relevance to the business of UnionBanCal Corporation and Union Bank. The Dodd-Frank Act created the CFPB, which has direct supervision and examination authority over banks with more than $10 billion in assets, including Union Bank. While the full effect of these provisions of the Dodd-Frank Act on Union Bank cannot be predicted at this time, they have resulted in adjustments to our FDIC deposit insurance premiums,

87

and can be expected to result in increased capital and liquidity requirements, increased supervision, increased regulatory and compliance risks and costs and other operational costs and expenses, reduced fee-based revenues and restrictions on some aspects of our operations, as well as increased interest expense on our demand deposits, some or all of which may be material.

        The Federal Reserve published proposed rules in December 2011 to implement the provisions of the Dodd-Frank Act regarding enhanced prudential standards for large bank holding companies like the Company and other systemically important firms. The proposed rules included new requirements relating to capital planning, liquidity risk management, counterparty credit exposure limits, overall risk management standards, stress testing, debt-to- equity limits, resolution planning and early remediation. In November 2012, the Federal Reserve issued final rules regarding stress testing requirements. The OCC also adopted similar rules for large national banks such as Union Bank. The stress testing rules govern the timing and type of stress testing activities required of large bank holding companies and banks as well as rules governing testing controls, oversight and disclosure requirements.

        In December 2012, the Federal Reserve published proposed rules regarding enhanced prudential standards for large FBOs, such as MUFG and BTMU, operating in the U.S. which were similar in many respects to the December 2011 proposed rules for large U.S. bank holding companies.

        In February 2014, the Federal Reserve adopted final rules regarding enhanced prudential standards for both large U.S. BHCs, such as the Company, and large FBOs operating in the U.S. The enhanced prudential standards final rule is part of an integrated set of rules promulgated by the Federal Reserve for both large BHCs and large FBOs operating in the U.S. These integrated rules include the Federal Reserve's resolution plan, capital plan, and stress testing rules, as well as the final rule regarding enhanced prudential standards. (The resolution, capital plan and stress testing rules are discussed below in this section.) For larger domestic BHC's, the final enhanced prudential standards rule formalizes governance and oversight processes with respect to various prudential standards already in place through the Federal Reserve's other rule-makings, as noted above and elsewhere in this section, but also imposes certain additional requirements such as an internal liquidity stress testing regime (intended to be complementary to the Federal Reserve's liquidity coverage ratio proposal discussed below) and maintenance of a related liquidity buffer.

        The Federal Reserve delayed finalizing single counterparty credit limit requirements that had been proposed pending the Basel Committee's completion of its work on developing a large financial institution exposure framework. The Federal Reserve also delayed adopting proposed rules implementing the early remediation requirements under the Dodd-Frank Act, which remain under consideration. The final enhanced prudential standards rule addresses a diverse array of regulatory areas, each of which is highly complex. In some instances, the rule implements new financial regulatory requirements and in other instances it overlaps other regulatory reforms already in existence (such as the Basel III capital and liquidity reforms and stress testing requirements discussed elsewhere in this report).

        The final rules relating to FBOs address enhanced prudential standards similar in various respects to those adopted for larger BHCs, such as enhanced requirements relating to risk management, including liquidity risk management and capital and liquidity stress testing. However, the final FBO rules differ in various respects from the BHC rules. For example, a larger FBO must certify to the Federal Reserve that it meets capital adequacy standards established by its home country supervisor that are consistent with the Basel Committee framework. If the FBO does not satisfy such requirements, the Federal Reserve may impose requirements, conditions or restrictions on its U.S. activities.

        In addition, the final FBO rules require that an FBO with $50 billion or more of non-branch assets in the U.S. operate in the U.S. through an intermediate holding company (IHC) structure. The FBO is required to hold its interest in any U.S. subsidiary through the IHC, which will be its top-tier U.S. subsidiary. U.S. branches of FBOs, such as those of BTMU, and foreign bank agencies are excluded from this requirement. The final FBO rules provide for an initial compliance date for FBOs of July 1, 2016 and generally defer application of a leverage ratio to IHC's until 2018. However, larger BHCs, such as the Company, will become subject to

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enhanced prudential standards applicable to larger BHCs on January 1, 2015, whether or not they are also a subsidiary of an FBO, and those BHCs that are also FBO subsidiaries will remain subject to the BHC standards until a U.S. IHC is formed or designated and becomes subject to the parallel requirements under the FBO rules. The FBO rules allow an IHC, with the prior written approval of the Federal Reserve, to opt out of the "advanced approaches" rules of the Federal Reserve for calculating risk-weighted assets under the Federal Reserve's Basel III capital rules; an IHC which elects to opt out of the advanced approaches would calculate its risk-weighted assets under a "standardized" approach. UnionBanCal Corporation has initiated discussions with the Federal Reserve to explore opting-out of the advanced approaches for the holding company only. For additional information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Capital Management" in this Form 10-Q. MUFG, BTMU and the Company are analyzing the impact of these rules on their U.S. operations and will make appropriate structural, operational and financial changes to comply with these rules, as well as preparing a required implementation plan by January 1, 2015. For additional information, see "Supervision and Regulation—Regulatory and Liquidity Standards and Principal Federal Banking Laws—Dodd-Frank Act" in Part I, Item 1 of our Report on Form 10-K for 2013.

        In July 2013, 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 Item 1 of Part I of this Form 10-K and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Regulatory Capital Changes" in Item 7 of Part II of our Report on Form 10-K for 2013.

        In April 2014, the Federal Reserve and other U.S. federal banking agencies adopted a final rule to strengthen the leverage ratio standards for the largest, most interconnected U.S. banking organizations. The final rule applies to U.S. top-tier bank holding companies with more than $700 billion in consolidated total assets or more than $10 trillion in assets under custody (covered BHCs) and their insured depository institution subsidiaries. Covered BHCs must maintain a leverage buffer greater than 2 percentage points above the minimum supplementary leverage ratio requirement of 3 percent, for a total of more than 5 percent, to avoid restrictions on capital distributions and discretionary bonus payments. Insured depository institution (IDI) subsidiaries of covered BHCs must maintain at least a 6 percent supplementary leverage ratio to be considered "well capitalized" under the agencies' prompt corrective action framework. The final rule has an effective date of January 1, 2018. The rule as adopted does not currently apply to the Company; however, the Company continues to monitor developments in this area in the event that these or similar requirements eventually become applicable to the Company.

        In October 2013, the U.S. banking agencies requested comment on proposed rules that would implement the liquidity coverage ratio (LCR), which is a quantitative liquidity standard included in the Basel III framework of the Basel Committee. The proposed rules are designed to ensure that covered banking organizations maintain an adequate level of cash and high quality liquid assets (HQLA) to meet estimated net liquidity needs in a short-term stress scenario using liquidity inflow and outflow assumptions provided in the rules (net cash outflow). An institution's LCR is the amount of its HQLA, as defined and calculated in accordance with the reductions and limitations in the rules, divided by its net cash outflow, with the quotient expressed as a ratio.

        The LCR standard would apply to all internationally active banking organizations—generally, those with $250 billion or more in total consolidated assets or $10 billion or more in on-balance sheet foreign exposure. The proposal also would apply a less stringent, modified LCR to bank holding companies that are not internationally active, but have more than $50 billion in total assets (such as the Company). Under the proposed modified LCR rules, financial institutions would, following a phase-in period, have to maintain an LCR equal to at least 100 percent based on the entity's total projected net cash outflows over the next 21 calendar days, effectively using net outflow assumptions equal to 70 percent of the outflow assumptions prescribed for internationally active banking organizations.

        While the proposed modified LCR rules are generally less stringent than the LCR requirement included in the Basel III framework, in certain respects they are more restrictive. For example, the proposed rule requires

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daily calculation of the LCR and would phase-in the LCR more quickly than required under the Basel III framework, with full compliance required beginning January 1, 2017. Although the impact on the Company will not be fully known until the rules are final, we expect to be in compliance with the requirements when they become effective.

        The need to maintain more and higher quality capital, 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 new 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. Moreover, although these new requirements are being phased in over time, U.S. federal banking agencies have been taking into account expectations regarding the ability of banks to meet these new requirements, including under stressed conditions, in approving actions that represent uses of capital, such as dividend increases and acquisitions.

        In December 2013, the financial regulatory agencies adopted final rules implementing Section 619 of the Dodd-Frank Act, commonly known as the Volcker Rule. The final rule generally prohibits banking entities from engaging in short-term proprietary trading of securities, derivatives, commodity futures and options on these instruments for their own account. The final rules provide exemptions for certain activities, including certain types of market making, underwriting, hedging of specific, identifiable risks of individual or aggregated positions, and trading in U.S. government, agency, state and municipal obligations. These exemptions are limited if they involve a material conflict of interest, a material exposure to high-risk assets or trading strategies, or a threat to the institution's safety and soundness or to that of the U.S. financial system. The rules also exempt trading for customers in a fiduciary capacity or in riskless principal trades, subject to certain requirements.

        The Volcker Rule also prohibits banking entities from owning and sponsoring hedge funds and private equity funds, subject to certain exclusions. Union Bank sold the vast majority of its non-conforming private equity brand interests after the Volker Rule was proposed.

        The Volcker Rule also provides compliance requirements generally requiring banking entities to establish an internal compliance program reasonably designed to ensure and monitor compliance with the final rules. Larger banking entities, such as the Company, will be required to establish a more detailed compliance program, including a required CEO attestation.

        The final Volcker Rule is effective April 1, 2014 but the banking agencies have extended the full conformance period until July 2015, except as noted below.

        We are presently evaluating the potential impact of the Volcker Rule on our business. We are analyzing the extent to which some of our collateralized loan obligations may need to be modified or divested by the end of the conformance period; we do not believe that any such divestiture would have a material impact on the Company. In April 2014, the Federal Reserve announced that it intends to grant banking entities two additional one-year extensions to conform their ownership interests in and sponsorship of certain collateralized loan obligations. These extensions would give banks until July 2017 to conform to the Act's requirements in this respect. We do expect our compliance costs to increase as a result of the rule. See "Supervision and Regulation" in Part I, Item 1 of our Report on Form 10-K for 2013 for additional information.

        The Dodd-Frank Act will have a significant impact on our Global Capital Markets activities due to enhanced oversight of derivatives and swap activities by multiple regulatory agencies (the U.S. Commodities Futures Trading Commission, the SEC and the bank regulators). In addition, certain types of non-conforming swap transactions, such as commodity derivatives, may be required to be "pushed out" of Union Bank into a separate non-bank affiliate.

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        In January 2014, the OCC proposed guidelines that would establish minimum standards for the design and implementation of a risk governance framework for large national banks with average total consolidated assets of $50 billion or more, as well as potentially smaller insured depository institutions. The proposed guidelines are intended to build upon and formalize "heightened expectations" for risk governance developed by the OCC in 2010 and are intended to improve examiners' ability to assess compliance with the OCC's expectations. The proposed guidelines establish specific risk management-related roles and responsibilities for three designated functions: a bank's "front line" units, independent risk management, and internal audit. The guidelines would require these three designated functions to maintain independence from each other and impose substantial risk management-related and other responsibilities on a bank's board of directors and chief executive officer. Although the Company has had in place a robust corporate governance framework which substantially complies with the proposed guidelines, these guidelines, if adopted as proposed, could require changes in our management and internal processes and may result in an increased level of regulatory oversight into our management and internal processes, which could potentially result in increased regulatory and compliance risks and an increase in our compliance and operational costs and expenses.

        The newly-adopted capital rules of the federal banking agencies and the FBO rules of the Federal Reserve, referred to above, as well as the various proposed regulations described above, if adopted, along with other regulations which may be adopted in the future, may also generally increase our cost of doing business and lead us to stop or reduce our offerings of various credit products.

        Proposals to reform the housing finance market in the U.S. could also significantly affect our business. These proposals, among other things, consider winding down the government-sponsored entities Fannie Mae and Freddie Mac (GSEs) and reducing or eliminating over time the role of the GSEs 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 Union Bank 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 Union Bank. These reforms may also result in higher interest rates on residential mortgage loans, thereby reducing demand, which could have an adverse impact on our residential mortgage lending business.

        President Obama's proposed 2014 U.S. budget includes a "Financial Crisis Responsibility Fee" that would apply to banks with greater than $50 billion in assets. This fee would be effective January 1, 2015 and would be intended to recover taxpayer funds provided to U.S. financial institutions through the U.S. Treasury's Troubled Asset Relief Program (TARP). On May 21, 2012, the U.S. Treasury announced its final rule to establish an assessment fee on all institutions with greater than $50 billion in assets to fund the Office of Financial Research. As we have greater than $50 billion in assets, under the final rule we are subject to this fee at the MUFG level. In August 2013, the Federal Reserve issued a final rule to implement Section 318 of the Dodd-Frank Act which imposed a new supervisory assessment on all institutions with greater than $50 billion in assets, which is being assessed at the MUFG level, and is based on an average of the total combined assets of MUFG from U.S. operations, net of U.S. intercompany balances and allowed transactions. Therefore, our operating costs over time can be expected to increase due to these assessments, which are based, among other things, on the projected operating expenses of this new office and the aggregate assessable assets of the subject banks.

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        Several cities in the United States (including Los Angeles and San Diego) have adopted so-called "responsible banking acts", and other cities are considering the adoption of similar ordinances. These city 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 Union 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.

        International laws, regulations and policies affecting us, our subsidiaries and the business we conduct may change at any time and affect our business opportunities and competitiveness in these jurisdictions. Due to our ownership by BTMU, laws, regulations, policies, fines and other supervisory actions adopted or enforced by the Government of Japan and the Federal Reserve 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 bank holding company is expected to act as a source of financial and managerial strength for its subsidiary banks. As a result of that policy, we may be required to commit financial and other resources to our subsidiary bank in circumstances where we might not otherwise do so. Among the instruments of monetary policy available to the Federal Reserve are (a) conducting open market operations in U.S. Government securities, (b) changing the discount rates on borrowings by depository institutions and the federal funds rate, and (c) imposing or changing reserve requirements against certain borrowings by banks and their affiliates. These methods are used in varying degrees and combinations to directly affect the availability of bank loans and deposits, as well as the interest rates charged on loans and paid on deposits. The policies of the Federal Reserve 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 of our Report on Form 10-K for 2013 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.

Legislative or regulatory actions responding to perceived financial and market problems could impair our rights against borrowers, decrease our revenue from other customers and make it more difficult to originate loans to individual borrowers

        Under current bankruptcy laws, courts cannot force a modification of mortgage and home equity loans secured by primary residences. In response to the financial crisis, in 2009, legislation was proposed to allow mortgage loan "cram-downs," which would empower courts to modify the terms of mortgage and home equity loans including the ability to reduce the principal amounts to reflect lower underlying property values. Although

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this legislation has not moved forward at this time, legislation of this type could result in our writing down the value of our residential mortgage and home equity loans to reflect their lower loan values. There is also risk that home equity loans in a second lien position (i.e., behind a mortgage) could experience significantly higher losses to the extent they become unsecured as a result of a cram-down. The availability of principal reductions or other mortgage loan modifications could make bankruptcy a more attractive option for troubled borrowers, leading to increased bankruptcy filings and accelerated defaults.

        Changes in federal rules have imposed new restrictions on banks' abilities to charge overdraft services and interchange fees on debit card transactions. Under the final rule, effective October 1, 2011, the maximum permissible interchange fee that a bank may receive is the sum of $0.21 per transaction and five basis points multiplied by the value of the transaction, with an additional upward adjustment of no more than $0.01 per transaction if a bank develops and implements policies and procedures reasonably designed to achieve fraud- prevention standards set by regulation. In July 2013, a Federal district court, in a case brought by a retailer trade association, held that this rule was not valid under the Dodd-Frank Act's standard that the fee be "reasonable and proportional" to the cost of processing the debit card transactions and improperly included certain categories of costs in applying the statutory standard. The Federal Reserve appealed the decision, and the ruling was stayed. The district court's decision could have had the effect of leading to further restrictions on the fee revenues that banks receive from the business of debit card transactions. However, in March 2014, a panel of the U.S. Court of Appeals for the District of Columbia Circuit issued a ruling reversing the district court's ruling almost in its entirety. The appellate court concluded that the Federal Reserve had reasonably interpreted the statute to allow card issuers to recover certain costs that are incremental to costs incurred in the authorization, clearance and settlement of debit card transactions. Pending the effect of any further appeals or other proceedings in the litigation, the appellate court's decision will generally leave in place the Federal Reserve's new restrictions on charges for overdraft services and interchange fees on debit card transactions. These restrictions are resulting in decreased revenues and increased compliance costs for the banking industry and Union Bank, and there can be no assurance that alternative sources of revenues can be implemented to offset the impact of these developments. See "Supervision and Regulation—Other Federal Laws and Regulations Affecting Banks—Overdraft and Interchange Fees; Interest on Demand Deposits" in Item 1 of Part I of this Form 10-K for additional information.

        In 2013, the CFPB issued its final Ability-to-Pay and Qualified Mortgage Rule that all newly originated residential mortgages must meet, effective with new applications received as of January 10, 2014. The Ability-to-Pay and Qualified Mortgage Rule establishes guidelines that the lender must follow when reviewing an applicant's income, obligations, assets, liabilities and credit history and requires that the lender make a reasonable and good faith determination of an applicant's ability to repay the loan according to its terms. The rule also establishes the concept of a "Qualified Mortgage" which is defined under the rule to include those mortgage loans with regularly scheduled, substantially equal periodic payments, terms of thirty years or less, and total points and fees not exceeding three percent of the loan amount, among other criteria. Loans meeting the criteria for a "Qualified Mortgage" are entitled to a presumption that the lender complied with the rule's Ability-to-Pay requirements. Under the rule, the borrower has a defense to foreclosure unless the lender establishes the borrower's ability to repay or that the loan was a Qualified Mortgage or met other exceptions to the rule. The Company has established a compliance program which aims to ensure compliance with the rule for all new loans made after January 10, 2014. The Ability-to-Pay and Qualified Mortgage Rule and any new regulatory requirements promulgated by the CFPB could have an adverse impact on our residential mortgage lending business as the industry adapts to the rule and any additional regulations. Our business strategy, product offerings and profitability may change as the market adjusts to the new rule and any additional regulations and as these requirements are interpreted by the regulators and courts.

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         Company Factors

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

        We are subject to certain industry-specific economic factors. For example, a significant portion of our total loan portfolio is related to residential real estate, especially in California. Increases in residential mortgage loan interest rates could have an adverse effect on our operations by depressing new mortgage loan originations, and could negatively impact our title and escrow deposit levels. Additionally, a continued or further downturn in the areas of the residential real estate and housing industries in California which have not experienced recovery, or renewed downturn in those which have, could have an adverse effect on our operations and the quality of our real estate loan portfolio. These factors could adversely impact the quality of our residential construction and residential mortgage portfolios in various ways, including by decreasing the value of the collateral for our mortgage loans. Furthermore, California is facing a severe drought which may affect commercial loan customers, particularly in the agricultural sector, and may negatively impact the California economy overall. These factors could also negatively affect the economy in general and thereby our overall loan portfolio.

        The temporary upper limit of $729,750 for a residential mortgage loan that may be purchased by the government-sponsored enterprises Fannie Mae and Freddie Mac expired on September 30, 2011, and the high balance loan limit was reduced to $625,500. This limit applied to high cost areas where the median home price exceeded the conforming loan limit, including many areas within our markets. This reduction could result in higher mortgage rates for borrowers purchasing homes that exceed the new limit, which, in turn, could reduce the pool of eligible buyers for high value homes, reduce mortgage originations and negatively impact the collateral value of homes in high cost areas. Any of these results could have an adverse impact on our residential mortgage lending business.

        The mortgage industry is in the midst of unprecedented change triggered by the significant economic downturn which commenced in 2008. Lawmakers and regulators have been taking steps to establish national servicing standards to protect residential mortgage borrowers and establish a common framework for response to the concerns of residential mortgage customers, especially related to default and foreclosure. Included in these measures have been litigation by 49 state attorneys general against the largest mortgage servicers in the U.S., enhanced federal regulatory guidance regarding foreclosure practices and other matters and legislation at the state level, including in California. These increased standards and restrictions are expected to impact the overall mortgage loan servicing industry in general, increase the cost of residential mortgage lending, require mortgage loan principal write-downs, and could put downward pressure on property values and have other adverse impacts on our residential lending business.

        We provide financing to businesses in a number of other industries that may be particularly vulnerable to industry-specific economic factors and are impacting the performance of our commercial real estate and commercial and industrial portfolios. The commercial real estate industry in the U.S., and in California in particular, were adversely impacted by the recessionary environment and lack of liquidity in the financial markets. The home building and mortgage industry in California also were especially adversely impacted by the deterioration in residential real estate markets. Poor economic conditions and financial access for commercial real estate developers and homebuilders could adversely affect property values, resulting in higher nonperforming assets and charge-offs in this sector. Our commercial and industrial portfolio, and the communications and media industry, the retail industry, and the energy industry in particular, were also adversely impacted by recessionary market conditions. Continued volatility in fuel prices and energy costs could adversely affect businesses in several of these industries, while a prolonged slump in natural gas and coal prices could have adverse consequences for some of our borrowers in the energy sector. Conditions remain uncertain in various industries and could produce elevated levels of charge-offs. Industry-specific risks are beyond our control and could adversely affect our portfolio of loans, potentially resulting in an increase in nonperforming loans or charge-offs and a slowing of growth or reduction in our loan portfolio.

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Adverse California economic conditions could adversely affect our business

        For the last several 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. California continues to have a relatively high unemployment rate. Also, certain California real estate markets have experienced some of the worst property value declines in the U.S.

        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. As a consequence, California's 2013-14 budget proposal does not reflect a deficit; however, there can be no assurance that the state's fiscal and budgetary challenges will be readily resolved. In addition, the impact of increased rates of income taxation on the level of economic activity in California cannot be predicted at this time. 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 continue or economic conditions in California decline further, we expect that our level of problem assets could increase and our prospects for growth could be impaired. The severe drought being experienced by California may also cause further difficulties for the California economy, particularly in the agricultural sector.

Item 6.   Exhibits

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

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SIGNATURES

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

	UNIONBANCAL CORPORATION (Registrant)
Date:  May 9, 2014	By:	/s/ MASASHI OKA Masashi Oka President and Chief Executive Officer (Principal Executive Officer)
Date:  May 9, 2014	By:	/s/ JOHN F. WOODS John F. Woods Vice Chairman and Chief Financial Officer (Principal Financial Officer)
Date:  May 9, 2014	By:	/s/ ROLLAND D. JURGENS Rolland D. Jurgens Executive Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer)

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EXHIBIT INDEX

No.		Description
	31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)
	31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)
	32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1)(2)
	32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1)(2)
	101	Pursuant to Rule 405 of Regulation S-T, the following financial information from the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014, is formatted in XBRL interactive data files: (i) Consolidated Statements of Income; (ii) Consolidated Statements of Comprehensive Income; (iii) Consolidated Balance Sheets; (iv) Consolidated Statements of Changes in Stockholder's Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Financial Statements(1)

(1)

Filed herewith.

(2)

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

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