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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



(Mark One)

[X]		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

OR

[ ]		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-15081

MUFG Americas Holdings Corporation

(Exact name of registrant as specified in its charter)



	Delaware		94-1234979
	(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

	1251 Avenue of the Americas, New York, NY		10020
	(Address of principal executive offices)		(Zip Code)

	(Registrant's telephone number, including area code) (212) 782-6800

Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes x No o

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



	Large accelerated filer o		Accelerated filer o

	Non-accelerated filer x		Smaller reporting company o

			Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

Number of shares of Common Stock outstanding at October 31, 2019: 132,050,344

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

MUFG Americas Holdings Corporation and Subsidiaries

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PART I. FINANCIAL INFORMATION	31
Item 1. Financial Statements	31
Consolidated Statements of Income (Unaudited)	31
Consolidated Statements of Comprehensive Income (Unaudited)	32
Consolidated Balance Sheets (Unaudited)	33
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)	34
Consolidated Statements of Cash Flows (Unaudited)	35
Note 1—Summary of Significant Accounting Policies and Nature of Operations	36
Note 2—Securities	38
Note 3—Loans and Allowance for Loan Losses	42
Note 4—Goodwill	52
Note 5—Variable Interest Entities	53
Note 6—Securities Financing Arrangements	55
Note 7—Commercial Paper and Other Short-Term Borrowings	57
Note 8—Long-Term Debt	58
Note 9—Fair Value Measurement and Fair Value of Financial Instruments	59
Note 10—Derivative Instruments and Other Financial Instruments Used For Hedging	64
Note 11—Accumulated Other Comprehensive Income	67
Note 12—Employee Pension and Other Postretirement Benefits	70
Note 13—Commitments, Contingencies and Guarantees	70
Note 14—Business Segments	71
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	7
Consolidated Financial Highlights	7
Introduction	10
Executive Overview	10
Financial Performance	12
Balance Sheet Analysis	17
Capital Management	19
Risk Management	21
Critical Accounting Estimates	28
Non-GAAP Financial Measures	28
Item 3. Quantitative and Qualitative Disclosures About Market Risk	30
Item 4. Controls and Procedures	30
PART II. OTHER INFORMATION	76
Item 1. Legal Proceedings	76
Item 1A. Risk Factors	76
Item 6. Exhibits	80
SIGNATURES	81

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Glossary of Defined Terms

The following acronyms and abbreviations are used throughout this Form 10-Q, particularly in Part I, Item 1. “Financial Statements," Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Part II, Item 1A. “Risk Factors.”



ALCO	Asset Liability Management Committee
ALM	Asset Liability Management
AOCI	Accumulated other comprehensive income
ARC	Americas Risk Committee
ASU	Accounting Standards Update
BCBS	Basel Committee on Banking Supervision
BHC	U.S. Bank Holding Company
CCAR	Comprehensive Capital Analysis and Review
CD	Certificate of deposit
CECL	Current Expected Credit Loss
CLO	Collateralized loan obligation
CMBS	Commercial mortgage-backed security
Dodd-Frank Act	Dodd-Frank Wall Street Reform and Consumer Protection Act
EGRRCPA	Economic Growth, Regulatory Relief and Consumer Protection Act
ESBP	Executive Supplemental Benefit Plan
EURIBOR	Euro Interbank Offered Rate
Exchange Act	U.S. Securities Exchange Act of 1934
FASB	Financial Accounting Standards Board
FDIC	Federal Deposit Insurance Corporation
Federal Reserve	Board of Governors of the Federal Reserve System
FHLB	Federal Home Loan Bank
FICO	Fair Isaac Corporation
GAAP	Accounting principles generally accepted in the United States of America
GSIB	Global systemically important bank
HQLA	High quality liquid assets
LCR	Liquidity Coverage Ratio
LIBOR	London Inter-bank Offered Rate
LIHC	Low income housing tax credit
LLC	Limited Liability Company
LTV	Loan-to-value
MRM	Market Risk Management
MUAH	MUFG Americas Holdings Corporation
MUB	MUFG Union Bank, N.A.
MUFG	Mitsubishi UFJ Financial Group, Inc.
MUSA	MUFG Securities Americas Inc.
NY DFS	New York State Department of Financial Services
nm	Not meaningful
OCC	Office of the Comptroller of the Currency
OCI	Other comprehensive income
OREO	Other real estate owned
RMBS	Residential mortgage-backed security
SEC	Securities and Exchange Commission
SERP	Supplemental Executive Retirement Plan
TCJA	Tax Cuts and Jobs Act
TDR	Troubled debt restructuring
TLAC	Total Loss Absorbing Capacity
VIE	Variable interest entity

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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 2018 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 2018 Form 10-K, for factors to be considered when reading any forward-looking statements in this filing.

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

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


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


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


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


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

•

The impact of changes in interest rates resulting from changes in Federal Reserve policy or for other reasons, our strategy to manage our interest rate risk profile and other market risks, our outlook for short-term and long-term interest rates and their effect on our net interest margin, our investment portfolio, our balance sheet composition, our borrowers’ ability to service their loans and residential mortgage loans and refinancings

•

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

•

Our strategies and expectations regarding capital levels and liquidity, our funding base, deposits, long-term debt, issuance of additional notes under the Bank's unsecured bank note program, our expectations regarding the capital, liquidity and enhanced prudential standards adopted by the U.S. bank regulators as a result of or under the Dodd-Frank Act and the BCBS capital and liquidity standards including the Federal banking agencies' TLAC regulation, and other recently adopted and proposed regulations by the U.S. federal banking agencies, and the effect of the foregoing on our business and expectations regarding compliance


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

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•	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, probability of default and credit migration trends, and severity of loss upon default, and the expected impact of the adoption of the current expected credit loss model regarding the allowance


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


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


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


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


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


•	Critical accounting policies and estimates, the impact or anticipated impact of recent accounting pronouncements, guidance or changes in accounting principles and future recognition of impairments for the fair value of assets, including goodwill, financial instruments, intangible assets and other assets


•	Decisions to downsize, sell or close units, dissolve subsidiaries, expand our branch network, pursue acquisitions, purchase banking facilities and equipment, realign our business model or otherwise restructure, reorganize or change our business mix, or the transfer to MUAH by MUFG of its interests in U.S. subsidiaries, and their timing and impact on our business


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


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


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


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


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


•	Our understanding that MUFG Bank, Ltd. will continue to limit its participation in transactions with Iranian entities and individuals to certain types of transactions


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


•	The possible effects of the replacement of LIBOR


•	The impact and timing of completion of our initiative known as the "Rewiring Program" on our noninterest expense


•	The effect of a possible return of the California drought on its economy and related governmental actions and the potential consequences of recent California wildfires and related electrical power outages or other natural disasters

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•	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” in our 2018 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” in this Form 10-Q, and in our other reports to the SEC.

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

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

MUFG Americas Holdings Corporation and Subsidiaries

Consolidated Financial Highlights



	For the Three Months Ended								For the Nine Months Ended
(Dollars in millions)	September 30, 2019			September 30, 2018			Percent Change		September 30, 2019			September 30, 2018			Percent Change
Results of operations:
Net interest income	$	754		$	832		(9	)%	$	2,314		$	2,482		(7	)%
Noninterest income	717			626			15		1,998			1,604			25
Total revenue	1,471			1,458			1		4,312			4,086			6
Noninterest expense	2,770			1,059			162		5,094			3,226			58
Pre-tax, pre-provision (loss) income⁽¹⁾	(1,299		)	399			(426	)	(782		)	860			(191	)
(Reversal of) provision for credit losses	95			64			48		189			43			340
(Loss) income before income taxes and including noncontrolling interests	(1,394		)	335			nm		(971		)	817			(219	)
Income tax expense (benefit)	(18		)	35			(151	)	30			21			43
Net (loss) income including noncontrolling interests	(1,376		)	300			nm		(1,001		)	796			(226	)
Deduct: Net loss (income) from noncontrolling interests	4			6			(33	)	12			20			(40	)
Net (loss) income attributable to MUAH	$	(1,372	)	$	306		nm		$	(989	)	$	816		(221	)
Balance sheet (period average):
Total assets	$	172,630		$	160,811		7	%	$	170,175		$	159,209		7	%
Total securities	25,984			27,078			(4	)	26,525			27,216			(3	)
Securities borrowed or purchased under resale agreements	22,989			20,316			13		22,771			20,402			12
Total loans held for investment	88,800			83,164			7		88,087			81,955			7
Earning assets	158,058			147,432			7		156,147			145,734			7
Total deposits	95,673			86,783			10		93,444			84,933			10
Securities loaned or sold under repurchase agreements	27,989			26,679			5		27,743			26,898			3
MUAH stockholders' equity	17,493			18,682			(6	)	17,113			18,376			(7	)
Performance ratios:
Return on average assets⁽²⁾	(3.18		)%	0.76		%			(0.77		)%	0.68		%
Return on average MUAH stockholders' equity⁽²⁾	(31.38		)	6.55					(7.71		)	5.92
Return on average MUAH tangible common equity⁽²⁾⁽³⁾	5.84			8.22					5.90			7.47
Efficiency ratio⁽⁴⁾	188.31			72.59					118.15			78.93
Adjusted efficiency ratio ⁽⁵⁾	73.49			67.61					76.36			71.82
Net interest margin⁽²⁾⁽⁶⁾	1.92			2.27					1.99			2.30
Net loans charged-off to average total loans held for investment⁽²⁾	0.36			0.03					0.18			0.03

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MUFG Americas Holdings Corporation and Subsidiaries

Consolidated Financial Highlights (Continued)



	As of
	September 30, 2019			December 31, 2018			Percent Change
Balance sheet (end of period):
Total assets	$	173,233		$	168,100		3	%
Total securities	27,097			27,215			—
Securities borrowed or purchased under resale agreements	23,626			22,368			6
Total loans held for investment	88,693			86,507			3
Nonperforming assets	421			422			—
Total deposits	96,671			90,979			6
Securities loaned or sold under repurchase agreements	29,581			27,285			8
Long-term debt	15,912			17,918			(11	)
MUAH stockholders' equity	16,042			16,508			(3	)
Credit ratios:
Allowance for loan losses to total loans held for investment⁽⁷⁾	0.65		%	0.55		%
Allowance for loan losses to nonaccrual loans⁽⁷⁾	137.00			112.50
Allowance for credit losses to total loans held for investment⁽⁸⁾	0.77			0.71
Allowance for credit losses to nonaccrual loans⁽⁸⁾	163.40			145.61
Nonperforming assets to total loans held for investment and OREO	0.47			0.49
Nonperforming assets to total assets	0.24			0.25
Nonaccrual loans to total loans held for investment	0.47			0.49
Capital ratios:
Regulatory⁽⁹⁾:
Common Equity Tier 1 risk-based capital ratio	13.81		%	13.96		%
Tier 1 risk-based capital ratio	13.81			13.96
Total risk-based capital ratio	14.48			14.60
Tier 1 leverage ratio	8.62			8.77
Other:
Tangible common equity ratio⁽¹⁰⁾	8.19		%	7.89		%

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MUFG Americas Holdings Corporation and Subsidiaries

Consolidated Financial Highlights (Continued)


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


(2)	Annualized.

(3)

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


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

(5)

The adjusted efficiency ratio, a non-GAAP financial measure, is adjusted noninterest expense (noninterest expense excluding costs associated with services provided to MUFG Bank, Ltd. branches in the U.S. and goodwill impairment) as a percentage of adjusted total revenue (net interest income and noninterest income excluding fees from affiliates for services provided to MUFG Bank, Ltd.'s branches in the U.S. and the impact of the TCJA). Management believes adjusting the efficiency ratio for the fees and costs associated with services provided to MUFG Bank, Ltd. branches in the U.S. enhances the comparability of MUAH's efficiency ratio when compared with other financial institutions. Management believes adjusting noninterest expense for the impact of goodwill impairment and revenue for the impact of the TCJA enhances comparability between periods. See "Non-GAAP Financial Measures" in Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-Q for additional information.


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


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


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


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

(10)

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

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Please refer to our Consolidated Financial Statements and the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2018 (2018 Form 10-K) along with the following discussion and analysis of our consolidated financial position and results of operations for the period ended September 30, 2019 in this Form 10-Q. Averages, as presented in the following tables, are substantially all based upon daily average balances.

As used in this Form 10-Q, terms such as the "Company,” “we,” “us” and “our” refer to MUFG Americas Holdings Corporation (MUAH), one or more of its consolidated subsidiaries, or to all of them together. As permitted by General Instruction H(2) of Form 10-Q, we have abbreviated Management's Discussion and Analysis into a management's narrative analysis of the results of operations.

Introduction

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

The Company has four reportable segments: Regional Bank, Global Corporate & Investment Banking - U.S. (previously U.S. Wholesale & Investment Banking), Transaction Banking and MUSA. We service Global Corporate & Investment Banking - U.S., certain Transaction Banking, and MUSA customers through the MUFG brand and serve Regional Bank and Transaction Banking customers through the Union Bank brand. We provide a wide range of financial services to consumers, small businesses, middle-market companies and major corporations, both nationally and internationally.

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

The Company’s leadership team is bicoastal with Regional Bank and Transaction Banking leaders on the West Coast while Global Corporate & Investment Banking - U.S. and MUSA leaders are based in New York City. The corporate headquarters (principal executive office) for MUB, MUSA and MUAH is in New York City. MUB's main banking office is in San Francisco. The Company had consolidated assets of $173.2 billion at September 30, 2019.

Executive Overview

We are providing you with an overview of what we believe are the most significant factors and developments that affected our third quarter 2019 results and that could influence our future results. Further detailed information can be found elsewhere in this Form 10-Q. In addition, you should carefully read this entire document and any other reports that we refer to in this Form 10-Q for more detailed information to assist your understanding of trends, events and uncertainties that impact us.

Our sources of revenue are net interest income and noninterest income (collectively “total revenue”). Net interest income is generated predominantly from interest earned from loans, investment securities, securities borrowed or purchased under resale agreements, trading account assets and other interest-earning assets, less interest incurred on deposits and borrowings, securities loaned or sold under repurchase agreements and other interest-bearing liabilities. The primary sources of noninterest income are revenues from investment banking and syndication fees, service charges on deposit accounts, trust and investment management fees, trading account activities, credit facility fees, and fees from affiliates. Changes in interest rates, credit quality, economic trends and the capital markets are primary factors that affect our revenue sources. In the third quarter of 2019, revenue was comprised of 51% net interest income and 49% noninterest income. A summary of our financial results is discussed below.

Our primary sources of liquidity are core deposits, securities and wholesale funding. Core deposits exclude brokered deposits, foreign time deposits, domestic time deposits greater than $250,000, and certain other deposits not considered to be core customer relationships. Wholesale funding includes unsecured funds raised from MUFG Bank, Ltd. and affiliates, interbank and other sources, both domestic and international, funding secured by certain assets, or by borrowing from the FHLB. We evaluate and monitor the stability and reliability of our various funding sources to help ensure that we have sufficient liquidity when adverse situations arise.

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Performance Highlights

Net loss attributable to MUAH was $1.4 billion and $989 million for the three and nine months ended September 30, 2019, respectively, largely due to a $1.6 billion goodwill impairment charge recorded in the third quarter of 2019. The goodwill impairment charge was primarily due to the impact of declining interest rates and a change in the Company's expectation that interest rates will remain lower than previously assumed, updates to key loan growth and mix assumptions, and a reduction of the expected growth of new initiatives on the Company's cash flow projections for the Consumer Banking reporting unit. See "Goodwill Impairment" in Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-Q for additional information.

Net interest income decreased $78 million and $168 million for the three and nine months ended September 30, 2019, respectively, due to a decline in the net interest margin, primarily from higher borrowing costs, partially offset by an increase in earning assets.

The provision for credit losses was $189 million for the nine months ended September 30, 2019, compared with $43 million for the nine months ended September 30, 2018. The provision for credit losses in 2019 was primarily due to growth in unsecured consumer loan balances and the impact of specific reserves for certain impaired loans. The provision for credit losses in 2018 was primarily due to the impact of specific reserves for credit losses on impaired loans during the third quarter of 2018.

Capital Ratios

The Company's capital ratios continued to exceed all well-capitalized and minimum regulatory thresholds for BHCs, as applicable. The U.S. Basel III Common Equity Tier 1, Tier 1 and Total risk-based capital ratios were 13.81%, 13.81% and 14.48%, respectively, at September 30, 2019. The Tier 1 leverage ratio was 8.62% at September 30, 2019.

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Financial Performance

Net Interest Income

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




	For the Three Months Ended
	September 30, 2019							September 30, 2018
	September 30, 2019							September 30, 2018
	Average Balance			Interest Income/ Expense⁽¹⁾		Average Yield/ Rate⁽¹⁾⁽²⁾		Average Balance			Interest Income/ Expense⁽¹⁾		Average Yield/ Rate⁽¹⁾⁽²⁾
(Dollars in millions)	Average Balance			Interest Income/ Expense⁽¹⁾		Average Yield/ Rate⁽¹⁾⁽²⁾		Average Balance			Interest Income/ Expense⁽¹⁾		Average Yield/ Rate⁽¹⁾⁽²⁾
Assets
Loans held for investment:⁽³⁾
Commercial and industrial	$	25,678		$	268	4.14	%	$	23,517		$	259	4.35	%
Commercial mortgage	15,800			160		4.06		14,817			154		4.17
Construction	1,626			21		5.23		1,513			20		5.23
Lease financing	1,253			13		4.17		1,433			15		4.32
Residential mortgage and home equity	40,196			353		3.51		40,062			362		3.61
Other consumer	4,247			93		8.65		1,822			37		8.17
Total loans held for investment	88,800			908		4.08		83,164			847		4.06
Securities	25,984			151		2.32		27,078			171		2.51
Securities borrowed or purchased under resale agreements	22,989			190		3.26		20,316			171		3.35
Interest bearing deposits in banks	8,597			47		2.15		4,374			24		2.10
Federal funds sold	2			—		7.12		—			—		—
Trading account assets	10,497			87		3.28		12,094			109		3.58
Other earning assets	1,189			5		1.73		406			1		1.32
Total earning assets	158,058			1,388		3.49		147,432			1,323		3.57
Allowance for loan losses	(545		)					(441		)
Cash and due from banks	2,144							1,774
Other assets⁽⁴⁾	12,973							12,046
Total assets	$	172,630						$	160,811
Liabilities
Interest bearing deposits:
Transaction and money market accounts	$	37,609		$	98	1.03	%	$	36,734		$	66	0.72	%
Savings	9,204			20		0.87		9,398			18		0.76
Time	17,318			106		2.44		8,165			40		1.92
Total interest bearing deposits	64,131			224		1.39		54,297			124		0.91
Commercial paper and other short-term borrowings	9,289			53		2.27		8,870			46		2.03
Securities loaned or sold under repurchase agreements	27,989			207		2.93		26,679			193		2.87
Long-term debt	15,543			120		3.07		13,871			92		2.66
Total borrowed funds	52,821			380		2.85		49,420			331		2.66
Trading account liabilities	3,553			25		2.75		3,812			30		3.06
Total interest bearing liabilities	120,505			629		2.07		107,529			485		1.79
Noninterest bearing deposits	31,542							32,486
Other liabilities⁽⁵⁾	3,028							2,030
Total liabilities	155,075							142,045
Equity
MUAH stockholders' equity	17,493							18,682
Noncontrolling interests	62							84
Total equity	17,555							18,766
Total liabilities and equity	$	172,630						$	160,811
Net interest income/spread (taxable-equivalent basis)				759		1.42	%				838		1.78	%
Impact of noninterest bearing deposits						0.43							0.42
Impact of other noninterest bearing sources						0.07							0.07
Net interest margin						1.92							2.27
Less: taxable-equivalent adjustment				5							6
Net interest income				$	754						$	832


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


(2)	Annualized.


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


(4)	Other assets include noninterest bearing trading account assets.


(5)	Other liabilities include noninterest bearing trading account liabilities.

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	For the Nine Months Ended
	September 30, 2019							September 30, 2018
	September 30, 2019							September 30, 2018
	Average Balance			Interest Income/ Expense⁽¹⁾		Average Yield/ Rate⁽¹⁾⁽²⁾		Average Balance			Interest Income/ Expense⁽¹⁾		Average Yield/ Rate⁽¹⁾⁽²⁾
(Dollars in millions)	Average Balance			Interest Income/ Expense⁽¹⁾		Average Yield/ Rate⁽¹⁾⁽²⁾		Average Balance			Interest Income/ Expense⁽¹⁾		Average Yield/ Rate⁽¹⁾⁽²⁾
Assets
Loans held for investment:⁽³⁾
Commercial and industrial	$	25,487		$	830	4.35	%	$	23,504		$	726	4.13	%
Commercial mortgage	15,580			484		4.14		14,552			454		4.16
Construction	1,623			66		5.43		1,680			60		4.79
Lease financing	1,259			50		5.29		1,472			47		4.26
Residential mortgage and home equity	40,485			1,090		3.59		39,284			1,050		3.56
Other consumer	3,653			236		8.64		1,463			98		8.95
Total loans held for investment	88,087			2,756		4.18		81,955			2,435		3.97
Securities	26,525			463		2.33		27,216			500		2.45
Securities borrowed or purchased under resale agreements	22,771			608		3.57		20,402			454		2.98
Interest bearing deposits in banks	7,372			129		2.34		3,671			53		1.90
Federal funds sold	2			—		7.11		7			—		—
Trading account assets	10,626			270		3.40		12,036			308		3.42
Other earning assets	764			14		2.50		447			5		1.62
Total earning assets	156,147			4,240		3.63		145,734			3,755		3.44
Allowance for loan losses	(511		)					(457		)
Cash and due from banks	1,928							1,809
Other assets⁽⁴⁾	12,611							12,123
Total assets	$	170,175						$	159,209
Liabilities
Interest bearing deposits:
Transaction and money market accounts	$	37,228		$	278	1.00	%	$	36,695		$	158	0.58	%
Savings	9,435			67		0.96		8,977			43		0.64
Time	15,469			278		2.40		6,480			77		1.59
Total interest bearing deposits	62,132			623		1.34		52,152			278		0.71
Commercial paper and other short-term borrowings	8,964			161		2.41		8,860			121		1.82
Securities loaned or sold under repurchase agreements	27,743			667		3.21		26,898			509		2.53
Long-term debt	16,380			378		3.07		14,116			266		2.51
Total borrowed funds	53,087			1,206		3.03		49,874			896		2.40
Trading account liabilities	3,637			80		2.93		3,718			81		2.90
Total interest-bearing liabilities	118,856			1,909		2.15		105,744			1,255		1.58
Noninterest bearing deposits	31,312							32,781
Other liabilities⁽⁵⁾	2,828							2,214
Total liabilities	152,996							140,739
Equity
MUAH stockholders' equity	17,113							18,376
Noncontrolling interests	66							94
Total equity	17,179							18,470
Total liabilities and equity	$	170,175						$	159,209
Net interest income/spread (taxable-equivalent basis)				2,331		1.48	%				2,500		1.86	%
Impact of noninterest bearing deposits						0.45							0.38
Impact of other noninterest bearing sources						0.06							0.06
Net interest margin						1.99							2.30
Less: taxable-equivalent adjustment				17							18
Net interest income				$	2,314						$	2,482


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


(2)	Annualized.


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


(4)	Other assets include noninterest bearing trading account assets.


(5)	Other liabilities include noninterest bearing trading account liabilities.

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Net interest income for the three and nine months ended September 30, 2019 decreased $78 million and $168 million, respectively, compared with the same periods in 2018 due to a decline in the net interest margin partially offset by an increase in earning assets. The net interest margin decreased 35 and 31 basis points, respectively, primarily due to an increase in borrowing costs, partially offset by the favorable effect of noninterest bearing deposits. Earning assets increased primarily due to increases in interest bearing deposits in banks, and commercial and industrial, commercial mortgage, residential mortgage and home equity loans, and other consumer loans, partially offset by a decrease in trading account assets.

Noninterest Income and Noninterest Expense

The following tables display our noninterest income and noninterest expense for the three and nine months ended September 30, 2019 and 2018.

Noninterest Income



	For the Three Months Ended										For the Nine Months Ended
						Increase (Decrease)										Increase (Decrease)
	September 30, 2019		September 30, 2018			Increase (Decrease)					September 30, 2019		September 30, 2018			Increase (Decrease)
(Dollars in millions)	September 30, 2019		September 30, 2018			Amount			Percent		September 30, 2019		September 30, 2018			Amount			Percent
Service charges on deposit accounts	$	42	$	44		$	(2	)	(5	)%	$	124	$	134		$	(10	)	(7	)%
Trust and investment management fees	29		30			(1		)	(3	)	87		89			(2		)	(2	)
Trading account activities	34		(5		)	39			nm		70		(13		)	83			nm
Securities gains, net	11		1			10			nm		34		4			30			nm
Credit facility fees	26		23			3			13		73		69			4			6
Brokerage commissions and fees	19		18			1			6		58		55			3			5
Card processing fees, net	17		12			5			42		44		37			7			19
Investment banking and syndication fees	105		108			(3		)	(3	)	331		285			46			16
Fees from affiliates	378		306			72			24		1,073		881			192			22
Other, net	56		89			(33		)	(37	)	104		63			41			65
Total noninterest income	$	717	$	626		$	91		15		$	1,998	$	1,604		$	394		25

Noninterest income increased during the three and nine months ended September 30, 2019 compared with the same periods in 2018 primarily due to increases in trading account activities, gains on sale of securities, and fees from affiliates from services provided to MUFG Bank, Ltd. under the master services agreement, partially offset by a decline in the fair value of mortgage servicing rights (included in other, net). The Company uses derivatives to offset changes in the fair value of mortgage servicing rights. Changes in the fair value of these derivatives are included in trading account activities. Investment banking and syndication fees also contributed to the increase in noninterest income during the nine months ended September 30, 2019. In addition, the nine months ended September 30, 2018 included the Company's share of losses on certain renewable energy investments of $164 million as a result of the TCJA (included in other, net).

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Noninterest Expense



	For the Three Months Ended									For the Nine Months Ended
					Increase (Decrease)									Increase (Decrease)
	September 30, 2019		September 30, 2018		Increase (Decrease)					September 30, 2019		September 30, 2018		Increase (Decrease)
(Dollars in millions)	September 30, 2019		September 30, 2018		Amount			Percent		September 30, 2019		September 30, 2018		Amount			Percent
Salaries and employee benefits	$	673	$	652	$	21		3	%	$	2,054	$	2,000	$	54		3	%
Net occupancy and equipment	107		89		18			20		322		264		58			22
Professional and outside services	159		110		49			45		480		356		124			35
Software	84		73		11			15		236		213		23			11
Regulatory assessments	17		24		(7		)	(29	)	45		69		(24		)	(35	)
Intangible asset amortization	8		6		2			33		25		20		5			25
Goodwill impairment	1,614		—		1,614			100		1,614		—		1,614			100
Other	108		105		3			3		318		304		14			5
Total noninterest expense	$	2,770	$	1,059	$	1,711		162		$	5,094	$	3,226	$	1,868		58

Excluding goodwill impairment, the increase in noninterest expense for the three and nine months ended September 30, 2019 compared with the same periods in 2018 was primarily driven by increases in costs associated with services provided to MUFG Bank, Ltd. under the master services agreement. Expenses related to technology-oriented initiatives to transform certain systems and processes also contributed to the increases in noninterest expense.

In order to reduce our cost base and drive continuous improvement, the Company has launched the first phase of an initiative referred to as its "Rewiring Program," a multi-year effort that will focus on four areas: workforce geographic distribution, organizational design, procurement, and process simplification and automation. The benefits from this phase of the initiative, some of which will be offset by reinvestment in technology, regulatory compliance and growth initiatives, will be implemented over the next several years.

Goodwill Impairment

The Company performs goodwill impairment tests on an annual basis as of April 1, and between annual tests if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying amount. The Company adopted Accounting Standards Update No. 2017-04, Simplifying the Test for Goodwill Impairment ("ASU 2017-04") effective July 1, 2019. This standard eliminates Step 2 from the goodwill impairment test. Instead, the Company performs its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

During the third quarter of 2019, due to the decline in interest rates and slower growth than previously forecasted, cash flow projections for certain reporting units were revised lower. The combination of these events led management to believe that it was more likely than not that the fair values of certain reporting units were below carrying value. As a result, the Company initiated an interim quantitative impairment test of goodwill allocated to three of its reporting units: Consumer Banking, Commercial Banking and Real Estate Industries, and Global Corporate & Investment Banking - U.S.

The Company estimated the fair value of its reporting units using a combination of the income and the market approaches. The income approach estimates the fair value of the reporting units by discounting management’s projections of each reporting unit’s cash flows, including a terminal value to estimate the fair value of cash flows beyond the final year of projected results, using a discount rate derived from the Capital Asset Pricing Model. The market approach incorporates comparable public company price to tangible book value and price to earnings multiples.

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Certain projected cash flows used to estimate fair value of the reporting units were revised lower than previous projections due to the combination of the following factors: the decline in interest rates through September 30, 2019 and a change in the Company’s expectation that interest rates will remain lower than previously assumed; updates to key loan growth and loan mix assumptions in the forecast to address the Company’s declining net interest margin; and a reduction of the expected growth and cash flow contribution of new initiatives based on a revised economic outlook. Multiples selected in the market approach to estimate fair values were also revised lower than those used in the most recent annual quantitative impairment test due to lower reporting unit earnings.

Upon completing the quantitative impairment test, the Company recorded an impairment charge of $1.6 billion, which represented the entire amount of goodwill allocated to the Consumer Banking reporting unit and a portion of the goodwill allocated to the Global Corporate & Investment Banking - U.S. reporting unit, which has $667 million allocated goodwill remaining after the impairment. The Commercial Banking and Real Estate Industries reporting unit’s estimated fair value exceeded carrying value by 9%. The impairment charge did not result in a cash outflow and did not significantly affect the regulatory capital ratios or the Company’s liquidity position as of September 30, 2019.

Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. Estimating the fair value of individual reporting units requires us to make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include estimated future annual net cash flows, income tax rates, discount rates, growth rates, and other market factors. If current expectations of future growth rates are not met, if market factors outside of our control, such as discount rates and market multiples, change, or if management’s expectations or plans otherwise change, then goodwill allocated to one or more of our reporting units might become impaired in the future.

Income Tax Expense

In the third quarter of 2019, income tax benefit was $18 million and the effective tax rate was 1%, compared with income tax expense of $35 million and an effective tax rate of 10% in the third quarter of 2018. For the nine months ended September 30, 2019, income tax expense was $30 million and the effective tax rate was negative 3%, compared with 3% in the comparative prior year period. Excluding the goodwill impairment charge in the third quarter of 2019, the majority of which was not deductible for income tax purposes, the effective tax rate would have been 13% and 12% for the three and nine months ended September 30, 2019, respectively. Income tax expense and the effective tax rate for the nine months ended September 30, 2018 included an adjustment to certain prior period state income taxes during the first quarter of 2018. Excluding that adjustment, the effective tax rate for the nine months ended September 30, 2018 would have been 9%.

For additional information regarding income tax expense, see "Income Tax Expense" in Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations", “The changes in the U.S. tax laws, the majority of which were effective January 1, 2018, will impact our business and results of operations in a variety of ways, some of which are expected to be positive and others which may be negative” and “Our effective tax rates, and our future results can also be affected by our participation for state income tax purposes as a member of MUFG’s unitary group in the U.S. and by other factors” in Part I, Item 1A. "Risk Factors" and Note 17 "Income Taxes" to our Consolidated Financial Statements in Part II, Item 8. “Financial Statements and Supplementary Data” in our 2018 Form 10-K.

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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 substantially comprised of U.S. Treasury securities, U.S. government-sponsored agency securities, RMBSs, CMBSs, Cash Flow CLOs, and direct bank purchase bonds. Direct bank purchase bonds are instruments that are issued in bond form, accounted for as securities, but underwritten as loans with features that are typically found in commercial loans, 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. Securities held to maturity consist of U.S. Treasury securities, U.S. government-sponsored agency securities and U.S. government-sponsored agency RMBSs and CMBSs.

The amortized cost, gross unrealized gains, gross unrealized losses and fair values of securities, and securities pledged as collateral, are detailed in Note 2 "Securities" to our Consolidated Financial Statements in Part I, Item 1. "Financial Statements" in this Form 10-Q.

Loans Held for Investment

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



					Increase (Decrease)
	September 30, 2019		December 31, 2018		Increase (Decrease)
(Dollars in millions)	September 30, 2019		December 31, 2018		Amount			Percent
Loans held for investment:
Commercial and industrial	$	25,819	$	24,919	$	900		4	%
Commercial mortgage	15,909		15,354		555			4
Construction	1,609		1,613		(4		)	—
Lease financing	1,235		1,249		(14		)	(1	)
Total commercial portfolio	44,572		43,135		1,437			3
Residential mortgage and home equity ⁽¹⁾	39,693		40,677		(984		)	(2	)
Other consumer ⁽²⁾	4,428		2,695		1,733			64
Total consumer portfolio	44,121		43,372		749			2
Total loans held for investment	$	88,693	$	86,507	$	2,186		3


(1)	Includes home equity loans of $2,129 million and $2,238 million at September 30, 2019 and December 31, 2018, respectively.


(2)	Other consumer loans substantially include unsecured consumer loans and consumer credit cards.

Loans held for investment increased from December 31, 2018 to September 30, 2019, primarily due to growth in the commercial and industrial, commercial mortgage and other consumer loan portfolios, partially offset by a decrease in the residential mortgage and home equity portfolio.

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Deposits

The table below presents our deposits as of September 30, 2019 and December 31, 2018.



					Increase (Decrease)
	September 30, 2019		December 31, 2018		Increase (Decrease)
(Dollars in millions)	September 30, 2019		December 31, 2018		Amount			Percent
Interest checking	$	4,366	$	3,598	$	768		21	%
Money market	33,452		34,373		(921		)	(3	)
Total interest bearing transaction and money market accounts	37,818		37,971		(153		)	—
Savings	9,085		9,515		(430		)	(5	)
Time	17,213		11,739		5,474			47
Total interest bearing deposits	64,116		59,225		4,891			8
Noninterest bearing deposits	32,555		31,754		801			3
Total deposits	$	96,671	$	90,979	$	5,692		6

Total deposits increased $5.7 billion from December 31, 2018 to September 30, 2019 due substantially to an increase in time deposits. The increase in time deposits was largely related to Regional Bank deposits, including PurePoint Financial, the direct banking division of the Bank, and brokered deposits.

Securities Financing Arrangements

The Company enters into securities purchased under agreements to resell, securities sold under agreements to repurchase, and securities borrowing and lending transactions to facilitate customer match-book activity, cover short positions and to fund the Company's trading inventory. These balances are almost entirely attributable to MUSA. See Note 6 "Securities Financing Arrangements" to our Consolidated Financial Statements in Part I, Item 1. "Financial Statements" in this Form 10-Q for additional information.

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Capital Management

Both MUAH and MUB are subject to various capital adequacy regulations issued by the U.S. federal banking agencies, including requirements to complete an annual capital plan and to maintain minimum regulatory capital ratios. As of September 30, 2019, management believes the capital ratios of MUAH and MUB exceeded all regulatory requirements of “well-capitalized” institutions.

MUAH is subject to regulatory requirements to develop and maintain a capital plan which must be reviewed and approved by its Board of Directors (or designated subcommittee thereof). The Board of Directors approved the Company's annual capital plan in March 2019. MUAH was granted regulatory administrative relief in 2019 and was not required to submit its capital plan to the Federal Reserve or participate in the 2019 CCAR process. MUAH remains subject to future cycles of the Federal Reserve CCAR program.

MUAH and MUB are required to maintain minimum capital ratios under the standardized approach in accordance with the BCBS capital guidelines for U.S. banking organizations issued by the U.S. federal banking agencies (U.S. Basel III Rules). Among other requirements, the U.S. Basel III Rules require a minimum Common Equity Tier 1 capital ratio of 4.5% and a capital conservation buffer of 2.5% (for a total minimum Common Equity Tier 1 capital ratio of 7.0%) and a Tier 1 leverage ratio of 4%.

The following tables summarize the calculation of MUAH’s risk-based capital ratios in accordance with the U.S. Basel III rules as of September 30, 2019 and December 31, 2018.

MUFG Americas Holdings Corporation



	U.S. Basel III
(Dollars in millions)	September 30, 2019		December 31, 2018
Capital Components
Common Equity Tier 1 capital	$	14,800	$	14,256
Tier 1 capital	$	14,800	$	14,256
Tier 2 capital	719		648
Total risk-based capital	$	15,519	$	14,904
Risk-weighted assets	$	107,185	$	102,088
Average total assets for leverage capital purposes	$	171,680	$	162,550



	U.S. Basel III								Minimum Capital Requirement with Capital Conservation Buffer ⁽¹⁾
(Dollars in millions)	September 30, 2019				December 31, 2018				September 30, 2019
Capital Ratios	Amount		Ratio		Amount		Ratio		Amount			Ratio
Common Equity Tier 1 capital (to risk-weighted assets)	$	14,800	13.81	%	$	14,256	13.96	%	≥	$	7,503	7.000	%
Tier 1 capital (to risk-weighted assets)	14,800		13.81		14,256		13.96		≥	9,111		8.500
Total capital (to risk-weighted assets)	15,519		14.48		14,904		14.60		≥	11,254		10.500
Tier 1 leverage⁽²⁾	14,800		8.62		14,256		8.77		≥	6,867		4.000

(1)Beginning January 1, 2019, the minimum capital requirement includes a capital conservation buffer of 2.5%.

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

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The following tables summarize the calculation of MUB’s risk-based capital ratios in accordance with the guidelines set forth in the U.S. Basel III rules as of September 30, 2019 and December 31, 2018.

MUFG Union Bank, N.A.



	U.S. Basel III
(Dollars in millions)	September 30, 2019		December 31, 2018
Capital Components
Common Equity Tier 1 capital	$	13,878	$	13,316
Tier 1 capital	$	13,878	$	13,316
Tier 2 capital	606		589
Total risk-based capital	$	14,484	$	13,905
Risk-weighted assets	$	97,151	$	92,170
Average total assets for leverage capital purposes	$	133,401	$	125,461



	U.S. Basel III								Minimum Capital Requirement with Capital Conservation Buffer ⁽¹⁾					To Be Well-Capitalized Under Prompt Corrective Action Provisions
(Dollars in millions)	September 30, 2019				December 31, 2018				September 30, 2019
Capital Ratios	Amount		Ratio		Amount		Ratio		Amount			Ratio		Amount			Ratio
Common Equity Tier 1 capital (to risk-weighted assets)	$	13,878	14.29	%	$	13,316	14.45	%	≥	$	6,801	7.000	%	≥	$	6,315	6.50	%
Tier 1 capital (to risk-weighted assets)	13,878		14.29		13,316		14.45		≥	8,258		8.500		≥	7,772		8.00
Total capital (to risk-weighted assets)	14,484		14.91		13,905		15.09		≥	10,201		10.500		≥	9,715		10.00
Tier 1 leverage⁽²⁾	13,878		10.40		13,316		10.61		≥	5,336		4.000		≥	6,670		5.00

(1)Beginning January 1, 2019, the minimum capital requirement includes a capital conservation buffer of 2.5%.

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

In addition to capital ratios determined in accordance with regulatory requirements, we consider the tangible common equity ratio when evaluating capital utilization and adequacy. This capital ratio is monitored by management, and presented below, to further facilitate the understanding of our capital structure and for use in assessing and comparing the quality and composition of the Company’s capital structure to other financial institutions. This ratio is not codified within GAAP or federal banking regulations in effect at September 30, 2019. Therefore, it is considered a non-GAAP financial measure. Our tangible common equity ratio calculation method may differ from those used by other financial services companies.

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The following table summarizes the calculation of the Company's tangible common equity ratio as of September 30, 2019 and December 31, 2018.



	September 30, 2019			December 31, 2018
(Dollars in millions)	September 30, 2019			December 31, 2018
Total MUAH stockholders' equity	$	16,042		$	16,508
Less: Goodwill	1,764			3,301
Less: Intangible assets, except mortgage servicing rights	269			285
Less: Deferred tax liabilities related to goodwill and intangible assets	(16		)	(57		)
Tangible common equity (a)	$	14,025		$	12,979
Total assets	$	173,233		$	168,100
Less: Goodwill	1,764			3,301
Less: Intangible assets, except mortgage servicing rights	269			285
Less: Deferred tax liabilities related to goodwill and intangible assets	(16		)	(57		)
Tangible assets (b)	$	171,216		$	164,571
Tangible common equity ratio (a)/(b)	8.19		%	7.89		%

Goodwill and related deferred tax liabilities declined due to the impairment recorded in the third quarter of 2019. See "Goodwill Impairment" in Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 4 "Goodwill" to our Consolidated Financial Statements in Part I, Item 1. "Financial Statements" in this Form 10-Q. For additional information regarding our regulatory capital requirements, see "Supervision and Regulation – Regulatory Capital and Liquidity Standards" in Part I, Item 1. "Business" in our 2018 Form 10-K.

Risk Management

All financial institutions must manage and control a variety of business risks that can significantly affect their financial condition and performance. Some of the key risks that the Company must manage include credit, market, liquidity, operational, interest rate, compliance, reputation and strategic risks. The Board, directly or through its appropriate committees, provides oversight and approves our various risk management policies. Management has established a risk management structure that is designed to provide a comprehensive approach for identifying, measuring, monitoring, controlling and reporting on the significant risks faced by the Company. For additional information regarding our risk management structure and framework, see “Risk Management” in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2018 Form 10-K.

Credit Risk Management

One of our principal business activities is the extension of credit to individuals and businesses. Our policies and the applicable laws and regulations governing the extension of credit require risk analysis, including an extensive evaluation of the purpose of the request and the borrower’s ability and willingness to repay as scheduled. Our process also includes ongoing portfolio and credit management through portfolio diversification, lending limit constraints, credit review and approval policies, and extensive internal monitoring. For additional information regarding our credit risk management policies, see “Credit Risk Management” in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2018 Form 10-K.

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Allowance for Credit Losses

We maintain an allowance for credit losses (defined as both the allowance for loan losses and the allowance for losses on unfunded credit commitments) to absorb losses inherent in the loan portfolio as well as for unfunded credit commitments. Understanding our policies on the allowance for credit losses is fundamental to understanding our consolidated financial condition and consolidated results of operations. Accordingly, our significant accounting policies on the allowance for credit losses are discussed in detail in Note 1 "Summary of Significant Accounting Policies and Nature of Operations" to our Consolidated Financial Statements in Part II, Item 8. “Financial Statements and Supplementary Data” and in “Allowance for Credit Losses” in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2018 Form 10-K. For additional information regarding our allowance for loan losses, see Note 3 "Loans and Allowance for Loan Losses" to our Consolidated Financial Statements in Part I, Item 1. “Financial Statements” in this Form 10-Q.

The allowance for loan losses was $573 million at September 30, 2019 compared with $474 million at December 31, 2018. Our ratio of allowance for loan losses to total loans held for investment was 0.65% as of September 30, 2019 and 0.55% as of December 31, 2018. The provision for loan losses was $92 million and $217 million for the three and nine months ended September 30, 2019, respectively, primarily due to growth in our other consumer loan portfolio and the impact of specific reserves for certain impaired loans. Net loans charged off to average total loans held for investment were 0.36% and 0.18% for the three and nine months ended September 30, 2019, respectively, compared with 0.03% for the three and nine months ended September 30, 2018.

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 September 30,						For the Nine Months Ended September 30,
(Dollars in millions)	2019			2018			2019			2018
Allowance for loan losses, beginning of period	$	562		$	445		$	474		$	476
(Reversal of) provision for loan losses	92			62			217			44
Loans charged off:
Commercial and industrial	(50		)	(7		)	(57		)	(14		)
Commercial and industrial - transfer to held for sale	(9		)	—			(26		)	—
Commercial mortgage	—			(1		)	(1		)	(1		)
Total commercial portfolio	(59		)	(8		)	(84		)	(15		)
Residential mortgage and home equity	2			2			3			3
Other consumer	(28		)	(10		)	(67		)	(30		)
Total consumer portfolio	(26		)	(8		)	(64		)	(27		)
Total loans charged-off	(85		)	(16		)	(148		)	(42		)
Recoveries of loans previously charged-off:
Commercial and industrial	2			7			23			17
Commercial mortgage	—			1			—			1
Total commercial portfolio	2			8			23			18
Other consumer	2			2			7			5
Total consumer portfolio	2			2			7			5
Total recoveries of loans previously charged-off	4			10			30			23
Net loans recovered (charged-off)	(81		)	(6		)	(118		)	(19		)
Ending balance of allowance for loan losses	573			501			573			501
Allowance for losses on unfunded credit commitments	111			122			111			122
Total allowance for credit losses	$	684		$	623		$	684		$	623

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Nonperforming Assets

Nonperforming assets consist of nonaccrual loans and OREO. Nonaccrual loans are those for which management has discontinued accrual of interest because there exists significant uncertainty as to the full and timely collection of either principal or interest, or such loans have become contractually past due 90 days with respect to principal or interest. OREO includes property where the Bank acquired title through foreclosure or “deed in lieu” of foreclosure. For a more detailed discussion of the accounting for nonaccrual loans, see Note 1 "Summary of Significant Accounting Policies and Nature of Operations" to our Consolidated Financial Statements in Part II, Item 8. “Financial Statements and Supplementary Data” in our 2018 Form 10-K.

The following table sets forth the components of nonperforming assets, TDRs, criticized assets and certain credit ratios.



	September 30, 2019			December 31, 2018			Increase (Decrease)
(Dollars in millions)	September 30, 2019			December 31, 2018			Amount			Percent
Nonaccrual loans:
Commercial and industrial	$	258		$	269		$	(11	)	(4	)%
Commercial mortgage	20			12			8			67
Total commercial portfolio	278			281			(3		)	(1	)
Residential mortgage and home equity	139			139			—			—
Other consumer	1			1			—			—
Total consumer portfolio	140			140			—			—
Total nonaccrual loans	418			421			(3		)	(1	)
OREO	3			1			2			200
Total nonperforming assets	$	421		$	422		$	(1	)	—
Troubled debt restructurings:
Accruing	$	395		$	299		$	96		32	%
Nonaccruing (included in total nonaccrual loans above)	122			136			(14		)	(10	)
Total troubled debt restructurings	$	517		$	435		$	82		19

Criticized credits	$	1,547		$	1,264		$	283		22

Allowance for loan losses to nonaccrual loans	137.00		%	112.50		%
Allowance for credit losses to nonaccrual loans	163.40			145.61
Nonperforming assets to total loans held for investment and OREO	0.47			0.49
Nonperforming assets to total assets	0.24			0.25
Nonaccrual loans to total loans held for investment	0.47			0.49

See Note 3 "Loans and Allowance for Loan Losses" to our Consolidated Financial Statements in Part I, Item 1. “Financial Statements” in this Form 10-Q for a description of criticized credits.

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Troubled Debt Restructurings

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

The following table provides a summary of TDRs by loan type, including nonaccrual loans and loans that have been returned to accrual status, as of September 30, 2019 and December 31, 2018. See Note 3 "Loans and Allowance for Loan Losses" to our Consolidated Financial Statements in Part I, Item 1. “Financial Statements” in this Form 10-Q for additional information.



					As a Percentage of Ending Loan Balances
(Dollars in millions)	September 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Commercial and industrial	$	90	$	109	0.33	%	0.42	%
Commercial mortgage	168		46		1.06		0.30
Construction	62		63		3.85		3.91
Total commercial portfolio	320		218		0.72		0.51
Residential mortgage and home equity	196		216		0.49		0.51
Other consumer	1		1		0.02		0.43
Total consumer portfolio	197		217		0.45		0.50
Total restructured loans	$	517	$	435	0.58		0.50

Loans 90 Days or More Past Due and Still Accruing Interest

Loans held for investment 90 days or more past due and still accruing interest totaled $18 million and $23 million at September 30, 2019 and at December 31, 2018, respectively.

Concentration of Risk

Commercial and industrial loans are extended principally to corporations, middle-market businesses and small businesses and are originated primarily through our commercial banking offices. Our commercial and industrial portfolio is comprised primarily of the following industry sectors: finance and insurance, manufacturing, real estate and leasing, power and utilities, and wholesale trade. No individual industry sector exceeded 10% of our total loans held for investment at either September 30, 2019 or December 31, 2018.

Construction and commercial mortgage loans are secured by deeds of trust or mortgages. Construction loans are extended primarily to commercial property developers and to residential builders. At September 30, 2019, 69% of the Company’s construction loan portfolio was concentrated in California, 14% to borrowers in New York and 4% to borrowers in Texas. The commercial mortgage loan portfolio consists of loans secured by commercial income properties. At September 30, 2019, 65% of the Company’s commercial mortgage loans were made to borrowers located in California, 7% to borrowers in Washington, and 6% to borrowers in New York.

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

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At September 30, 2019, payment terms on 36% of our residential mortgage loans required a monthly payment that covers the full amount of interest due, but did not reduce the principal balance. At origination, these interest-only loans had strong credit profiles and had weighted average LTV ratios of approximately 65%. The remainder of the portfolio consisted of regularly amortizing loans. Home equity loans are originated principally through our branch network and private banking offices. Approximately 25% and 26% of these home equity loans and lines were supported by first liens on residential properties as of September 30, 2019 and December 31, 2018, respectively. To manage risk associated with lending commitments, we review all equity-secured lines annually for creditworthiness and may reduce or freeze limits, to the extent permitted by laws and regulations.

Other consumer loans substantially include unsecured consumer loans and consumer credit cards. The Company manages risk associated with these loans by establishing lending criteria similar to other consumer loans originated by the Company.

See Note 3 "Loans and Allowance for Loan Losses" to our Consolidated Financial Statements in Part I, Item 1. “Financial Statements” in this Form 10-Q for additional information on refreshed FICO scores for our consumer portfolio segment and refreshed LTV ratios for our residential mortgage and home equity loans at September 30, 2019 and December 31, 2018.

Market Risk Management

The objective of market risk management is to mitigate any adverse impact on earnings and capital arising from changes in interest rates and other market variables. Market risk management supports our broad objective of enhancing shareholder value, which encompasses the achievement of stable earnings growth while promoting capital stability over time. Market risk is defined as the risk of loss arising from an adverse change in the market value of financial instruments caused by fluctuations in market prices or rates. The primary market risk to which we are exposed is interest rate risk. Interest rate risk arises from instruments, positions and transactions entered into for purposes other than trading and for trading. Other than trading interest rate risk arises from loans, securities, deposits, borrowings, securities purchased under agreements to resell, securities sold under agreements to repurchase, securities borrowing and lending transactions, derivative instruments and mortgage servicing rights. Trading interest rate risk primarily arises from trading activities at MUAH's broker-dealer subsidiary, MUSA, and derivative contracts MUB enters into as a financial intermediary for customers. For additional information regarding our market risk management policies, see “Market Risk Management” in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2018 Form 10-K.

Liquidity Risk Management

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

The management of liquidity risk is governed by MUAH ALM and Liquidity Risk Management Policies. The MUAH ALM Policy is under the oversight of ALCO, which oversees first line liquidity risk management activities conducted by Treasury. Treasury formulates the funding, liquidity and contingency planning strategies for the Company, the Bank and MUSA, and is responsible for identifying, managing and reporting on liquidity risk. The Liquidity Risk Management Policies for the Company, the Bank and MUSA are under the oversight of the ARC and the Risk Committee of the Board. MRM conducts independent oversight and governance of liquidity risk management activities to establish sound policies and effective risk and independent monitoring controls. We are also subject to a Contingency Funding Plan framework that identifies actions to be taken to help ensure adequate liquidity if an event should occur that disrupts or adversely affects the normal funding activities of the Company, the Bank or MUSA.

Liquidity risk is managed using a total balance sheet perspective that analyzes all sources and uses of liquidity including loans, investments, deposits and borrowings, as well as off-balance sheet exposures. Although we make an effort to diversify our sources of liquidity, as discussed below, we are required to maintain a minimum amount of TLAC-eligible debt due to affiliates beginning January 1, 2019. Various tools are used to measure and monitor liquidity, including forecasting of the sources and uses of cash flows over multiple time horizons and stress testing of the forecasts under various scenarios. Stress testing, which incorporates both institution-specific, and systemic market scenarios, as well as a combination scenario that adversely affects the Company's liquidity

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position and profile, facilitates the identification of appropriate remedial measures to help ensure that the Company maintains adequate liquidity in adverse conditions. Such measures may include extending the maturity profile of liabilities, optimizing liability levels through pricing strategies, adding new funding sources, altering dependency on certain funding sources, adjusting asset growth and financing or selling assets.

We are subject to the Federal Reserve's rules imposing TLAC requirements on GSIBs with operations in the U.S., such as MUFG. These rules include an Internal TLAC requirement which sets a minimum amount of loss-absorbing instruments, which must be issued by the Company to MUFG or MUFG Bank, Ltd. (or another wholly-owned non-U.S. subsidiary of MUFG) due to MUFG's single point of entry resolution approach. These loss absorbing instruments are comprised of Tier 1 regulatory capital and long-term debt. TLAC Tier 1 regulatory capital is designed to absorb ongoing losses, while the conversion of TLAC-eligible long-term debt into common equity of the Company is intended to recapitalize the Company prior to any bankruptcy or insolvency proceedings. During the fourth quarter of 2018, the Company restructured existing debt issued to MUFG Bank, Ltd. and replaced a portion of its externally-placed debt with the issuance of internal TLAC-eligible debt issued to MUFG Bank, Ltd. in order to comply with the new rules. See "Supervision and Regulation – Dodd-Frank Act and Related Regulations" in Part I, Item 1. "Business" in our 2018 Form 10-K for additional information.

We maintain a substantial level of available liquidity in the form of on-balance sheet and off-balance sheet funding sources. Sources of liquidity include cash at the Federal Reserve, unencumbered liquid securities, and capacity to borrow on a secured basis at the FHLB of San Francisco and the Federal Reserve Bank’s Discount Window. Total unpledged securities were $24.8 billion at September 30, 2019. Our primary funding sources are customer deposits, secured FHLB advances, and unsecured short-term and long-term debt. Total deposits increased $5.7 billion from $91.0 billion at December 31, 2018 to $96.7 billion at September 30, 2019. As of September 30, 2019, the Bank had $14.1 billion of borrowings outstanding with the FHLB of San Francisco, and the Bank had a remaining unused borrowing capacity from the FHLB of San Francisco of $20.9 billion. The Bank maintains a $12.0 billion unsecured bank note program. Available funding under the bank note program was $4.6 billion at September 30, 2019. We do not have any firm commitments in place to sell additional notes under this program.

In addition to managing liquidity risk on a consolidated basis and at each of the major subsidiaries (the Bank and MUSA), we assess and monitor liquidity at the parent company (MUAH) and the other non-bank subsidiaries. The parent company maintains sufficient liquidity to meet expected obligations, without access to the wholesale funding markets or dividends from subsidiaries, for at least 18 months. At September 30, 2019, the parent company’s liquidity exceeded 18 months.

MUAH and its subsidiaries may borrow on a long-term basis from MUFG Bank, Ltd. and affiliates. As of September 30, 2019, the Company had total long-term debt issued to MUFG Bank, Ltd. and affiliates of $7.2 billion.

The Company’s total wholesale funding included $15.7 billion of long-term debt (excluding nonrecourse debt) and $8.8 billion of short-term debt at September 30, 2019. For additional information regarding our outstanding debt, see Note 7 "Commercial Paper and Other Short-Term Borrowings" and Note 8 "Long-Term Debt" to our Consolidated Financial Statements in Part I, Item 1. “Financial Statements” in this Form 10-Q. We evaluate and monitor the stability and reliability of our various funding sources to help ensure that we have sufficient liquidity in adverse circumstances.

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Our costs and ability to raise funds in the capital markets are influenced by our credit ratings. The following table provides our credit ratings as of September 30, 2019.



		MUFG Union Bank, N.A.		MUFG Securities Americas Inc.	MUFG Americas Holdings Corporation
		Deposits	Senior Debt	Senior Debt	Senior Debt
Standard & Poor's	Long-term	—	A	A	A-
	Short-term	—	A-1	A-1	A-2
Moody's	Long-term	Aa2	A2	—	A2
	Short-term	P-1	P-1	—	—
Fitch	Long-term	A+	A	A	A
	Short-term	F1	F1	F1	F1

For additional information, including information about rating agency assessments, see “MUFG Bank Ltd.’s and Mitsubishi UFJ Financial Group’s credit ratings and financial or regulatory condition could adversely affect our operations” and "Our credit ratings are important in order to maintain liquidity" in Part I, Item 1A. "Risk Factors" in our 2018 Form 10-K.

The OCC, the Federal Reserve and the FDIC jointly adopted a final rule to implement a standardized quantitative liquidity requirement generally consistent with the LCR standards established by the BCBS. The LCR rule is designed to ensure that covered banking organizations maintain an adequate level of cash and HQLA, such as central bank reserves and government and corporate debt, to meet estimated net liquidity needs in a short-term stress scenario using liquidity inflow and outflow assumptions provided in the rule (net cash outflow). At September 30, 2019, the Company was in compliance with the LCR requirements.

For additional information regarding this rule, see "Supervision and Regulation-Regulatory Capital and Liquidity Standards-Liquidity Coverage Ratio" in Part I, Item 1. of our 2018 Form 10-K and "The effects of changes or increases in, or supervisory enforcement of, banking, securities, competition or other laws and regulations or governmental fiscal, monetary, or tax policies could adversely affect us or make strategic planning more difficult" in Part I, Item 1A. "Risk Factors" of our 2018 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. Operational risk includes legal risk, but excludes strategic and reputation risk. In particular, information security is a significant operational risk element for the Company and includes the risk of losses resulting from cyber-attacks or other related cyber incidents. See “We are subject to a wide array of operational risks, including, but not limited to, cyber-security risks” in Part I, Item 1A. “Risk Factors” in our 2018 Form 10-K. Operational risk is mitigated through a system of internal controls that are designed to keep these risks at appropriate levels. For additional information regarding our operational risk management policies, see “Operational Risk Management” in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2018 Form 10-K.

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Critical Accounting Estimates

MUAH’s Consolidated Financial Statements are prepared in accordance with GAAP, which includes management estimates and judgments. The financial information contained within our statements is, to a significant extent, financial information that is based on estimates used to measure the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability. For example, we use discount factors and other assumptions to measure certain assets and liabilities. A change in the discount factor or other important assumptions could significantly increase or decrease the reported amounts of those assets and liabilities and result in either a beneficial or an adverse impact to our financial results. We estimate probability of default and the loss severity associated with the default (i.e. the loss-given default) to estimate the credit losses inherent in our loan and lease portfolios held for investment and certain off-balance sheet commitments on the balance sheet date. Actual losses could differ significantly from our loss estimates. Other significant estimates that we use include the valuation of certain derivatives and securities, the assumptions used in measuring our transfer pricing revenue, pension obligations, goodwill impairment, and assumptions regarding our effective tax rates. Management has reviewed and approved these critical accounting policies and has discussed these policies with the Audit & Finance Committee.

The Company continuously monitors inputs used when performing its annual goodwill impairment such as the cash flow projections developed to estimate the fair value of its reporting units. When a disruption in the Company’s business, unexpected significant declines in operating results, or significant trends become apparent that may negatively affect those projections, the Company may have to assess the need to perform the first step of the quantitative impairment test to conclude whether the fair value of the reporting unit is still above its carrying amount. During the third quarter of 2019, due to the decline in interest rates and slower growth than previously forecasted, cash flow projections for certain reporting units were revised lower and the Company initiated an interim quantitative impairment test of goodwill allocated to three of its reporting units. See "Goodwill Impairment" in Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-Q for additional information.

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 2018 Form 10-K. There were no material changes to these critical accounting estimates during the third quarter of 2019.

Non-GAAP Financial Measures

The following table presents a reconciliation between certain GAAP amounts and specific non-GAAP measures used to calculate return on average MUAH tangible common equity for the three and nine months ended September 30, 2019 and 2018.



	For the Three Months Ended						For the Nine Months Ended
(Dollars in millions)	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Net (loss) income attributable to MUAH	$	(1,372	)	$	306		$	(989	)	$	816
Add: Intangible asset amortization, net of tax	7			5			19			15
Add: Goodwill impairment, net of tax	1,568			—			1,568			—
Net income attributable to MUAH, excluding intangible asset amortization and goodwill impairment (a)	$	203		$	311		$	598		$	831
Average MUAH stockholders' equity	$	17,493		$	18,682		$	17,113		$	18,376
Less: Goodwill	3,361			3,301			3,368			3,301
Less: Intangible assets, except mortgage servicing rights	274			296			284			303
Less: Deferred tax liabilities related to goodwill and intangible assets	(39		)	(58		)	(49		)	(57		)
Average MUAH tangible common equity (b)	$	13,897		$	15,143		$	13,510		$	14,829
Return on average MUAH tangible common equity⁽¹⁾ (a)/(b)	5.84		%	8.22		%	5.90		%	7.47		%

(1) Annualized.

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The following table shows the calculation of the adjusted efficiency ratio for the three and nine months ended September 30, 2019 and 2018. Management believes adjusting the efficiency ratio for the fees and costs associated with services provided to MUFG Bank, Ltd. branches in the U.S. enhances the comparability of MUAH's efficiency ratio when compared with other financial institutions. Management believes adjusting noninterest expense for the impact of goodwill impairment and revenue for the impact of the TCJA enhances comparability between periods.



	For the Three Months Ended						For the Nine Months Ended
(Dollars in millions)	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Noninterest expense (a)	$	2,770		$	1,059		$	5,094		$	3,226
Less: Costs associated with services provided to MUFG Bank, Ltd. branches in the U.S.	339			270			972			766
Less: Goodwill impairment	1,614			—			1,614			—
Noninterest expense, as adjusted (b)	$	817		$	789		$	2,508		$	2,460
Total revenue (c)	$	1,471		$	1,458		$	4,312		$	4,086
Less: Fees from affiliates for services provided to MUFG Bank, Ltd.'s branches in the U.S.	359			292			1,027			826
Less: Impact of the TCJA	—			—			—			(164		)
Total revenue, as adjusted (d)	$	1,112		$	1,166		$	3,285		$	3,424
Efficiency ratio (a)/(c)	188.31		%	72.59		%	118.15		%	78.93		%
Adjusted efficiency ratio (b)/(d)	73.49		%	67.61		%	76.36		%	71.82		%

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

We are disclosing the following information pursuant to Section 13(r) of the Securities Exchange Act of 1934 (Exchange Act), which requires an issuer to disclose whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with natural persons or entities designated by the U.S. government under specified Executive Orders. The scope of activities that must be reported includes activities not prohibited by U.S. law and conducted outside the United States in compliance with applicable local law. Because we are indirectly wholly-owned by MUFG, a Japanese corporation, our disclosure is required to include, in addition to our activities, transactions or dealings, those conducted outside the United States by non-U.S. affiliates of MUFG which are not controlled by us. We have requested that MUFG provide us a description of reportable activity under Section 13(r) and have received the following information:

During the quarter ended September 30, 2019, a non-U.S. subsidiary of MUFG engaged in business activities with entities in, or affiliated with, Iran, including counterparties owned or controlled by the Iranian government. Specifically, MUFG’s non-U.S. banking subsidiary, MUFG Bank, issued letters of credit and guarantees and provided remittance and other settlement services mainly in connection with customer transactions related to the purchase and exportation of Iranian crude oil to Japan, and in some cases, in connection with other petroleum-related transactions with Iran by its customers. These transactions occurred prior to the expiration of the Significant Reduction Exception granted to Japan and did not involve U.S. dollars nor clearing services of U.S. banks for the settlement of payments. For the quarter ended September 30, 2019, the aggregate interest and fee income relating to these transactions was less than ¥20 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 MUFG Bank outside the United States by Iranian financial institutions and other entities in, or affiliated with, Iran. In addition to such accounts, MUFG Bank receives deposits in Japan from, and provides settlement services in Japan to, fewer than 10 Iranian government-related entities and fewer than 100 Iranian government-related individuals such as Iranian diplomats, and maintains settlement accounts outside the United States for certain other financial institutions specified in Executive Order 13382, which settlement accounts were frozen in accordance with applicable laws and regulations. For the quarter ended September 30, 2019, the average aggregate balance of deposits held in these accounts represented less than 0.1 percent of the average balance of MUFG’s total

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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.

We understand that MUFG Bank recognizes that following the withdrawal in May 2018 by the United States from the Joint Comprehensive Plan of Action, the United States has imposed secondary sanctions against non-U.S. persons who engage in or facilitate a broad range of transactions and activities involving Iran. We understand that MUFG Bank has taken the recent sanctions related developments into account and will monitor any future transactions relating to Iran in order to comply with applicable U.S. and Japanese regulations as well as U.S., Japanese and other international sanctions.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The information called for by this item has been omitted pursuant to General Instruction H(2) of Form 10-Q.

Item 4. Controls and Procedures

Disclosure Controls and Procedures. As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of the Company's management, including its Chief Executive Officer and its Chief Financial Officer, of the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that these disclosure controls and procedures were effective.

Internal Control Over Financial Reporting. During the third quarter of 2019, 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

MUFG Americas Holdings Corporation and Subsidiaries

Consolidated Statements of Income

(Unaudited)



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(Dollars in millions)	2019			2018			2019			2018
Interest Income
Loans	$	905		$	844		$	2,746		$	2,426
Securities	149			168			456			491
Securities borrowed or purchased under resale agreements	190			171			608			454
Trading assets	87			109			270			308
Other	52			25			143			58
Total interest income	1,383			1,317			4,223			3,737
Interest Expense
Deposits	224			124			623			278
Commercial paper and other short-term borrowings	53			46			161			121
Long-term debt	120			92			378			266
Securities loaned or sold under repurchase agreements	207			193			667			509
Trading liabilities	25			30			80			81
Total interest expense	629			485			1,909			1,255
Net Interest Income	754			832			2,314			2,482
(Reversal of) provision for credit losses	95			64			189			43
Net interest income after (reversal of) provision for credit losses	659			768			2,125			2,439
Noninterest Income
Service charges on deposit accounts	42			44			124			134
Trust and investment management fees	29			30			87			89
Trading account activities	34			(5		)	70			(13		)
Securities gains, net	11			1			34			4
Credit facility fees	26			23			73			69
Brokerage commissions and fees	19			18			58			55
Card processing fees, net	17			12			44			37
Investment banking and syndication fees	105			108			331			285
Fees from affiliates	378			306			1,073			881
Other, net	56			89			104			63
Total noninterest income	717			626			1,998			1,604
Noninterest Expense
Salaries and employee benefits	673			652			2,054			2,000
Net occupancy and equipment	107			89			322			264
Professional and outside services	159			110			480			356
Software	84			73			236			213
Regulatory assessments	17			24			45			69
Intangible asset amortization	8			6			25			20
Goodwill impairment	1,614			—			1,614			—
Other	108			105			318			304
Total noninterest expense	2,770			1,059			5,094			3,226
Income before income taxes and including noncontrolling interests	(1,394		)	335			(971		)	817
Income tax expense (benefit)	(18		)	35			30			21
Net (Loss) Income Including Noncontrolling Interests	(1,376		)	300			(1,001		)	796
Deduct: Net loss (income) from noncontrolling interests	4			6			12			20
Net (Loss) Income Attributable to MUAH	$	(1,372	)	$	306		$	(989	)	$	816

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

MUFG Americas Holdings Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(Dollars in millions)	2019			2018			2019			2018
Net (Loss) Income Attributable to MUAH	$	(1,372	)	$	306		$	(989	)	$	816
Other Comprehensive Income (Loss), Net of Tax:
Net change in unrealized gains (losses) on cash flow hedges	50			8			130			(58		)
Net change in unrealized gains (losses) on investment securities	53			(46		)	351			(277		)
Foreign currency translation adjustment	—			—			—			(2		)
Pension and other postretirement benefit adjustments	7			10			19			30
Other	—			—			1			(1		)
Total other comprehensive income (loss)	110			(28		)	501			(308		)
Comprehensive Income (Loss) Attributable to MUAH	(1,262		)	278			(488		)	508
Comprehensive income (loss) from noncontrolling interests	(4		)	(6		)	(12		)	(20		)
Total Comprehensive Income (Loss)	$	(1,266	)	$	272		$	(500	)	$	488

See accompanying Notes to Consolidated Financial Statements.

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MUFG Americas Holdings Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)



(Dollars in millions, except per share amount)	September 30, 2019			December 31, 2018
Assets
Cash and due from banks	$	2,418		$	2,061
Interest bearing deposits in banks	8,465			6,289
Total cash and cash equivalents	10,883			8,350
Securities borrowed or purchased under resale agreements	23,626			22,368
Trading account assets (includes $1,686 at September 30, 2019 and $1,239 at December 31, 2018 pledged as collateral that may be repledged)	11,741			11,213
Securities available for sale (includes $164 at September 30, 2019 and $75 at December 31, 2018 pledged as collateral that may be repledged)	17,251			16,314
Securities held to maturity (fair value $9,980 at September 30, 2019 and $10,720 at December 31, 2018)	9,846			10,901
Loans held for investment	88,693			86,507
Allowance for loan losses	(573		)	(474		)
Loans held for investment, net	88,120			86,033
Goodwill	1,764			3,301
Other assets	10,002			9,620
Total assets	$	173,233		$	168,100
Liabilities
Deposits:
Noninterest bearing	$	32,555		$	31,754
Interest bearing	64,116			59,225
Total deposits	96,671			90,979
Securities loaned or sold under repurchase agreements	29,581			27,285
Commercial paper and other short-term borrowings	8,833			9,263
Long-term debt	15,912			17,918
Trading account liabilities	3,188			4,027
Other liabilities	2,948			2,048
Total liabilities	157,133			151,520
Commitments, contingencies and guarantees—See Note 13
Equity
MUAH stockholders' equity:
Preferred stock:
Authorized 5,000,000 shares; no shares issued or outstanding	—			—
Common stock, par value $1 per share:
Authorized 1,700,000,000 shares, 132,050,344 shares issued and outstanding as of September 30, 2019 and December 31, 2018	132			132
Additional paid-in capital	8,196			8,176
Retained earnings	8,537			9,524
Accumulated other comprehensive loss	(823		)	(1,324		)
Total MUAH stockholders' equity	16,042			16,508
Noncontrolling interests	58			72
Total equity	16,100			16,580
Total liabilities and equity	$	173,233		$	168,100

See accompanying Notes to Consolidated Financial Statements.

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MUFG Americas Holdings Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders' Equity

(Unaudited)



	For the Three Months Ended September 30, 2018 and 2019
	MUAH Stockholders' Equity
(Dollars in millions)	Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests			Total Equity
Balance, June 30, 2018	$	148	$	8,155	$	11,444		$	(1,285	)	$	85		$	18,547
Net income (loss)	—		—		306			—			(6		)	300
Other comprehensive income (loss), net of tax	—		—		—			(28		)	—			(28		)
Compensation—restricted stock units	—		3		(1		)	—			—			2
Other	—		—		—			—			1			1
Net change	—		3		305			(28		)	(5		)	275
Balance, September 30, 2018	$	148	$	8,158	$	11,749		$	(1,313	)	$	80		$	18,822

Balance, June 30, 2019	$	132	$	8,157	$	9,910		$	(933	)	$	63		$	17,329
Net income (loss)	—		—		(1,372		)	—			(4		)	(1,376		)
Other comprehensive income (loss), net of tax	—		—		—			110			—			110
Compensation—restricted stock units	—		19		(1		)	—			—			18
Other⁽¹⁾	—		20		—			—			(1		)	19
Net change	—		39		(1,373		)	110			(5		)	(1,229		)
Balance, September 30, 2019	$	132	$	8,196	$	8,537		$	(823	)	$	58		$	16,100



	For the Nine Months Ended September 30, 2018 and 2019
	MUAH Stockholders' Equity
(Dollars in millions)	Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests			Total Equity
Balance, December 31, 2017	$	148	$	8,197		$	10,936		$	(1,026	)	$	100		$	18,355
Net income (loss)	—		—			816			—			(20		)	796
Other comprehensive income (loss), net of tax	—		—			—			(308		)	—			(308		)
Compensation—restricted stock units	—		(18		)	(3		)	—			—			(21		)
Other⁽²⁾	—		(21		)	—			21			—			—
Net change	—		(39		)	813			(287		)	(20		)	467
Balance, September 30, 2018	$	148	$	8,158		$	11,749		$	(1,313	)	$	80		$	18,822

Balance, December 31, 2018	$	132	$	8,176		$	9,524		$	(1,324	)	$	72		$	16,580
Net income (loss)	—		—			(989		)	—			(12		)	(1,001		)
Other comprehensive income (loss), net of tax	—		—			—			501			—			501
Compensation—restricted stock units	—		—			(3		)	—			—			(3		)
Other⁽¹⁾	—		20			5			—			(2		)	23
Net change	—		20			(987		)	501			(14		)	(480		)
Balance, September 30, 2019	$	132	$	8,196		$	8,537		$	(823	)	$	58		$	16,100


(1)	Additional paid-in capital related to the issuance of 115,220 shares of common stock to MUFG in exchange for its contribution of its ownership interest in First State Investments (US) LLC.


(2)	For additional information on other, see Note 11 "Accumulated Other Comprehensive Income" to these Consolidated Financial Statements.

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

MUFG Americas Holdings Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)



	For the Nine Months Ended September 30,
(Dollars in millions)	2019			2018
Cash Flows from Operating Activities:
Net (loss) income including noncontrolling interests	$	(1,001	)	$	796
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
(Reversal of) provision for credit losses	189			43
Depreciation, amortization and accretion, net	425			297
Stock-based compensation—restricted stock units	63			58
Deferred income taxes	(204		)	(119		)
Net gains on sales of securities	(34		)	(4		)
Net decrease (increase) in securities borrowed or purchased under resale agreements	(1,258		)	(371		)
Net decrease (increase) in securities loaned or sold under repurchase agreements	2,296			594
Net decrease (increase) in trading account assets	(528		)	(646		)
Net decrease (increase) in other assets	(11		)	(573		)
Net increase (decrease) in trading account liabilities	(839		)	429
Net increase (decrease) in other liabilities	164			62
Loans originated for sale	(1,880		)	(1,215		)
Net proceeds from sale of loans originated for sale	1,978			1,077
Pension and other benefits adjustment	(32		)	(37		)
Goodwill impairment	1,614			—
Other, net	36			(20		)
Total adjustments	1,979			(425		)
Net cash provided by (used in) operating activities	978			371
Cash Flows from Investing Activities:
Proceeds from sales of securities available for sale	3,957			853
Proceeds from paydowns and maturities of securities available for sale	1,897			2,252
Purchases of securities available for sale	(5,719		)	(4,697		)
Proceeds from paydowns and maturities of securities held to maturity	3,893			1,262
Purchases of securities held to maturity	(3,023		)	(772		)
Proceeds from sales of loans	626			563
Net decrease (increase) in loans	(2,896		)	(3,735		)
Purchases of other investments	(75		)	(188		)
Other, net	(287		)	(59		)
Net cash provided by (used in) investing activities	(1,627		)	(4,521		)
Cash Flows from Financing Activities:
Net increase (decrease) in deposits	5,692			3,017
Net increase (decrease) in commercial paper and other short-term borrowings	(446		)	1,241
Proceeds from issuance of long-term debt	2,331			4,058
Repayment of long-term debt	(4,319		)	(3,367		)
Other, net	(89		)	(117		)
Change in noncontrolling interests	(2		)	—
Net cash provided by (used in) financing activities	3,167			4,832
Net change in cash, cash equivalents and restricted cash	2,518			682
Cash, cash equivalents and restricted cash at beginning of period	8,398			3,528
Cash, cash equivalents and restricted cash at end of period	$	10,916		$	4,210
Cash Paid During the Period For:
Interest	$	1,843		$	1,180
Income taxes, net	198			121
Supplemental Schedule of Noncash Investing and Financing Activities:
Net transfer of loans held for investment to (from) loans held for sale	$	599		$	10
Securities held to maturity transferred to securities available for sale	170			—
Securities available for sale transferred to securities held to maturity	—			1,924
Lease assets upon adoption of ASU 2016-02, Leases	632			—
Lease liabilities upon adoption of ASU 2016-02, Leases	740			—
Reconciliation of Cash, Cash Equivalents and Restricted Cash:
Cash and cash equivalents	$	10,883		$	4,192
Restricted cash included in other assets	33			18
Total cash, cash equivalents and restricted cash per consolidated statement of cash flows	$	10,916		$	4,210

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

Notes to Consolidated Financial Statements

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

MUFG Americas Holdings Corporation (MUAH) is a financial holding company, bank holding company and intermediate holding company whose principal subsidiaries are MUFG Union Bank, N.A. (MUB or the Bank) and MUFG Securities Americas Inc. (MUSA). MUAH provides a wide range of financial services to consumers, small businesses, middle-market companies and major corporations nationally and internationally. The Company also provides various business, banking, financial, administrative and support services, and facilities for MUFG Bank, Ltd. (formerly The Bank of Tokyo-Mitsubishi UFJ, Ltd.) in connection with the operation and administration of MUFG Bank, Ltd.'s business in the U.S. (including MUFG Bank, Ltd.'s U.S. branches). All of the Company's issued and outstanding shares of common stock are owned by MUFG Bank, Ltd. and MUFG. The unaudited Consolidated Financial Statements of MUFG Americas Holdings Corporation, its subsidiaries, and its consolidated variable interest entities (the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Rules and Regulations of the SEC. However, they do not include all of the disclosures necessary for annual financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. The results of operations for the third quarter of 2019 are not necessarily indicative of the operating results anticipated for the full year. These unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2018 (2018 Form 10-K).

The preparation of financial statements in conformity with GAAP also requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Although such estimates contemplate current conditions and management’s expectations of how they may change in the future, it is reasonably possible that actual results could differ significantly from those estimates. This could materially affect the Company’s results of operations and financial condition in the near term. Critical estimates made by management in the preparation of the Company’s financial statements include, but are not limited to, the allowance for credit losses (Note 3 "Loans and Allowance for Loan Losses"), goodwill impairment, fair value of financial instruments (Note 9 "Fair Value Measurement and Fair Value of Financial Instruments"), pension accounting (Note 12 "Employee Pension and Other Postretirement Benefits"), income taxes, and transfer pricing.

Recently Issued Accounting Pronouncements

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which provides new guidance on the accounting for credit losses for instruments that are within its scope. This new guidance is commonly referred to as the current expected credit loss (CECL) model. For loans and debt securities accounted for at amortized cost, certain off-balance sheet credit exposures, net investments in leases, and trade receivables, the ASU requires an entity to recognize its estimate of credit losses expected over the life of the financial instrument or exposure. Lifetime expected credit losses on purchased financial assets with credit deterioration will be recognized as an allowance with an offset to the cost basis of the asset. For available for sale debt securities, the new standard will require recognition of expected credit losses by recognizing an allowance for credit losses when the fair value of the security is below amortized cost and the recognition of this allowance is limited to the difference between the security’s amortized cost basis and fair value. The ASU is effective for interim and annual periods beginning on January 1, 2020, with early adoption permitted in 2019, and requires a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption. The Company plans to adopt the ASU on January 1, 2020. The Company has continued parallel testing in the third quarter of 2019. Management currently expects the allowance for credit losses will increase upon adoption of this ASU, primarily the allowance for consumer loans; however, the magnitude of the change is highly dependent on economic conditions and portfolio composition at the time of adoption.

Table of Contents

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

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which modifies disclosure requirements on fair value measurements to improve their effectiveness. The guidance permits entities to consider materiality when evaluating fair value measurement disclosures and, among other modifications, requires certain new disclosures related to Level 3 fair value measurements. The guidance will be effective for MUAH beginning January 1, 2020, with early adoption permitted. The guidance only affects disclosures in the notes to the consolidated financial statements and will not affect the Company’s financial position or results of operations.

Recently Adopted Accounting Pronouncements

Accounting for Leases

In February 2016, the FASB issued ASU 2016-02, Leases, which requires entities that lease assets (i.e., lessees) to recognize assets and liabilities on their balance sheet for the rights and obligations created by those leases. The accounting by entities that own the assets leased (i.e., lessors) remains largely unchanged; however, leveraged lease accounting is no longer permitted for leases that commence after the effective date. The ASU also requires qualitative and quantitative disclosures about the amount, timing and uncertainty of cash flows arising from leases. The ASU is effective for interim and annual periods beginning on January 1, 2019 and requires a modified retrospective approach, with early adoption permitted. In July 2018, the FASB issued ASU 2018-11, Leases, which allows entities the option to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In December 2018, the FASB issued ASU 2018-20, Leases, which clarified lessor accounting for sales and similar taxes collected by lessors, certain lessor costs, and lease payments with lease and nonlease components. Effective January 1, 2019, the Company adopted this guidance which did not significantly impact the Company's financial position or results of operations.

Premium Amortization on Purchased Callable Debt Securities

In March 2017, the FASB issued ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities, which requires premiums on certain purchased callable debt securities to be amortized to the earliest call date. Under current guidance, premiums on callable debt securities are generally amortized over the contractual life of the security. The amortization period for callable debt securities purchased at a discount will not be impacted. Effective January 1, 2019, the Company adopted this guidance which did not significantly impact the Company's financial position or results of operations.

Targeted Improvements to Accounting for Hedging Activities

In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities, which will make more hedging strategies eligible for hedge accounting, simplify the application of hedge accounting, and enhance the transparency and understandability of hedge results. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. It also amends the disclosure requirements and changes how entities assess effectiveness. Effective January 1, 2019, the Company adopted this guidance which did not significantly impact the Company's financial position or results of operations. As permitted by this guidance, upon adoption the Company transferred securities held to maturity with a carrying amount of $170 million to securities available for sale.

Table of Contents

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

Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. The ASU removes Step 2 of the goodwill impairment test, which measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under the amendments, a goodwill impairment loss will be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value; however, the loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss. Effective July 1, 2019, the Company adopted this guidance in connection with an interim quantitative impairment test of goodwill allocated to three of its reporting units. For additional information related to goodwill, see Note 4 "Goodwill" to these Consolidated Financial Statements.

Note 2—Securities

Securities Available for Sale

The amortized cost, gross unrealized gains, gross unrealized losses and fair values of securities available for sale at September 30, 2019 and December 31, 2018 are presented below.



	September 30, 2019								December 31, 2018
(Dollars in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasury and government agencies	$	4,464	$	24	$	13	$	4,475	$	3,572	$	1	$	144	$	3,429
Mortgage-backed:
U.S. agencies	6,694		17		37		6,674		8,168		7		168		8,007
Residential - non-agency	848		7		3		852		887		—		23		864
Commercial - non-agency	2,497		77		3		2,571		1,198		3		21		1,180
Collateralized loan obligations	1,530		1		7		1,524		1,492		—		18		1,474
Direct bank purchase bonds	927		39		17		949		1,190		30		30		1,190
Other	206		1		1		206		173		—		3		170
Total securities available for sale	$	17,166	$	166	$	81	$	17,251	$	16,680	$	41	$	407	$	16,314

The Company’s securities available for sale with a continuous unrealized loss position at September 30, 2019 and December 31, 2018 are shown below, identified for periods less than 12 months and 12 months or more.



	September 30, 2019
	Less Than 12 Months				12 Months or More				Total
(Dollars in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Treasury and government agencies	$	1,382	$	9	$	543	$	4	$	1,925	$	13
Mortgage-backed:
U.S. agencies	1,564		6		2,627		31		4,191		37
Residential - non-agency	164		1		173		2		337		3
Commercial - non-agency	348		3		12		—		360		3
Collateralized loan obligations	683		3		462		4		1,145		7
Direct bank purchase bonds	2		1		309		16		311		17
Other	99		1		—		—		99		1
Total securities available for sale	$	4,242	$	24	$	4,126	$	57	$	8,368	$	81

Table of Contents

Note 2—Securities (Continued)



	December 31, 2018
	Less Than 12 Months				12 Months or More				Total
(Dollars in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Treasury and government agencies	$	147	$	1	$	3,182	$	143	$	3,329	$	144
Mortgage-backed:
U.S. agencies	1,941		8		4,797		160		6,738		168
Residential - non-agency	398		7		383		16		781		23
Commercial - non-agency	380		6		515		15		895		21
Collateralized loan obligations	1,428		18		—		—		1,428		18
Direct bank purchase bonds	221		6		417		24		638		30
Other	162		3		1		—		163		3
Total securities available for sale	$	4,677	$	49	$	9,295	$	358	$	13,972	$	407

At September 30, 2019, 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, such as Ginnie Mae, or a government-sponsored agency such as Freddie Mac or Fannie Mae. These securities are collateralized by residential mortgage loans and may be prepaid at par prior to maturity. The unrealized losses on agency residential mortgage-backed securities resulted from changes in interest rates and not from changes in credit quality. At September 30, 2019, 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. Cash flow analysis of the underlying collateral provides an estimate of other-than-temporary impairment, which is performed quarterly when the fair value of a security is lower than its amortized cost. Based on the analysis performed as of September 30, 2019, the Company expects to recover the entire amortized cost basis of these securities.

The Company’s CLOs consist of Cash Flow CLOs. A Cash Flow CLO is a structured finance product that securitizes a diversified pool of loan assets into multiple classes of notes. Cash Flow CLOs pay the note holders through the receipt of interest and principal repayments from the underlying loans unlike other types of CLOs that pay note holders through the trading and sale of underlying collateral. Unrealized losses typically arise from widening credit spreads and deteriorating credit quality of the underlying collateral. Cash flow analysis of the underlying collateral provides an estimate of other-than-temporary impairment, which is performed quarterly when the fair value of a security is lower than its amortized cost. Based on the analysis performed as of September 30, 2019, the Company expects to recover the entire amortized cost basis of these securities.

Other debt securities primarily consist of direct bank purchase bonds, which are not rated by external credit rating agencies. The unrealized losses on these bonds resulted from a higher return on capital expected by the secondary market compared with the return on capital required at the time of origination when the bonds were purchased. The Company estimates the unrealized loss for each security by assessing the underlying collateral of each security. The Company estimates the portion of loss attributable to credit based on the expected cash flows of the underlying collateral using estimates of current key assumptions, such as probability of default and loss severity. Cash flow analysis of the underlying collateral provides an estimate of other-than-temporary impairment, which is performed quarterly when the fair value of a security is lower than its amortized cost and potential impairment is identified. Based on the analysis performed as of September 30, 2019, 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.

Table of Contents

Note 2—Securities (Continued)



	September 30, 2019
(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
U.S. Treasury and government agencies	$	—	$	1,240	$	3,200	$	35	$	4,475
Mortgage-backed:
U.S. agencies	—		241		1,087		5,346		6,674
Residential - non-agency	—		—		—		852		852
Commercial - non-agency	32		—		789		1,750		2,571
Collateralized loan obligations	—		—		463		1,061		1,524
Direct bank purchase bonds	65		289		494		101		949
Other	3		203		—		—		206
Total securities available for sale	$	100	$	1,973	$	6,033	$	9,145	$	17,251

The gross realized gains and losses from sales of available for sale securities for the three and nine months ended September 30, 2019 and 2018 are shown below. The specific identification method is used to calculate realized gains and losses on sales.



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(Dollars in millions)	2019		2018		2019		2018
Gross realized gains	$	11	$	1	$	34	$	4

Securities Held to Maturity

At September 30, 2019 and December 31, 2018, the amortized cost, gross unrealized gains and losses recognized in OCI, carrying amount, gross unrealized gains and losses not recognized in OCI, and fair values of securities held to maturity are presented below. Management has asserted the positive intent and ability to hold these securities to maturity.



	September 30, 2019
			Recognized in OCI						Not Recognized in OCI
(Dollars in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Carrying Amount		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasury and government agencies	$	1,248	$	—	$	—	$	1,248	$	3	$	—	$	1,251
Mortgage-backed:
U.S. agencies	8,710		1		113		8,598		150		19		8,729
Total securities held to maturity	$	9,958	$	1	$	113	$	9,846	$	153	$	19	$	9,980



	December 31, 2018
			Recognized in OCI						Not Recognized in OCI
(Dollars in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Carrying Amount		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasury and government agencies	$	1,250	$	—	$	—	$	1,250	$	2	$	2	$	1,250
Mortgage-backed:
U.S. agencies	9,788		1		138		9,651		28		209		9,470
Total securities held to maturity	$	11,038	$	1	$	138	$	10,901	$	30	$	211	$	10,720

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

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Note 2—Securities (Continued)

The Company’s securities held to maturity with a continuous unrealized loss position at September 30, 2019 and December 31, 2018 are shown below, separately for periods less than 12 months and 12 months or more.



	September 30, 2019
	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. Treasury and government agencies	$	260	$	—	$	—	$	—	$	—	$	—	$	260	$	—	$	—
Mortgage-backed:
U.S. agencies	672		—		3		4,783		113		16		5,455		113		19
Total securities held to maturity	$	932	$	—	$	3	$	4,783	$	113	$	16	$	5,715	$	113	$	19



	December 31, 2018
	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. Treasury and government agencies	$	—	$	—	$	—	$	496	$	—	$	2	$	496	$	—	$	2
Mortgage-backed:
U.S. agencies	697		—		11		8,587		138		198		9,284		138		209
Total securities held to maturity	$	697	$	—	$	11	$	9,083	$	138	$	200	$	9,780	$	138	$	211

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



	September 30, 2019
	Within One Year				Over One Year Through Five Years				Over Five Years Through Ten Years				Over Ten Years				Total
(Dollars in millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
U.S. Treasury and government agencies	$	9	$	10	$	—	$	—	$	1,239	$	1,241	$	—	$	—	$	1,248	$	1,251
Mortgage-backed:
U.S. agencies	—		—		725		748		932		938		6,941		7,043		8,598		8,729
Total securities held to maturity	$	9	$	10	$	725	$	748	$	2,171	$	2,179	$	6,941	$	7,043	$	9,846	$	9,980

Securities Pledged and Received as Collateral

At September 30, 2019 and December 31, 2018, the Company pledged $11.9 billion and $11.9 billion of available for sale and trading securities as collateral, respectively, of which $1.9 billion and $1.3 billion, respectively, was permitted to be sold or repledged. These securities were pledged as collateral for derivative liability positions, securities loaned or sold under repurchase agreements, and to secure public and trust department deposits.

At September 30, 2019 and December 31, 2018, the Company received $33.3 billion and $33.1 billion, respectively, of collateral for derivative asset positions and securities borrowed or purchased under resale agreements, of which $33.3 billion and $33.1 billion, respectively, was permitted to be sold or repledged. Of the

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Note 2—Securities (Continued)

collateral received, the Company sold or repledged $32.9 billion and $32.1 billion at September 30, 2019 and December 31, 2018, respectively, for securities loaned or sold under repurchase agreements.

For additional information related to the Company's significant accounting policies on securities pledged as collateral, see Note 1 "Summary of Significant Accounting Policies and Nature of Operations" to our Consolidated Financial Statements in Part II, Item 8. "Financial Statements and Supplementary Data" in our 2018 Form 10-K.

Note 3—Loans and Allowance for Loan Losses

The following table provides the outstanding balances of loans held for investment at September 30, 2019 and December 31, 2018.



(Dollars in millions)	September 30, 2019			December 31, 2018
Loans held for investment:
Commercial and industrial	$	25,819		$	24,919
Commercial mortgage	15,909			15,354
Construction	1,609			1,613
Lease financing	1,235			1,249
Total commercial portfolio	44,572			43,135
Residential mortgage and home equity⁽¹⁾	39,693			40,677
Other consumer⁽²⁾	4,428			2,695
Total consumer portfolio	44,121			43,372
Total loans held for investment⁽³⁾	88,693			86,507
Allowance for loan losses	(573		)	(474		)
Loans held for investment, net	$	88,120		$	86,033


(1)	Includes home equity loans of $2,129 million and $2,238 million at September 30, 2019 and December 31, 2018, respectively.


(2)	Other consumer loans substantially include unsecured consumer loans and consumer credit cards.


(3)	Includes $335 million and $340 million at September 30, 2019 and December 31, 2018, respectively, for net unamortized (discounts) and premiums and deferred (fees) and costs.

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

Allowance for Loan Losses

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





	For the Three Months Ended September 30, 2019
(Dollars in millions)	Commercial			Consumer			Unallocated		Total
Allowance for loan losses, beginning of period	$	407		$	155		$	—	$	562
(Reversal of) provision for loan losses	50			42			—		92
Loans charged-off	(59		)	(26		)	—		(85		)
Recoveries of loans previously charged-off	2			2			—		4
Allowance for loan losses, end of period	$	400		$	173		$	—	$	573





	For the Three Months Ended September 30, 2018
(Dollars in millions)	Commercial			Consumer			Unallocated		Total
Allowance for loan losses, beginning of period	$	362		$	78		$	5	$	445
(Reversal of) provision for loan losses	33			24			5		62
Loans charged-off	(8		)	(8		)	—		(16		)
Recoveries of loans previously charged-off	8			2			—		10
Allowance for loan losses, end of period	$	395		$	96		$	10	$	501




	For the Nine Months Ended September 30, 2019
(Dollars in millions)	Commercial			Consumer			Unallocated			Total
Allowance for loan losses, beginning of period	$	359		$	110		$	5		$	474
(Reversal of) provision for loan losses	102			120			(5		)	217
Loans charged-off	(84		)	(64		)	—			(148		)
Recoveries of loans previously charged-off	23			7			—			30
Allowance for loan losses, end of period	$	400		$	173		$	—		$	573




	For the Nine Months Ended September 30, 2018
(Dollars in millions)	Commercial			Consumer			Unallocated			Total
Allowance for loan losses, beginning of period	$	360		$	86		$	30		$	476
(Reversal of) provision for loan losses	32			32			(20		)	44
Loans charged-off	(15		)	(27		)	—			(42		)
Recoveries of loans previously charged-off	18			5			—			23
Allowance for loan losses, end of period	$	395		$	96		$	10		$	501

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

The following tables show the allowance for loan losses and related loan balances by portfolio segment as of September 30, 2019 and December 31, 2018.



	September 30, 2019
(Dollars in millions)	Commercial		Consumer		Unallocated		Total
Allowance for loan losses:
Individually evaluated for impairment	$	111	$	12	$	—	$	123
Collectively evaluated for impairment	289		161		—		450
Total allowance for loan losses	$	400	$	173	$	—	$	573

Loans held for investment:
Individually evaluated for impairment	$	527	$	254	$	—	$	781
Collectively evaluated for impairment	44,045		43,867		—		87,912
Total loans held for investment	$	44,572	$	44,121	$	—	$	88,693



	December 31, 2018
(Dollars in millions)	Commercial		Consumer		Unallocated		Total
Allowance for loan losses:
Individually evaluated for impairment	$	62	$	13	$	—	$	75
Collectively evaluated for impairment	297		97		5		399
Total allowance for loan losses	$	359	$	110	$	5	$	474

Loans held for investment:
Individually evaluated for impairment	$	450	$	280	$	—	$	730
Collectively evaluated for impairment	42,685		43,092		—		85,777
Total loans held for investment	$	43,135	$	43,372	$	—	$	86,507

Nonaccrual and Past Due Loans

The following table presents nonaccrual loans as of September 30, 2019 and December 31, 2018.



(Dollars in millions)	September 30, 2019		December 31, 2018
Commercial and industrial	$	258	$	269
Commercial mortgage	20		12
Total commercial portfolio	278		281
Residential mortgage and home equity	139		139
Other consumer	1		1
Total consumer portfolio	140		140
Total nonaccrual loans	$	418	$	421
Troubled debt restructured loans that continue to accrue interest	$	395	$	299
Troubled debt restructured nonaccrual loans (included in total nonaccrual loans above)	$	122	$	136

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

The following tables show the aging of the balance of loans held for investment by class as of September 30, 2019 and December 31, 2018.



	September 30, 2019
	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	$	26,785	$	92	$	177	$	269	$	27,054
Commercial mortgage	15,864		41		4		45		15,909
Construction	1,609		—		—		—		1,609
Total commercial portfolio	44,258		133		181		314		44,572
Residential mortgage and home equity	39,484		164		45		209		39,693
Other consumer	4,391		25		12		37		4,428
Total consumer portfolio	43,875		189		57		246		44,121
Total loans held for investment	$	88,133	$	322	$	238	$	560	$	88,693



	December 31, 2018
	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	$	26,114	$	18	$	36	$	54	$	26,168
Commercial mortgage	15,333		17		4		21		15,354
Construction	1,593		20		—		20		1,613
Total commercial portfolio	43,040		55		40		95		43,135
Residential mortgage and home equity	40,440		188		49		237		40,677
Other consumer	2,671		15		9		24		2,695
Total consumer portfolio	43,111		203		58		261		43,372
Total loans held for investment	$	86,151	$	258	$	98	$	356	$	86,507

Loans held for investment 90 days or more past due and still accruing interest totaled $18 million at September 30, 2019 and $23 million at December 31, 2018.

Credit Quality Indicators

Management analyzes the Company's loan portfolios by applying specific monitoring policies and procedures that vary according to the relative risk profile and other characteristics within the various loan portfolios. Loans within the commercial portfolio segment are classified as either pass or criticized. Criticized credits are those that have regulatory risk ratings of special mention, substandard or doubtful; classified credits are those that have regulatory risk ratings of substandard or doubtful. Special mention credits are potentially weak, as the borrower has begun to exhibit deteriorating trends, which, if not corrected, may jeopardize repayment of the loan and result in further downgrade. Substandard credits have well-defined weaknesses, which, if not corrected, could jeopardize the full satisfaction of the debt. A credit classified as doubtful has critical weaknesses that make full collection improbable on the basis of currently existing facts and conditions.

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

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



	September 30, 2019
			Criticized
(Dollars in millions)	Pass		Special Mention		Classified		Total
Commercial and industrial	$	25,881	$	631	$	542	$	27,054
Commercial mortgage	15,647		38		224		15,909
Construction	1,497		50		62		1,609
Total commercial portfolio	$	43,025	$	719	$	828	$	44,572



	December 31, 2018
			Criticized
(Dollars in millions)	Pass		Special Mention		Classified		Total
Commercial and industrial	$	25,191	$	355	$	622	$	26,168
Commercial mortgage	15,138		105		111		15,354
Construction	1,542		8		63		1,613
Total commercial portfolio	$	41,871	$	468	$	796	$	43,135

The Company monitors the credit quality of its consumer portfolio segment based primarily on payment status. The following tables summarize the loans in the consumer portfolio segment, which exclude $3 million and $6 million of loans covered by FDIC loss share agreements, at September 30, 2019 and December 31, 2018, respectively.



	September 30, 2019
(Dollars in millions)	Accrual		Nonaccrual		Total
Residential mortgage and home equity	$	39,551	$	139	$	39,690
Other consumer	4,427		1		4,428
Total consumer portfolio	$	43,978	$	140	$	44,118



	December 31, 2018
(Dollars in millions)	Accrual		Nonaccrual		Total
Residential mortgage and home equity	$	40,532	$	139	$	40,671
Other consumer	2,694		1		2,695
Total consumer portfolio	$	43,226	$	140	$	43,366

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

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

The following tables summarize the loans in the consumer portfolio segment based on refreshed FICO scores and refreshed LTV ratios at September 30, 2019 and December 31, 2018. These tables exclude loans covered by FDIC loss share agreements, as discussed above. The amounts presented reflect unpaid principal balances less partial charge-offs.



	September 30, 2019
	FICO scores
(Dollars in millions)	720 and Above			Below 720			No FICO Available⁽¹⁾			Total
Residential mortgage and home equity	$	32,398		$	6,017		$	878		$	39,293
Other consumer	2,476			1,905			2			4,383
Total consumer portfolio	$	34,874		$	7,922		$	880		$	43,676
Percentage of total	80		%	18		%	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, 2018
	FICO scores
(Dollars in millions)	720 and Above			Below 720			No FICO Available⁽¹⁾			Total
Residential mortgage and home equity	$	33,313		$	6,470		$	484		$	40,267
Other consumer	1,625			1,000			2			2,627
Total consumer portfolio	$	34,938		$	7,470		$	486		$	42,894
Percentage of total	82		%	17		%	1		%	100		%


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

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



	September 30, 2019
	LTV ratios
(Dollars in millions)	Less than or Equal to 80 Percent			Greater than 80 and Less than 100 Percent			Greater than or Equal to 100 Percent			No LTV Available⁽¹⁾			Total
Residential mortgage and home equity	$	37,920		$	1,312		$	13		$	48		$	39,293
Total consumer portfolio	$	37,920		$	1,312		$	13		$	48		$	39,293
Percentage of total	97		%	3		%	—		%	—		%	100		%


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



	December 31, 2018
	LTV ratios
(Dollars in millions)	Less than or Equal to 80 Percent			Greater than 80 and Less than 100 Percent			Greater than or Equal to 100 Percent			No LTV Available⁽¹⁾			Total
Residential mortgage and home equity	$	38,570		$	1,582		$	16		$	99		$	40,267
Total consumer portfolio	$	38,570		$	1,582		$	16		$	99		$	40,267
Percentage of total	96		%	4		%	—		%	—		%	100		%


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

Troubled Debt Restructurings

The following table provides a summary of the Company’s recorded investment in TDRs as of September 30, 2019 and December 31, 2018. The summary includes those TDRs that are on nonaccrual status and those that continue to accrue interest. The Company had $58 million and $49 million in commitments to lend additional funds to borrowers with loan modifications classified as TDRs as of September 30, 2019 and December 31, 2018, respectively.



(Dollars in millions)	September 30, 2019		December 31, 2018
Commercial and industrial	$	90	$	109
Commercial mortgage	168		46
Construction	62		63
Total commercial portfolio	320		218
Residential mortgage and home equity	196		216
Other consumer	1		1
Total consumer portfolio	197		217
Total restructured loans	$	517	$	435

For the third quarter of 2019, TDR modifications in the commercial portfolio segment were substantially composed of maturity extensions. In the consumer portfolio segment, modifications were largely composed of maturity extensions and interest rate reductions. There were no charge-offs related to TDR modifications for the nine months ended September 30, 2019 and September 30, 2018. For the commercial and consumer portfolio segments, the allowance for loan losses for TDRs was measured on an individual loan basis or in pools with similar risk characteristics.

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

The following tables provide the pre- and post-modification outstanding recorded investment amounts of TDRs as of the date of the restructuring that occurred during the three and nine months ended September 30, 2019 and 2018.



	For the Three Months Ended September 30, 2019				For the Nine Months Ended September 30, 2019
(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	$	11	$	11	$	114	$	114
Commercial mortgage	66		63		128		124
Total commercial portfolio	77		74		242		238
Residential mortgage and home equity	4		4		10		10
Other consumer	—		—		—		—
Total consumer portfolio	4		4		10		10
Total	$	81	$	78	$	252	$	248


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


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



	For the Three Months Ended September 30, 2018				For the Nine Months Ended September 30, 2018
(Dollars in millions)	Pre-Modification Outstanding Recorded Investment⁽¹⁾		Post-Modification Outstanding Recorded Investment⁽²⁾		Pre-Modification Outstanding Recorded Investment⁽¹⁾		Post-Modification Outstanding Recorded Investment⁽²⁾
Commercial and industrial	$	59	$	59	$	163	$	163
Total commercial portfolio	59		59		163		163
Residential mortgage and home equity	5		5		8		8
Other consumer	—		—		—		—
Total consumer portfolio	5		5		8		8
Total	$	64	$	64	$	171	$	171


(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 tables provide the recorded investment amounts of TDRs at the date of default, for which there was a payment default during the three and nine months ended September 30, 2019 and 2018, 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 September 30, 2019		For the Nine Months Ended September 30, 2019
Commercial and industrial	$	—	$	40
Commercial mortgage	—		1
Total commercial portfolio	—		41
Total	$	—	$	41




(Dollars in millions)	For the Three Months Ended September 30, 2018		For the Nine Months Ended September 30, 2018
Residential mortgage and home equity	$	—	$	2
Total consumer portfolio	—		2
Total	$	—	$	2

Table of Contents

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

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

Loan Impairment

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

The following tables show information about impaired loans by class as of September 30, 2019 and December 31, 2018.



	September 30, 2019
	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	$	276	$	10	$	286	$	111	$	313	$	76
Commercial mortgage	8		171		179		—		8		171
Construction	—		62		62		—		2		62
Total commercial portfolio	284		243		527		111		323		309
Residential mortgage and home equity	181		71		252		12		189		92
Other consumer	2		—		2		—		2		—
Total consumer portfolio	183		71		254		12		191		92
Total	$	467	$	314	$	781	$	123	$	514	$	401



	December 31, 2018
	Recorded Investment								Unpaid Principal Balance
(Dollars in millions)	With an Allowance		Without an Allowance		Total		Allowance for Impaired Loans		With an Allowance		Without an Allowance
Commercial and industrial	$	299	$	22	$	321	$	61	$	372	$	39
Commercial mortgage	25		41		66		1		25		41
Construction	—		63		63		—		—		63
Total commercial portfolio	324		126		450		62		397		143
Residential mortgage and home equity	196		83		279		13		205		106
Other consumer	1		—		1		—		1		—
Total consumer portfolio	197		83		280		13		206		106
Total	$	521	$	209	$	730	$	75	$	603	$	249

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Note 3—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 three and nine months ended September 30, 2019 and 2018 for the commercial and consumer loans portfolio segments.



	For the Three Months Ended September 30,								For the Nine Months Ended September 30,
	2019				2018				2019				2018
(Dollars in millions)	Average Recorded Investment		Recognized Interest Income		Average Recorded Investment		Recognized Interest Income		Average Recorded Investment		Recognized Interest Income		Average Recorded Investment		Recognized Interest Income
Commercial and industrial	$	381	$	4	$	329	$	3	$	445	$	9	$	306	$	8
Commercial mortgage	136		5		79		5		75		11		56		23
Construction	62		3		78		3		87		9		106		7
Total commercial portfolio	579		12		486		11		607		29		468		38
Residential mortgage and home equity	257		4		292		3		266		13		302		12
Other consumer	2		—		1		—		2		—		1		—
Total consumer portfolio	259		4		293		3		268		13		303		12
Total	$	838	$	16	$	779	$	14	$	875	$	42	$	771	$	50

Loans Held for Sale

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

sales of loans during the three and nine months ended September 30, 2019 and 2018 for the commercial and consumer loans portfolio segments.



	For the Three Months Ended September 30,									For the Nine Months Ended September 30,
	2019					2018				2019					2018
(Dollars in millions)	Net Transfer of Loans Held for Investment to (from) Loans Held for Sale			Proceeds from Sale		Net Transfer of Loans Held for Investment to (from) Loans Held for Sale		Proceeds from Sale		Net Transfer of Loans Held for Investment to (from) Loans Held for Sale			Proceeds from Sale		Net Transfer of Loans Held for Investment to (from) Loans Held for Sale		Proceeds from Sale
Commercial portfolio	$	284		$	381	$	77	$	49	$	604		$	626	$	10	$	563
Consumer portfolio	(4		)	—		—		—		(5		)	—		—		—
Total	$	280		$	381	$	77	$	49	$	599		$	626	$	10	$	563

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Note 4—Goodwill

Goodwill

The changes in the carrying amount of goodwill during the nine months ended September 30, 2019 are shown in the table below.



(Dollars in millions)	Regional Bank			Global Corporate & Investment Banking - U.S.			Transaction Banking		MUFG Fund Services		Total
Goodwill, beginning of period	$	2,134		$	840		$	251	$	76	$	3,301
Goodwill acquired during the year	59			18			—		—		77
Impairment losses	(1,423		)	(191		)	—		—		(1,614		)
Goodwill, end of period	$	770		$	667		$	251	$	76	$	1,764

Goodwill	2,193			858			251		76		3,378
Accumulated impairment losses	(1,423		)	(191		)	—		—		(1,614		)
Balance at September 30, 2019	$	770		$	667		$	251	$	76	$	1,764

Certain projected cash flows used to estimate fair value of the reporting units were revised lower than previous projections due to the combination of the following factors: the decline in interest rates through September 30, 2019 and a change in the Company’s expectation that interest rates will remain lower than previously assumed; updates to key loan growth and loan mix assumptions in the forecast to address the Company’s declining net interest margin; and a reduction of the expected growth and cash flow contribution of new initiatives based on a revised economic outlook. Multiples selected in the market approach to estimate fair value were also revised lower than those used in the most recent annual quantitative impairment test due to lower reporting unit earnings.

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Note 5—Variable Interest Entities

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

Consolidated VIEs

The following tables present the assets and liabilities of consolidated VIEs recorded on the Company’s consolidated balance sheets at September 30, 2019 and December 31, 2018.



	September 30, 2019
	Consolidated Assets								Consolidated Liabilities
(Dollars in millions)	Interest Bearing Deposits in Banks		Loans Held for Investment, Net		Other Assets		Total Assets		Other Liabilities		Total Liabilities
LIHC investments	$	—	$	—	$	30	$	30	$	—	$	—
Leasing investments	—		391		118		509		8		8
Total consolidated VIEs	$	—	$	391	$	148	$	539	$	8	$	8



	December 31, 2018
	Consolidated Assets								Consolidated Liabilities
(Dollars in millions)	Interest Bearing Deposits in Banks		Loans Held for Investment, Net		Other Assets		Total Assets		Other Liabilities		Total Liabilities
LIHC investments	$	—	$	—	$	43	$	43	$	—	$	—
Leasing investments	—		570		122		692		17		17
Total consolidated VIEs	$	—	$	570	$	165	$	735	$	17	$	17

LIHC Investments

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

Leasing Investments

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

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Note 5—Variable Interest Entities (Continued)

Unconsolidated VIEs

The following tables present the Company’s carrying amounts related to the unconsolidated VIEs at September 30, 2019 and December 31, 2018. The tables also present the Company’s maximum exposure to loss resulting from its involvement with these VIEs. The maximum exposure to loss represents the carrying amount of the Company’s involvement plus any legally binding unfunded commitments in the unlikely event that all of the assets in the VIEs become worthless. During the nine months ended September 30, 2019 and September 30, 2018, the Company had noncash increases in unfunded commitments on LIHC investments of $82 million and $45 million, respectively, included within other liabilities.



	September 30, 2019
	Unconsolidated Assets										Unconsolidated Liabilities
(Dollars in millions)	Interest Bearing Deposits in Banks		Securities Available for Sale		Loans Held for Investment, Net		Other Assets		Total Assets		Other Liabilities		Total Liabilities		Maximum Exposure to Loss
LIHC investments	$	—	$	27	$	221	$	964	$	1,212	$	208	$	208	$	1,212
Renewable energy investments	—		—		—		1,297		1,297		—		—		1,332
Other investments	—		—		15		68		83		4		4		153
Total unconsolidated VIEs	$	—	$	27	$	236	$	2,329	$	2,592	$	212	$	212	$	2,697



	December 31, 2018
	Unconsolidated Assets										Unconsolidated Liabilities
(Dollars in millions)	Interest Bearing Deposits in Banks		Securities Available for Sale		Loans Held for Investment, Net		Other Assets		Total Assets		Other Liabilities		Total Liabilities		Maximum Exposure to Loss
LIHC investments	$	—	$	28	$	198	$	976	$	1,202	$	165	$	165	$	1,202
Renewable energy investments	26		—		19		1,401		1,446		14		14		1,467
Other investments	—		—		—		35		35		—		—		79
Total unconsolidated VIEs	$	26	$	28	$	217	$	2,412	$	2,683	$	179	$	179	$	2,748

LIHC Investments

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

The following table presents the impact of the unconsolidated LIHC investments on our consolidated statements of income for the three and nine months ended September 30, 2019 and 2018.



	For the Three Months Ended				For the Nine Months Ended
	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
(Dollars in millions)	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
Losses from LIHC investments included in other noninterest expense	$	2	$	2	$	5	$	6
Amortization of LIHC investments included in income tax expense	33		34		97		102
Tax credits and other tax benefits from LIHC investments included in income tax expense	44		39		130		130

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Note 5—Variable Interest Entities (Continued)

Renewable Energy Investments

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

Other Investments

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

Note 6—Securities Financing Arrangements

The Company enters into repurchase agreements and securities lending agreements to facilitate customer match-book activity, cover short positions and fund the Company's trading inventory. The Company manages credit exposure from certain transactions by entering into master netting agreements and collateral arrangements with counterparties. The relevant agreements allow for the efficient closeout of the transaction, liquidation and set-off of collateral against the net amount owed by the counterparty following a default. Under these agreements and transactions, the Company either receives or provides collateral in the form of securities. In many cases, the Company is permitted to sell or repledge these securities held as collateral and use the securities to secure repurchase agreements or enter into securities lending transactions. In certain cases, the Company may agree for collateral to be posted to a third party custodian under a tri-party arrangement that enables the Company to take control of such collateral in the event of a counterparty default. Default events generally include, among other things, failure to pay, insolvency or bankruptcy of a counterparty. For additional information related to securities pledged and received as collateral, see Note 2 "Securities" to these Consolidated Financial Statements.

The following tables present the gross obligations for securities sold under agreements to repurchase and securities loaned by remaining contractual maturity and class of collateral pledged at September 30, 2019 and December 31, 2018.



	September 30, 2019										December 31, 2018
(Dollars in millions)	Overnight and Continuous		Up to 30 Days		31 - 90 Days		Greater than 90 Days		Total		Overnight and Continuous		Up to 30 Days		31 - 90 Days		Greater than 90 Days		Total
Securities sold under agreements to repurchase
U.S. Treasury and government agencies	$	12,351	$	3,707	$	904	$	939	$	17,901	$	9,680	$	2,945	$	3,046	$	335	$	16,006
Mortgage-backed:
U.S. agencies	6,350		1,605		5,842		1,050		14,847		9,803		1,640		7,569		—		19,012
Corporate debt	907		—		963		—		1,870		682		130		1,227		—		2,039
Other debt	500		—		726		—		1,226		115		245		519		—		879
Equity	952		70		250		—		1,272		387		220		255		—		862
Total	$	21,060	$	5,382	$	8,685	$	1,989	$	37,116	$	20,667	$	5,180	$	12,616	$	335	$	38,798
Securities loaned:
Corporate bonds	3		—		—		—		3		1		—		—		—		1
Equity	310		—		—		—		310		92		—		—		—		92
Total	$	313	$	—	$	—	$	—	$	313	$	93	$	—	$	—	$	—	$	93

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Note 6—Securities Financing Arrangements (Continued)

Offsetting Financial Assets and Liabilities

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

The following tables present the offsetting of financial assets and liabilities at September 30, 2019 and December 31, 2018.



	September 30, 2019
							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	$	1,637	$	452	$	1,185	$	45	$	—	$	1,140
Securities borrowed or purchased under resale agreements	31,474		7,848		23,626		23,543		—		83
Total	$	33,111	$	8,300	$	24,811	$	23,588	$	—	$	1,223
Financial Liabilities:
Derivative liabilities	$	723	$	384	$	339	$	147	$	1	$	191
Securities loaned or sold under repurchase agreements	37,429		7,848		29,581		28,569		—		1,012
Total	$	38,152	$	8,232	$	29,920	$	28,716	$	1	$	1,203



	December 31, 2018
							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	$	871	$	354	$	517	$	14	$	—	$	503
Securities borrowed or purchased under resale agreements	33,974		11,606		22,368		22,291		—		77
Total	$	34,845	$	11,960	$	22,885	$	22,305	$	—	$	580
Financial Liabilities:
Derivative liabilities	$	804	$	322	$	482	$	69	$	—	$	413
Securities loaned or sold under repurchase agreements	38,891		11,606		27,285		26,434		—		851
Total	$	39,695	$	11,928	$	27,767	$	26,503	$	—	$	1,264

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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)	September 30, 2019		December 31, 2018
Debt issued by MUB
Commercial paper, with a weighted average interest rate of 2.21% and 2.39% at September 30, 2019 and December 31, 2018, respectively	$	480	$	382
Federal Home Loan Bank advances, with a weighted average interest rate of 2.29% and 2.52% at September 30, 2019 and December 31, 2018, respectively	7,600		7,800
Total debt issued by MUB	8,080		8,182
Debt issued by other MUAH subsidiaries
Short-term debt due to MUFG Bank, Ltd., with weighted average interest rates of 2.58% and 3.01% at September 30, 2019 and December 31, 2018, respectively	69		145
Short-term debt due to affiliates, with weighted average interest rates of (-0.09)% and (-0.07)% at September 30, 2019 and December 31, 2018, respectively	684		936
Total debt issued by other MUAH subsidiaries	753		1,081
Total commercial paper and other short-term borrowings	$	8,833	$	9,263

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

MUSA maintains an uncommitted, unsecured lending facility with Mitsubishi UFJ Securities Holdings Co., Ltd. under which it may borrow up to JPY 160 billion (USD 1.5 billion equivalent). Under the terms of the facility, MUSA can choose to borrow in Japanese Yen or U.S. Dollars. Japanese Yen denominated borrowings include an extension option allowing MUSA to extend the maturity of an individual draw by 100 days at any time prior to its original, stated maturity. At September 30, 2019, MUSA had JPY 74 billion (USD 684 million equivalent) drawn under this facility.

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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)	September 30, 2019		December 31, 2018
Debt issued by MUAH
Senior debt:
Fixed rate 3.50% notes due June 2022	$	399	$	398
Fixed rate 3.00% notes due February 2025	397		397
Senior debt due to MUFG Bank, Ltd:
Floating rate debt due December 2021. This note, which bears interest at 0.81% above 3-month LIBOR, had a rate of 2.94% at September 30, 2019 and 3.58% at December 31, 2018	1,625		1,625
Floating rate debt due December 2022. This note, which bears interest at 0.90% above 3-month LIBOR, had a rate of 3.03% at September 30, 2019 and 3.67% at December 31, 2018	3,250		3,250
Floating rate debt due December 2022. This note, which bears interest at 0.97% above 3-month LIBOR, had a rate of 3.07% at September 30, 2019	125		—
Floating rate debt due December 2023. This note, which bears interest at 0.99% above 3-month LIBOR, had a rate of 3.12% at September 30, 2019 and 3.76% at December 31, 2018	1,625		1,625
Floating rate debt due December 2023. This note, which bears interest at 0.76% above 3-month EURIBOR, had a rate of 0.76% at September 30, 2019 and December 31, 2018	23		24
Junior subordinated debt payable to trusts:
Floating rate note due September 2036. This note had an interest rate of 3.82% at September 30, 2019 and 4.49% at December 31, 2018	37		36
Total debt issued by MUAH	7,481		7,355
Debt issued by MUB
Senior debt:
Floating rate debt due March 2022. This note, which bears interest at 0.60% above 3-month LIBOR, had a rate of 2.70% at September 30, 2019	300		—
Variable rate FHLB of San Francisco advances due between September 2020 and October 2020. These notes bear a combined weighted average rate of 2.18% at September 30, 2019	500		—
Fixed rate 2.25% notes due May 2019	—		498
Fixed rate 3.15% notes due April 2022	997		—
Fixed rate FHLB of San Francisco advances due between October 2019 and December 2023. These notes bear a combined weighted average rate of 2.91% at September 30, 2019 and 2.66% at December 31, 2018	6,000		9,100
Other	13		34
Total debt issued by MUB	7,810		9,632
Debt issued by other MUAH subsidiaries
Senior debt due to MUFG Bank, Ltd:
Various floating rate borrowings due between December 2020 and May 2021. These notes, which bear interest above 3-month LIBOR had a weighted average interest rate of 2.10% at September 30, 2019 and 2.80% at December 31, 2018	250		250
Various fixed rate borrowings due between November 2019 and June 2023 with a weighted average interest rate of 2.21% (between1.68% and 2.44%) at September 30, 2019 and 1.82% (between 0.14% and 2.44%) at December 31, 2018	149		244
Subordinated debt due to Affiliate:
Floating rate borrowings due March 2019. These notes, which bore interest above 6-month LIBOR had an interest rate of 4.13% at December 31, 2018	—		75
Non-recourse debt due to MUFG Bank, Ltd:
Various floating rate non-recourse borrowings due December 2021. These notes, which bear interest above 1- or 3-month LIBOR had a weighted average interest rate of 2.30% at September 30, 2019 and 4.09% (between 2.75% and 4.17%) at December 31, 2018	3		53
Fixed rate non-recourse borrowings due between March 2020 and July 2023 which had an interest rate of 3.06% (between 1.96% and 3.72%) at September 30, 2019 and 3.05% at December 31, 2018	170		187
Other non-recourse debt:
Various floating rate non-recourse borrowings due between October 2019 and February 2021. These notes, which bear interest above 1- or 3-month LIBOR had a weighted average interest rate of 4.39% (between 4.12% and 4.66%) at September 30, 2019 and 4.21% (between 4.17% and 4.48%) at December 31, 2018	19		89
Fixed rate non-recourse borrowings due December 2026 which had an interest rate of 5.34% at September 30, 2019 and December 31, 2018	30		33
Total debt issued by other MUAH subsidiaries	621		931
Total long-term debt	$	15,912	$	17,918

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Note 8—Long-Term Debt (Continued)

A summary of maturities for the Company's long-term debt at September 30, 2019 is presented below.



(Dollars in millions)	Debt issued by MUAH		Debt issued by MUB		Debt issued by other MUAH subsidiaries		Total
2019	$	—	$	500	$	16	$	516
2020	—		2,025		217		2,242
2021	1,625		1,925		189		3,739
2022	3,774		1,797		41		5,612
2023	1,648		1,552		128		3,328
Thereafter	434		11		30		475
Total long-term debt	$	7,481	$	7,810	$	621	$	15,912

MUB Senior Debt

In March 2019, MUB issued $300 million of floating rate senior bank notes and $1.0 billion of 3.15% senior bank notes. These notes were issued as part of MUB's $12.0 billion bank note program under which MUB may issue, from time to time, senior unsecured debt obligations. At September 30, 2019, there was $4.6 billion available for issuance under the program. MUB does not have any firm commitments in place to sell notes under this program.

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 own creditworthiness in determining the fair value of its trading assets and liabilities. For additional information related to the valuation methodologies used for certain financial assets and financial liabilities measured at fair value, and information about the Company's valuation processes, see Note 11 "Fair Value Measurement and Fair Value of Financial Instruments" to our Consolidated Financial Statements in Part II, Item 8. “Financial Statements and Supplementary Data” in our 2018 Form 10-K.

Fair Value Hierarchy

In determining fair value, the Company maximizes the use of observable market inputs and minimizes the use of unobservable inputs. Observable inputs reflect market-derived or market-based information obtained from independent sources, while unobservable inputs reflect the Company’s estimate about market data. Based on the observability of the significant inputs used, the Company classifies its fair value measurements in accordance with the three-level hierarchy as defined by GAAP. This hierarchy is based on the quality, observability and reliability of the information used to determine fair value. 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 additional information related to the fair value hierarchy, see Note 11 "Fair Value Measurement and Fair Value of Financial Instruments" to our Consolidated Financial Statements in Part II, Item 8. “Financial Statements and Supplementary Data” in our 2018 Form 10-K.

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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 at September 30, 2019 and December 31, 2018, by major category and by valuation hierarchy level.



	September 30, 2019															December 31, 2018
(Dollars in millions)	Level 1			Level 2			Level 3			Netting⁽¹⁾			Fair Value			Level 1			Level 2			Level 3			Netting⁽¹⁾			Fair Value
Assets
Trading account assets:
U.S. Treasury and government agencies	$	—		$	3,617		$	—		$	—		$	3,617		$	—		$	3,071		$	—		$	—		$	3,071
Mortgage-backed:
U.S. agencies	—			5,012			—			—			5,012			—			5,785			—			—			5,785
Corporate debt	—			1,091			—			—			1,091			—			1,367			—			—			1,367
Other debt	—			744			—			—			744			—			360			—			—			360
Equity	97			—			—			—			97			127			—			—			—			127
Derivative contracts	14			1,601			12			(447		)	1,180			19			806			13			(335		)	503
Total trading account assets	111			12,065			12			(447		)	11,741			146			11,389			13			(335		)	11,213
Securities available for sale:
U.S. Treasury and government agencies	—			4,475			—			—			4,475			—			3,429			—			—			3,429
Mortgage-backed:
U.S. agencies	—			6,674			—			—			6,674			—			8,007			—			—			8,007
Residential - non-agency	—			852			—			—			852			—			864			—			—			864
Commercial - non-agency	—			2,553			18			—			2,571			—			1,180			—			—			1,180
Collateralized loan obligations	—			1,524			—			—			1,524			—			1,474			—			—			1,474
Direct bank purchase bonds	—			—			949			—			949			—			—			1,190			—			1,190
Other	—			32			174			—			206			—			29			141			—			170
Total securities available for sale	—			16,110			1,141			—			17,251			—			14,983			1,331			—			16,314
Other assets:
Mortgage servicing rights	—			—			261			—			261			—			—			159			—			159
Loans held for sale	—			—			43			—			43			—			—			117			—			117
Derivative contracts	—			6			4			(5		)	5			—			32			1			(19		)	14
Equity securities	10			—			—			—			10			9			—			—			—			9
Total other assets	10			6			308			(5		)	319			9			32			277			(19		)	299
Total assets	$	121		$	28,181		$	1,461		$	(452	)	$	29,311		$	155		$	26,404		$	1,621		$	(354	)	$	27,826
Percentage of total	—		%	96		%	5		%	(1		)%	100		%	—		%	95		%	6		%	(1		)%	100		%
Percentage of total Company assets	—		%	16		%	1		%	—		%	17		%	—		%	16		%	1		%	—		%	17		%
Liabilities
Trading account liabilities:
U.S. Treasury and government agencies	$	—		$	2,173		$	—		$	—		$	2,173		$	—		$	2,753		$	—		$	—		$	2,753
Corporate debt	—			565			—			—			565			—			717			—			—			717
Other debt	—			21			—			—			21			—			10			—			—			10
Equity	99			—			—			—			99			70			—			—			—			70
Derivatives contracts	20			678			12			(380		)	330			55			731			13			(322		)	477
Total trading account liabilities	119			3,437			12			(380		)	3,188			125			4,211			13			(322		)	4,027
Other liabilities:
FDIC clawback liability	—			—			120			—			120			—			—			116			—			116
Derivatives contracts	—			8			5			(4		)	9			—			3			2			—			5
Total other liabilities	—			8			125			(4		)	129			—			3			118			—			121
Total liabilities	$	119		$	3,445		$	137		$	(384	)	$	3,317		$	125		$	4,214		$	131		$	(322	)	$	4,148
Percentage of total	4		%	104		%	4		%	(12		)%	100		%	3		%	102		%	3		%	(8		)%	100		%
Percentage of total Company liabilities	—		%	2		%	—		%	—		%	2		%	—		%	3		%	—		%	—		%	3		%


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

Table of Contents

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 three and nine months ended September 30, 2019 and 2018. Level 3 securities available for sale at September 30, 2019 and 2018 primarily consist of direct bank purchase bonds.



	For the Three Months Ended
	September 30, 2019														September 30, 2018
(Dollars in millions)	Trading Account Assets		Securities Available for Sale			Other Assets			Trading Account Liabilities			Other Liabilities			Trading Account Assets			Securities Available for Sale			Other Assets		Trading Account Liabilities			Other Liabilities
Asset (liability) balance, beginning of period	$	12	$	1,088		$	519		$	(12	)	$	(125	)	$	50		$	1,495		$	149	$	(49	)	$	(119	)
Total gains (losses) - realized/unrealized:
Included in income before taxes	—		—			(18		)	—			—			6			—			2		(7		)	—
Included in other comprehensive income	—		5			—			—			—			—			(1		)	—		—			—
Purchases/additions	—		52			76			—			—			—			52			25		—			—
Sales	—		—			(269		)	—			—			—			—			—		—			—
Settlements	—		(4		)	—			—			—			(13		)	(121		)	—		13			—
Asset (liability) balance, end of period	$	12	$	1,141		$	308		$	(12	)	$	(125	)	$	43		$	1,425		$	176	$	(43	)	$	(119	)
Changes in unrealized gains (losses) included in income before taxes for assets and liabilities still held at end of period	$	—	$	—		$	(33	)	$	—		$	—		$	6		$	—		$	2	$	(7	)	$	—



	For the Nine Months Ended
	September 30, 2019															September 30, 2018
(Dollars in millions)	Trading Account Assets			Securities Available for Sale			Other Assets			Trading Account Liabilities			Other Liabilities			Trading Account Assets			Securities Available for Sale			Other Assets		Trading Account Liabilities			Other Liabilities
Asset (liability) balance, beginning of period	$	13		$	1,331		$	277		$	(13	)	$	(118	)	$	139		$	1,600		$	65	$	(138	)	$	(119	)
Total gains (losses) - realized/unrealized):
Included in income before taxes	2			—			(94		)	(2		)	(7		)	—			—			11		(1		)	—
Included in other comprehensive income	—			25			—			—			—			—			(18		)	—		—			—
Purchases/additions	—			56			394			—			—			—			125			100		—			—
Sales	—			—			(269		)	—			—			—			—			—		—			—
Settlements	(3		)	(271		)	—			3			—			(96		)	(282		)	—		96			—
Asset (liability) balance, end of period	$	12		$	1,141		$	308		$	(12	)	$	(125	)	$	43		$	1,425		$	176	$	(43	)	$	(119	)
Changes in unrealized gains (losses) included in income before taxes for assets and liabilities still held at end of period	$	2		$	—		$	(109	)	$	(2	)	$	(7	)	$	—		$	—		$	11	$	(1	)	$	—

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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 September 30, 2019.



	September 30, 2019
(Dollars in millions)	Level 3 Fair Value		Valuation Technique	Significant Unobservable Input(s)	Range of Inputs		Weighted Average
Securities available for sale:
Direct bank purchase bonds	$	949	Return on equity	Market-required return on capital	8.0 - 10.0	%	9.8	%
				Probability of default	0.0 - 25.0		0.3
				Loss severity	10.0 - 45.0		20.3

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

Fair Value Measurement on a Nonrecurring Basis

Certain assets may be measured at fair value on a nonrecurring basis. These assets are subject to fair value adjustments that result from the application of the lower of cost or fair value accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis during the three and nine months ended September 30, 2019 and 2018 that were still held on the consolidated balance sheet as of the respective periods ended, the following tables present the fair value of such assets by the level of valuation assumptions used to determine each fair value adjustment.



	September 30, 2019								For the Three Months Ended September 30, 2019			For the Nine Months Ended September 30, 2019
(Dollars in millions)	Fair Value		Level 1		Level 2		Level 3		Gains (Losses)			Gains (Losses)
Loans held for investment
Impaired loans	$	36	$	—	$	—	$	36	$	(17	)	$	(20	)
Goodwill
Goodwill impairment	1,764		—		—		1,764		(1,614		)	(1,614		)
Other assets
Software	—		—		—		—		—			(3		)
Premises and equipment, net	—		—		—		—		—			(1		)
Loans held for sale	260		—		—		260		(6		)	(15		)
Renewable energy investment	—		—		—		—		—			(1		)
Other	—		—		—		—		—			(1		)
Total	$	2,060	$	—	$	—	$	2,060	$	(1,637	)	$	(1,655	)



	September 30, 2018								For the Three Months Ended September 30, 2018			For the Nine Months Ended September 30, 2018
(Dollars in millions)	Fair Value		Level 1		Level 2		Level 3		Gains (Losses)			Gains (Losses)
Loans held for investment
Impaired loans	$	183	$	—	$	—	$	183	$	(59	)	$	(73	)
Other assets
Software	—		—		—		—		(1		)	(3		)
Private equity investments	10		—		—		10		—			(2		)
Renewable energy investment	2		—		—		2		—			(2		)
Consolidated LIHC VIE	48		—		—		48		—			(8		)
Total	$	243	$	—	$	—	$	243	$	(60	)	$	(88	)

Table of Contents

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

Fair Value of Financial Instruments Disclosures

The tables below present the carrying amount and estimated fair value of certain financial instruments, all of which are accounted for at amortized cost, classified by valuation hierarchy level at September 30, 2019 and December 31, 2018.



	September 30, 2019
(Dollars in millions)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	10,883	$	10,883	$	10,883	$	—	$	—
Securities borrowed or purchased under resale agreements	23,626		23,634		—		23,634		—
Securities held to maturity	9,846		9,980		—		9,980		—
Loans held for investment⁽¹⁾	86,961		87,781		—		—		87,781
Other assets	33		33		33		—		—
Liabilities
Time deposits	$	17,213	$	17,272	$	—	$	17,272	$	—
Securities loaned or sold under repurchase agreements	29,581		29,584		—		29,584		—
Commercial paper and other short-term borrowings	8,833		8,833		—		8,833		—
Long-term debt	15,912		16,130		—		16,130		—
Off-Balance Sheet Instruments
Commitments to extend credit and standby and commercial letters of credit	$	88	$	275	$	—	$	—	$	275


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



	December 31, 2018
(Dollars in millions)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	8,350	$	8,350	$	8,350	$	—	$	—
Securities borrowed or purchased under resale agreements	22,368		22,368		—		22,368		—
Securities held to maturity	10,901		10,720		—		10,720		—
Loans held for investment⁽¹⁾	84,805		84,729		—		—		84,729
Other assets	48		48		48		—		—
Liabilities
Time deposits	$	11,739	$	11,714	$	—	$	11,714	$	—
Securities loaned or sold under repurchase agreements	27,285		27,285		—		27,285		—
Commercial paper and other short-term borrowings	9,263		9,263		—		9,263		—
Long-term debt	17,918		17,961		—		17,961		—
Off-Balance Sheet Instruments
Commitments to extend credit and standby and commercial letters of credit	$	120	$	242	$	—	$	—	$	242


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

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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. All derivative instruments are recognized as assets or liabilities on the consolidated balance sheets at fair value.

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

The table below presents the notional amounts and fair value amounts of the Company's derivative instruments reported on the consolidated balance sheets, segregated between derivative instruments designated and qualifying as hedging instruments and derivative instruments not designated as hedging instruments at September 30, 2019 and December 31, 2018. Asset and liability values are presented gross, excluding the impact of legally enforceable master netting and credit support annex agreements. The fair value of asset and liability derivatives designated and qualifying as hedging instruments and derivatives designated as other risk management are included in other assets and other liabilities, respectively. The fair value of asset and liability trading derivatives are included in trading account assets and trading account liabilities, respectively.



	September 30, 2019						December 31, 2018
			Fair Value						Fair Value
(Dollars in millions)	Notional Amount		Asset Derivatives		Liability Derivatives		Notional Amount		Asset Derivatives		Liability Derivatives
Derivative instruments
Cash flow hedges:
Interest rate contracts	$	10,819	$	—	$	—	$	674	$	6	$	—
Not designated as hedging instruments:
Trading:
Interest rate contracts	272,747		1,272		524		189,478		531		600
Commodity contracts	125		10		8		336		25		18
Foreign exchange contracts	9,892		333		166		8,475		260		168
Equity contracts	107		12		12		300		22		13
Other contracts	53		—		—		127		—		—
Total Trading	282,924		1,627		710		198,716		838		799
Other risk management	2,781		10		13		1,704		27		5
Total derivative instruments	$	296,524	$	1,637	$	723	$	201,094	$	871	$	804

We recognized net losses of $5 million and net gains of $2 million on other risk management derivatives for the three and nine months ended September 30, 2019, respectively, and net losses of $28 million and $26 million for the three and nine months ended September 30, 2018, respectively, which are included in other noninterest income.

Derivatives Designated and Qualifying as Hedging Instruments

The Company uses interest rate derivatives to manage the financial impact on the Company from changes in market interest rates. These instruments are used to manage interest rate risk relating to specified groups of assets and liabilities, primarily LIBOR-based commercial loans and debt issuances. Derivatives that qualify for hedge accounting are designated as either fair value or cash flow hedges.

Cash Flow Hedges

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

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

The Company used interest rate derivatives with an aggregate notional amount of $10.8 billion at September 30, 2019 to hedge the risk of changes in cash flows attributable to changes in the designated interest rates from variable rate loans. The Company used interest rate derivatives with an aggregate notional amount of $69 million at September 30, 2019 to hedge the risk of changes in cash flows attributable to changes in the designated interest rate on LIBOR indexed short-term borrowings. At September 30, 2019, the weighted average remaining life of the active cash flow hedges was 2.8 years.

For cash flow hedges, changes in the fair value of 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. At September 30, 2019, the Company expects to reclassify approximately $74 million of losses from AOCI as a reduction to net interest income during the twelve months ending September 30, 2020. This amount could differ from amounts actually realized due to changes in interest rates, hedge terminations and the addition of other hedges subsequent to September 30, 2019.

The following table presents the amount and location of the net gains and losses recorded in the Company’s consolidated statements of income and changes in stockholders' equity for derivative instruments designated as cash flow hedges for the three and nine months ended September 30, 2019 and 2018.



	Gains (Losses) Recognized in OCI					Gains (Losses) Reclassified from AOCI into Income							(Gains) Losses Recognized in Income (Ineffective Portion)
	For the Three Months Ended September 30,					For the Three Months Ended September 30,							For the Three Months Ended September 30,
(Dollars in millions)	2019		2018		Location	2019			2018			Location	2018
Derivatives in cash flow hedging relationships
					Interest income	$	(27	)	$	(11	)
Interest rate contracts	$	41	$	—	Interest expense	—			—			Noninterest expense	$	—
Total	$	41	$	—		$	(27	)	$	(11	)		$	—



	Gains (Losses) Recognized in OCI						Gains (Losses) Reclassified from AOCI into Income							Gains (Losses) Recognized in Income (Ineffective Portion)
	For the Nine Months Ended September 30,						For the Nine Months Ended September 30,							For the Nine Months Ended September 30,
(Dollars in millions)	2019		2018			Location	2019			2018			Location	2018
Derivatives in cash flow hedging relationships
						Interest income	$	(67	)	$	(19	)
Interest rate contracts	$	110	$	(98	)	Interest expense	—			—			Noninterest expense	$	(1	)
Total	$	110	$	(98	)		$	(67	)	$	(19	)		$	(1	)

Fair Value Hedges

The Company engaged in an interest rate hedging strategy in which one or more interest rate derivatives were associated with a specified interest bearing liability, in order to convert the liability from a fixed rate to a floating rate instrument. This strategy mitigated the changes in fair value of the hedged liability caused by changes in the designated interest rate, LIBOR.

Prior to 2019, for fair value hedges, any ineffectiveness was recognized in noninterest expense in the period in which it arose. The change in the fair value of the hedged item and the hedging instrument, to the extent completely effective, offset with no impact on earnings.

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

The following table presents gains (losses) on the Company's fair value hedges and hedged item for the three and nine months ended September 30, 2018. The company did not have any fair value hedges during 2019.



	For the Three Months Ended September 30, 2018						For the Nine Months Ended September 30, 2018
(Dollars in millions)	Derivative		Hedged Item		Hedge Ineffectiveness		Derivative			Hedged Item		Hedge Ineffectiveness
(Dollars in millions)	Derivative		Hedged Item		Hedge Ineffectiveness		Derivative			Hedged Item		Hedge Ineffectiveness
Interest rate risk on long-term debt	$	—	$	—	$	—	$	(2	)	$	2	$	—
Total	$	—	$	—	$	—	$	(2	)	$	2	$	—

Derivatives Not Designated as Hedging Instruments

Trading Derivatives

Derivative instruments classified as trading include derivatives entered into at MUAH's broker-dealer subsidiary, MUSA, and derivatives entered into as an accommodation for customers and for certain economic hedging activities at MUB. Trading derivatives are included in trading assets or trading liabilities with changes in fair value reflected in income from trading account activities.

The following table presents the amount of the net gains and losses for derivative instruments classified as trading reported in the consolidated statements of income under the heading trading account activities for the three and nine months ended September 30, 2019 and 2018.



	Gains (Losses) Recognized in Income on Trading Derivatives					Gains (Losses) Recognized in Income on Trading Derivatives
	For the Three Months Ended					For the Nine Months Ended
(Dollars in millions)	September 30, 2019			September 30, 2018		September 30, 2019			September 30, 2018
Trading derivatives
Interest rate contracts	$	(28	)	$	64	$	(112	)	$	194
Equity contracts	(6		)	5		1			23
Foreign exchange contracts	14			11		38			32
Total	$	(20	)	$	80	$	(73	)	$	249

Offsetting Financial Assets and Liabilities

The Company primarily enters into derivative contracts with counterparties utilizing standard International Swaps and Derivatives Association Master Agreements and Credit Support Annex Agreements. These agreements generally establish the terms and conditions of the transactions, including a legal right to set-off amounts payable and receivable between the Company and a counterparty, regardless of whether or not such amounts have matured or have contingency features. For additional information related to offsetting of financial assets and liabilities, see Note 6 "Securities Financing Arrangements" to these Consolidated Financial Statements.

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Note 11—Accumulated Other Comprehensive Income

The following tables present the change in each of the components of accumulated other comprehensive income and the related tax effect of the change allocated to each component for the three and nine months ended September 30, 2019 and 2018.



(Dollars in millions)	Before Tax Amount			Tax Effect			Net of Tax
For the Three Months Ended September 30, 2019
Cash flow hedge activities:
Unrealized net gains (losses) on hedges arising during the period	$	41		$	(11	)	$	30
Reclassification adjustment for net (gains) losses on hedges included in interest income for loans and interest expense on long-term debt	27			(7		)	20
Net change	68			(18		)	50
Securities:
Unrealized holding gains (losses) arising during the period on securities available for sale	71			(18		)	53
Reclassification adjustment for net (gains) losses on securities available for sale included in securities gains, net	(11		)	3			(8		)
Amortization of net unrealized (gains) losses on held to maturity securities	12			(4		)	8
Net change	72			(19		)	53
Pension and other benefits:
Amortization of prior service credit⁽¹⁾	(10		)	3			(7		)
Recognized net actuarial (gain) loss⁽¹⁾	18			(4		)	14
Net change	8			(1		)	7
Other	—			—			—
Net change in AOCI	$	148		$	(38	)	$	110


(1)	These amounts are included in the computation of net periodic pension cost. For additional information, see Note 12 "Employee Pension and Other Postretirement Benefits" to these Consolidated Financial Statements.




(Dollars in millions)	Before Tax Amount			Tax Effect			Net of Tax
For the Three Months Ended September 30, 2018
Cash flow hedge activities:
Reclassification adjustment for net (gains) losses on hedges included in interest income for loans and interest expense on long-term debt	11			(3		)	8
Net change	11			(3		)	8
Securities:
Unrealized holding gains (losses) arising during the period on securities available for sale	(70		)	19			(51		)
Reclassification adjustment for net (gains) losses on securities available for sale included in securities gains, net	(1		)	—			(1		)
Amortization of net unrealized (gains) losses on held to maturity securities	8			(2		)	6
Net change	(63		)	17			(46		)
Pension and other benefits:
Amortization of prior service credit⁽¹⁾	(10		)	2			(8		)
Recognized net actuarial (gain) loss⁽¹⁾	24			(6		)	18
Net change	14			(4		)	10
Net change in AOCI	$	(38	)	$	10		$	(28	)


(1)	These amounts are included in the computation of net periodic pension cost. For additional information, see Note 12 "Employee Pension and Other Postretirement Benefits" to these Consolidated Financial Statements.

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Note 11—Accumulated Other Comprehensive Income (Continued)



(Dollars in millions)	Before Tax Amount			Tax Effect			Net of Tax
For the Nine Months Ended September 30, 2019
Cash flow hedge activities:
Unrealized net gains (losses) on hedges arising during the period	$	110		$	(29	)	$	81
Reclassification adjustment for net (gains) losses on hedges included in interest income for loans and interest expense on long-term debt	67			(18		)	49
Net change	177			(47		)	130
Securities:
Unrealized holding gains (losses) arising during the period on securities available for sale	485			(127		)	358
Reclassification adjustment for net (gains) losses on securities available for sale included in securities gains, net	(34		)	9			(25		)
Amortization of net unrealized (gains) losses on held to maturity securities	25			(7		)	18
Net change	476			(125		)	351
Pension and other benefits:
Amortization of prior service credit⁽¹⁾	(30		)	8			(22		)
Recognized net actuarial (gain) loss⁽¹⁾	55			(14		)	41
Net change	25			(6		)	19
Other	1			—			1
Net change in AOCI	$	679		$	(178	)	$	501


(1)	These amounts are included in the computation of net periodic pension cost. For additional information, see Note 12 "Employee Pension and Other Postretirement Benefits" to these Consolidated Financial Statements.



(Dollars in millions)	Before Tax Amount			Tax Effect			Net of Tax
For the Nine Months Ended September 30, 2018
Cash flow hedge activities:
Unrealized net gains (losses) on hedges arising during the period	$	(98	)	$	26		$	(72	)
Reclassification adjustment for net (gains) losses on hedges included in interest income for loans and interest expense on long-term debt	19			(5		)	14
Net change	(79		)	21			(58		)
Securities:
Unrealized holding gains (losses) arising during the period on securities available for sale	(392		)	103			(289		)
Reclassification adjustment for net (gains) losses on securities available for sale included in securities gains, net	(4		)	1			(3		)
Amortization of net unrealized (gains) losses on held to maturity securities	20			(5		)	15
Net change	(376		)	99			(277		)
Foreign currency translation adjustment	(3		)	1			(2		)
Pension and other benefits:
Amortization of prior service credit ⁽¹⁾	(31		)	8			(23		)
Recognized net actuarial (gain) loss⁽¹⁾	72			(19		)	53
Net change	41			(11		)	30
Other	(1		)	—			(1		)
Net change in AOCI	$	(418	)	$	110		$	(308	)


(1)	These amounts are included in the computation of net periodic pension cost. For additional information, see Note 12 "Employee Pension and Other Postretirement Benefits" to these Consolidated Financial Statements.

Table of Contents

Note 11—Accumulated Other Comprehensive Income (Continued)

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



For the Three Months Ended September 30, 2018 and 2019:
	Net Unrealized Gains (Losses) on Cash Flow Hedges			Net Unrealized Gains (Losses) on Securities			Foreign Currency Translation Adjustment		Pension and Other Postretirement Benefits Adjustment			Other			Accumulated Other Comprehensive Income (Loss)
(Dollars in millions)	Net Unrealized Gains (Losses) on Cash Flow Hedges			Net Unrealized Gains (Losses) on Securities			Foreign Currency Translation Adjustment		Pension and Other Postretirement Benefits Adjustment			Other			Accumulated Other Comprehensive Income (Loss)
Balance, June 30, 2018	$	(240	)	$	(464	)	$	—	$	(580	)	$	(1	)	$	(1,285	)
Other comprehensive income (loss) before reclassifications	—			(51		)	—		—			—			(51		)
Amounts reclassified from AOCI	8			5			—		10			—			23
Balance, September 30, 2018	$	(232	)	$	(510	)	$	—	$	(570	)	$	(1	)	$	(1,313	)
Balance, June 30, 2019	$	(140	)	$	(75	)	$	—	$	(718	)	$	—		$	(933	)
Other comprehensive income (loss) before reclassifications	30			53			—		—			—			83
Amounts reclassified from AOCI	20			—			—		7			—			27
Balance, September 30, 2019	$	(90	)	$	(22	)	$	—	$	(711	)	$	—		$	(823	)



For the Nine Months Ended September 30, 2018 and 2019
	Net Unrealized Gains (Losses) on Cash Flow Hedges			Net Unrealized Gains (Losses) on Securities			Foreign Currency Translation Adjustment			Pension and Other Postretirement Benefits Adjustment			Other			Accumulated Other Comprehensive Income (Loss)
(Dollars in millions)	Net Unrealized Gains (Losses) on Cash Flow Hedges			Net Unrealized Gains (Losses) on Securities			Foreign Currency Translation Adjustment			Pension and Other Postretirement Benefits Adjustment			Other			Accumulated Other Comprehensive Income (Loss)
Balance, December 31, 2017	$	(174	)	$	(233	)	$	(19	)	$	(600	)	$	—		$	(1,026	)
Other comprehensive income (loss) before reclassifications	(72		)	(289		)	(2		)	—			(1		)	(364		)
Amounts reclassified from AOCI	14			12			—			30			—			56
Transfer to additional paid-in capital⁽¹⁾	—			—			21			—			—			21
Balance, September 30, 2018	$	(232	)	$	(510	)	$	—		$	(570	)	$	(1	)	$	(1,313	)
Balance, December 31, 2018	$	(220	)	$	(373	)	$	—		$	(730	)	$	(1	)	$	(1,324	)
Other comprehensive income (loss) before reclassifications	81			358			—			—			1			440
Amounts reclassified from AOCI	49			(7		)	—			19			—			61
Balance, September 30, 2019	$	(90	)	$	(22	)	$	—		$	(711	)	$	—		$	(823	)


(1)	Transfer of accumulated foreign currency translation to additional paid-in capital resulted from the transfer of the Company's investment in a Canadian entity to MUFG Bank, Ltd. during the first quarter of 2018.

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Note 12—Employee Pension and Other Postretirement Benefits

The following tables summarize the components of net periodic benefit cost for the three and nine months ended September 30, 2019 and 2018. The components of net periodic benefit cost other than the service cost component are included in other noninterest expense in the income statement.



	Pension Benefits						Other Postretirement Benefits						Superannuation, SERP and ESBP
	For the Three Months Ended September 30,						For the Three Months Ended September 30,						For the Three Months Ended September 30,
(Dollars in millions)	2019			2018			2019			2018			2019		2018
Components of net periodic benefit cost:
Service cost	$	19		$	21		$	1		$	—		$	—	$	—
Interest cost	29			25			2			2			1		1
Expected return on plan assets	(64		)	(67		)	(4		)	(6		)	—		—
Amortization of prior service credit	(7		)	(7		)	(3		)	(3		)	—		—
Recognized net actuarial loss	15			21			2			2			1		1
Total net periodic benefit (income) cost	$	(8	)	$	(7	)	$	(2	)	$	(5	)	$	2	$	2



	Pension Benefits						Other Postretirement Benefits						Superannuation, SERP and ESBP
	For the Nine Months Ended September 30,						For the Nine Months Ended September 30,						For the Nine Months Ended September 30,
(Dollars in millions)	2019			2018			2019			2018			2019		2018
Components of net periodic benefit cost:
Service cost	$	57		$	60		$	2		$	3		$	—	$	—
Interest cost	88			75			7			6			3		2
Expected return on plan assets	(193		)	(201		)	(13		)	(16		)	—		—
Amortization of prior service credit	(20		)	(20		)	(10		)	(11		)	—		—
Recognized net actuarial loss	46			65			7			4			2		3
Total net periodic benefit (income) cost	$	(22	)	$	(21	)	$	(7	)	$	(14	)	$	5	$	5

Note 13—Commitments, Contingencies and Guarantees

The following table summarizes the Company's commitments.



(Dollars in millions)	September 30, 2019
Commitments to extend credit	$	37,999
Issued standby and commercial letters of credit	4,348
Commitments to enter into forward-starting resale agreements	1,441
Other commitments	483

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

Standby and commercial letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit are generally contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party, while commercial letters of credit are issued specifically to facilitate foreign or domestic trade transactions. The majority of these types of commitments have terms of 1 year or less. As of September 30, 2019, the carrying amount of the Company's standby and commercial letters of credit totaled $3 million. Estimated exposure to loss related to

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Note 13—Commitments, Contingencies and Guarantees (Continued)

these commitments is covered by the allowance for losses on unfunded commitments. The carrying amounts of the standby and commercial letters of credit and the allowance for losses on unfunded credit commitments are included in other liabilities on the consolidated balance sheet.

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

Other commitments include collateralized financing activities, commitments to fund principal investments, other securities, and residual value guarantees.

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

The Company occasionally enters into financial guarantee contracts where a premium is received from another financial institution counterparty to guarantee a portion of the credit risk on interest rate swap contracts entered into between the financial institution and its customer. The Company becomes liable to pay the financial institution only if the financial institution is unable to collect amounts owed to them by their customer. As of September 30, 2019, the current exposure to loss under these contracts totaled $31 million, and the maximum potential exposure to loss in the future was estimated at $47 million.

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

Note 14—Business Segments

The Company has four reportable segments: Regional Bank, Global Corporate & Investment Banking - U.S. (previously U.S. Wholesale & Investment Banking), Transaction Banking, and MUSA. The Company uses various management accounting methodologies to measure the performance of its segments. Unlike GAAP, there is no standardized or authoritative guidance for management accounting. Consequently, reported results are not necessarily comparable with those presented by other companies and they are not necessarily indicative of the results that would be reported by the business units if they were separate economic entities.

Methodologies that are applied to the measurement of segment profitability, which are enhanced from time to time, include a funds transfer pricing system, an activity-based costing methodology, other indirect costs and a methodology to allocate the provision for credit losses. In the second quarter of 2018, the Company began measuring the performance of its business segments by reporting revenues and expenses from products and services sold entirely within the business segment that manages the customer relationship. The Company previously applied a “market view” perspective in measuring the business segments, which reported revenues and expenses from products and services sold in both the business segment that provided the product and the business segment that managed the customer relationship. Prior period results have been revised to conform to the current period presentation.

The funds transfer pricing system assigns a cost of funds or a credit for funds to assets or liabilities based on their type, maturity or repricing characteristics. A segment receives a credit from Corporate Treasury for its funding sources. Conversely, a segment is assigned a charge by Corporate Treasury to fund its assets. Certain indirect costs, such as operations and technology expense, are allocated to the segments based on an activity-based costing methodology. Other indirect costs, such as corporate overhead, are allocated to the

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Note 14—Business Segments (Continued)

segments based on internal surveys and metrics that serve as proxies for estimated usage. During the normal course of business, the Company occasionally changes or updates its management accounting methodologies or organizational structure. Certain non-bank subsidiaries, including MUSA, are reported based on their GAAP results.

Regional Bank

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

Consumer Banking serves consumers and small businesses through 342 full-service branches, digital channels, call centers, ATMs and alliances with other financial institutions. Products and services include checking and other deposit accounts; residential mortgage loans; consumer loans; home equity lines of credit; credit cards; bill and loan payment services; and merchant services.

Commercial Banking provides commercial and asset-based loans to clients across a wide range of industries with annual revenues up to $2 billion. By working with the Company's other segments, Commercial Banking clients also have access to global treasury management and capital markets solutions and foreign exchange, interest rate, and commodity risk management products.

Real Estate Industries serves professional real estate investors and developers with products such as construction loans, commercial mortgages, bridge financing and unsecured financing. Property types supported include apartment, office, retail, industrial and single-family residential on the West Coast and in select metropolitan areas across the country. Real Estate Industries also makes tax credit investments in affordable housing projects through its Community Development Finance unit referenced as LIHC investments. By working with the Company's other segments, Real Estate Industries also offers its clients global treasury management and capital markets solutions and foreign exchange, interest rate, and commodity risk management products.

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

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

Global Corporate & Investment Banking - U.S.

Global Corporate & Investment Banking - U.S. delivers the full suite of MUAH products and services to large and mid-corporate customers. The segment employs an industry-focused strategy including dedicated coverage teams in General Industries, Power and Utilities, Oil and Gas, Telecom and Media, Technology, Healthcare and Nonprofit, Public Finance, and Financial Institutions (predominantly Insurance and Asset Managers). Global Corporate & Investment Banking - U.S. provides customers general corporate credit and structured credit services, including project finance, leasing and equipment finance, funds finance and asset-based finance. By working with the Company's other segments, Global Corporate & Investment Banking - U.S. offers its customers a range of noncredit services, which include global treasury management, capital market solutions, and various foreign exchange, interest rate risk and commodity risk management products.

Transaction Banking

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

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Note 14—Business Segments (Continued)

MUFG Securities Americas

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

Other

"Other" includes the MUFG Fund Services segment, Markets segment, Japanese Corporate Banking segment and Corporate Treasury. MUFG Fund Services provides comprehensive investment fund administrative solutions. Markets provides risk management solutions, including foreign exchange, interest rate and energy risk management solutions. The Japanese 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. 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 information regarding these risk management activities, see “Market Risk Management” in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2018 Form 10-K.

Additionally, "Other" is comprised of certain corporate activities of the Company; the net impact of funds transfer pricing charges and credits allocated to the reportable segments; the residual costs of support groups; fees from affiliates and noninterest expenses associated with MUFG Bank, Ltd. U.S. branch banking operations; the unallocated allowance; goodwill, intangible assets, and the related amortization/accretion associated with the Company's privatization transaction when we became a privately held company in 2008; the goodwill impairment recorded in the third quarter of 2019; the elimination of the fully taxable-equivalent basis amount; the difference between the marginal tax rate and the consolidated effective tax rate; and FDIC covered assets.

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Note 14—Business Segments (Continued)




As of and for the Three Months Ended September 30, 2019:
(Dollars in millions)	Regional Bank		Global Corporate & Investment Banking - U.S.			Transaction Banking		MUSA		Other			MUFG Americas Holdings Corporation
Results of operations
Net interest income	$	582	$	104		$	61	$	39	$	(32	)	$	754
Noninterest income	127		87			14		111		378			717
Total revenue	709		191			75		150		346			1,471
Noninterest expense	532		116			59		119		1,944			2,770
(Reversal of) provision for credit losses	72		24			—		—		(1		)	95
Income (loss) before income taxes and including noncontrolling interests	105		51			16		31		(1,597		)	(1,394		)
Income tax expense (benefit) ⁽¹⁾	19		(5		)	10		7		(49		)	(18		)
Net income (loss) including noncontrolling interests	86		56			6		24		(1,548		)	(1,376		)
Deduct: net (income) loss from noncontrolling interests	—		—			—		—		4			4
Net income (loss) attributable to MUAH	$	86	$	56		$	6	$	24	$	(1,544	)	$	(1,372	)

Total assets, end of period	$	75,446	$	20,820		$	971	$	35,199	$	40,797		$	173,233


(1)	Income tax expense (benefit) includes certain management accounting classification adjustments.




As of and for the Three Months Ended September 30, 2018:
(Dollars in millions)	Regional Bank		Global Corporate & Investment Banking - U.S.			Transaction Banking			MUSA		Other			MUFG Americas Holdings Corporation
Results of operations
Net interest income	$	553	$	104		$	66		$	52	$	57		$	832
Noninterest income	111		103			15			94		303			626
Total revenue	664		207			81			146		360			1,458
Noninterest expense	518		106			65			121		249			1,059
(Reversal of) provision for credit losses	45		27			(3		)	—		(5		)	64
Income (loss) before income taxes and including noncontrolling interests	101		74			19			25		116			335
Income tax expense (benefit) ⁽¹⁾	17		(3		)	5			6		10			35
Net income (loss) including noncontrolling interests	84		77			14			19		106			300
Deduct: net (income) loss from noncontrolling interests	—		—			—			—		6			6
Net income (loss) attributable to MUAH	$	84	$	77		$	14		$	19	$	112		$	306

Total assets, end of period	$	71,501	$	19,467		$	882		$	33,366	$	35,820		$	161,036


(1)	Income tax expense (benefit) includes certain management accounting classification adjustments.

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Note 14—Business Segments (Continued)




As of and for the Nine Months Ended September 30, 2019:
(Dollars in millions)	Regional Bank		Global Corporate & Investment Banking - U.S.		Transaction Banking			MUSA		Other			MUFG Americas Holdings Corporation
Results of operations
Net interest income	$	1,727	$	320	$	198		$	111	$	(42	)	$	2,314
Noninterest income	375		255		44			289		1,035			1,998
Total revenue	2,102		575		242			400		993			4,312
Noninterest expense	1,608		341		188			355		2,602			5,094
(Reversal of) provision for loan losses	155		39		(2		)	—		(3		)	189
Income (loss) before income taxes and including noncontrolling interests	339		195		56			45		(1,606		)	(971		)
Income tax expense (benefit) ⁽¹⁾	66		6		20			9		(71		)	30
Net income (loss) including noncontrolling interests	273		189		36			36		(1,535		)	(1,001		)
Deduct: net (income) loss from noncontrolling interests	—		—		—			—		12			12
Net income (loss) attributable to MUAH	$	273	$	189	$	36		$	36	$	(1,523	)	$	(989	)

Total assets, end of period	$	75,446	$	20,820	$	971		$	35,199	$	40,797		$	173,233


(1)	Income tax expense (benefit) includes certain management accounting classification adjustments.




As of and for the Nine Months Ended September 30, 2018:
(Dollars in millions)	Regional Bank		Global Corporate & Investment Banking - U.S.		Transaction Banking			MUSA		Other			MUFG Americas Holdings Corporation
Results of operations
Net interest income	$	1,620	$	307	$	197		$	157	$	201		$	2,482
Noninterest income	338		283		44			259		680			1,604
Total revenue	1,958		590		241			416		881			4,086
Noninterest expense	1,552		310		186			353		825			3,226
(Reversal of) provision for loan losses	52		3		(4		)	—		(8		)	43
Income (loss) before income taxes and including noncontrolling interests	354		277		59			63		64			817
Income tax expense (benefit) ⁽¹⁾	68		133		16			15		(211		)	21
Net income (loss) including noncontrolling interests	286		144		43			48		275			796
Deduct: net (income) loss from noncontrolling interests	—		—		—			—		20			20
Net income (loss) attributable to MUAH	$	286	$	144	$	43		$	48	$	295		$	816

Total assets, end of period	$	71,501	$	19,467	$	882		$	33,366	$	35,820		$	161,036


(1)	Income tax expense (benefit) includes certain management accounting classification adjustments.

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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. "Risk Factors" in our 2018 Form 10-K, which is incorporated by reference herein, in addition to the following information.

Industry Factors

Fluctuations in interest rates on deposits or other funding sources could adversely affect our net interest margin

Changes in market interest rates on deposits or other funding sources, including changes in the relationship between short-term and long-term market interest rates or between different interest rate indices, can impact, and has in past years impacted, our net interest margin (that is, the difference between the interest rates we charge on interest earning assets, such as loans, and the interest rates we pay on interest-bearing liabilities, such as deposits or other borrowings). This impact could result in a decrease in our interest income relative to interest expense. Increases in interest rates may also adversely impact the value of our investment securities portfolio and the trading portfolio of MUSA and could also adversely impact loan performance by making it more difficult for borrowers with adjustable rate loans to service their debts. For several years after the 2008 recession, the Federal Reserve’s highly accommodative monetary policies (including a very low federal funds rate and substantial purchases of long-term U.S. Treasury and agency securities) placed downward pressure on the net interest margins of U.S. banks, including MUB. The Federal Reserve continued to gradually raise interest rates from late 2016 through 2018 and gradually reduce its historically high $4.5 trillion balance sheet until the third quarter of 2019 when the Federal Reserve again began to lower interest rates. The impact of these measures on the U.S. economy and financial markets cannot be predicted with certainty at this time. For additional information, see “The effects of changes or increases in, or supervisory enforcement of, banking, securities, competition or other laws and regulations or governmental fiscal, monetary, or tax policies could adversely affect us or make strategic planning more difficult” in Part I, Item 1A. "Risk Factors" in our 2018 Form 10-K. For additional information, see Part I, Item 1. "Business - Supervision and Regulation - Principal Federal Banking Regulatory Agencies" in our 2018 Form 10-K.

MUFG Bank, Ltd.'s and Mitsubishi UFJ Financial Group’s credit ratings and financial or regulatory condition could adversely affect our operations

A substantial part of our operations has been historically funded independently of MUFG Bank, Ltd. and MUFG and we believe our business is not necessarily closely related to the business or outlook of MUFG Bank, Ltd. or MUFG. However, the Federal Reserve finalized rules imposing new TLAC requirements on GSIBs with operations in the U.S. such as MUFG, in December 2016. As a result, although we make an effort to diversify our sources of liquidity, we are required to maintain a minimum of TLAC-eligible debt because of our affiliation with MUFG Bank, Ltd. If MUFG Bank, Ltd. and MUFG’s credit ratings, financial condition or business prospects were to decline, this could adversely affect our credit rating or harm our reputation or perceived creditworthiness. For additional information, see Part II, Item 7. “Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Management - Liquidity Risk Management” in our 2018 Form 10-K.

MUFG Bank, Ltd. and MUFG are also subject to regulatory oversight, review and supervisory action (which can include fines or penalties) by Japanese, U.S. and other regulatory authorities. Our business operations and expansion plans could be negatively affected by regulatory concerns or supervisory action any such authority might take against MUFG Bank, Ltd. or MUFG. For example, in connection with its annual Bank Secrecy Act and Anti-Money Laundering (BSA/AML) and Office of Foreign Assets Control (OFAC) examination of MUFG Bank, Ltd.’s U.S. based branches, the OCC recently imposed a public enforcement action upon MUFG Bank

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Ltd.’s New York, Los Angeles, and Chicago branches. The enforcement action relates to the BSA/AML portion of the examination, is in the form of a consent order and requires MUFG Bank Ltd. and its U.S. branches to implement various remedial measures to address the deficiencies found in the examination, including the adoption of a comprehensive action plan satisfactory to the OCC, implementation of measures to ensure effective compliance management and qualified staffing, the adoption of comprehensive BSA/AML risk assessment policies and procedures and other remedial actions. MUB is not a party to the consent order.

Similarly, in June 2013, MUFG Bank, Ltd. entered into a consent agreement with the NY DFS (its former NY regulator) under which it made a civil monetary payment of $250 million to resolve issues relating to the clearing of certain U.S. dollar payments that were routed through its New York branch office from 2002 to 2007. In November 2014, MUFG Bank, Ltd. entered into another consent agreement with the NY DFS under which it made a civil monetary payment of $315 million to resolve issues relating to instructions given to PricewaterhouseCoopers LLP and the disclosures made to the NY DFS in connection with MUFG Bank, Ltd.'s 2007 and 2008 voluntary investigation of MUFG Bank, Ltd.'s U.S. dollar clearing activity associated with countries or parties subject to U.S. economic sanctions. Under the terms of this agreement with the NY DFS, MUFG Bank, Ltd. agreed to take certain additional remedial actions. These remediation efforts are ongoing. In November 2017, MUFG Bank, Ltd. applied to the OCC to convert its state-licensed branches and agencies in the U.S. to federal branches and agencies and the OCC approved those conversion applications. As a result, these branches and agencies are now supervised by the OCC and are no longer supervised by state regulatory authorities. As a condition of the OCC’s approval of the conversion applications, the OCC required MUFG Bank, Ltd.’s primary New York branch to enter into a consent order with the OCC that supersedes and contains nearly identical substantive requirements as the 2013 and 2014 NY DFS consent agreements. MUFG Bank, Ltd.’s remediation efforts under the OCC consent order are ongoing. The OCC and MUFG Bank, Ltd. have established an ongoing regulatory relationship and the nature of that relationship will continue to evolve over time.

Immediately following the OCC’s approval of the conversion applications, the NY DFS issued an order which, among other things, asserted that the NY DFS continued to have regulatory authority over MUFG Bank, Ltd. MUFG Bank filed suit on November 8, 2017, captioned The Bank of Tokyo-Mitsubishi UFJ, Ltd. v. Maria Vullo, 17-cv-08691, in the United States District Court for the Southern District of New York, seeking a declaration that the NY DFS had no such continuing authority over MUFG Bank, Ltd. In response, DFS filed counterclaims against MUFG Bank, Ltd. In June 2019, MUFG Bank, Ltd. entered into a settlement with the NY DFS to resolve this litigation. Under the terms of the settlement, the NY DFS has released all of its claims against MUFG Bank, Ltd. and will not challenge the validity of the licenses issued by the OCC to MUFG Bank Ltd. In return, and in consideration of the impact of prolonged litigation, MUFG Bank Ltd. has released all of its claims against the NY DFS and agreed to make a $33 million settlement payment. This settlement resolves the pending federal civil litigation in its entirety and does not constitute a regulatory order or involve a monetary penalty.

MUFG Bank, Ltd. has received requests and subpoenas for information from government agencies in some jurisdictions, including the United States, Europe and Asia, which are or were conducting investigations into past submissions made by panel members, including MUFG Bank, Ltd., to the bodies that set various interbank offered rates. MUFG Bank, Ltd. is cooperating with these investigations and has completed all internal investigations. MUB is not a member of any of these panels or involved in any such investigations. In addition, MUFG Bank, Ltd. and other panel members have been named as defendants in a number of civil lawsuits, including putative class actions, in the United States relating to similar matters including the trading of financial instruments, the prices of which can be affected by interbank offered rates. MUFG Bank, Ltd. has also been named as a defendant in a number of civil lawsuits, including putative class actions, in the United States and Canada alleging foreign exchange market misconduct. While certain of these lawsuits have been settled without any admission of wrongdoing and there have been various procedural and potentially substantive developments in other pending cases, it is currently not possible for us to predict the scope and ultimate outcome of these investigations or lawsuits, including any possible effect on us as an affiliate of MUFG.

The replacement of LIBOR could adversely impact our business and results of operations, and the value of certain financial instruments

In July 2017, the Chief Executive of the U.K. Financial Conduct Authority, which regulates the process of setting LIBOR, announced that it intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR after 2021. There are ongoing global efforts to establish alternatives to interbank offered rates (such as LIBOR). However, there is uncertainty regarding the scope of the ultimate acceptance of alternative

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reference rates, and the potential impact on rates and pricing and assets, liabilities and results of operations. If another reference rate does not achieve widespread acceptance as an alternative to LIBOR, there likely will be disruption in the financial markets which rely on the availability of a broadly accepted reference rate, and volatility in the pricing of securities, derivatives and other instruments, which could adversely affect the Company’s businesses and results of operations.

The replacement of LIBOR creates a broad range of risks and challenges (including financial, operational, legal, reputational, compliance and market risks) for the banking industry and could adversely impact our businesses and results of operations, and the value of certain financial instruments originated or held by the Company that use LIBOR as a reference rate. LIBOR is used as a reference rate for many of our transactions, including interest rate swap agreements and other contracts used for hedging and trading account purposes, loans to commercial customers and consumers (including mortgage loans and other loans), and long term borrowings, which means that it is the base on which relevant interest rates are determined. The risks and challenges that may be created by the replacement of LIBOR will become clearer as replacement alternatives are developed.

There are ongoing efforts to establish an alternative reference rate. The Secured Overnight Financing Rate (or SOFR) is considered the most likely alternative reference rate suitable for replacing LIBOR, but issues remain with respect to its implementation. As a result, the scope of its ultimate acceptance and the impact on rates, pricing and the ability to manage risk, including through derivatives, remain uncertain. No other alternative rate is currently under wide consideration.

Even if SOFR or another reference rate ultimately replaces LIBOR, risks and challenges will remain for us with respect to outstanding loans, derivatives or other instruments using LIBOR, which will need to be transitioned to a new reference rate that is unlikely to exactly mimic, or produce the economic equivalent of, LIBOR. Risks related to transitioning instruments to a new reference rate or to how LIBOR is calculated and its availability are likely to vary by asset class and contract and will require considerable effort and expense to renegotiate contracts for outstanding financial assets and liabilities and include impacts on the yield on loans or securities held by us, amounts paid on securities we have issued, or amounts received and paid on derivative instruments we have entered into and increase the risk of litigation.

In addition, prior to LIBOR’s cessation, instruments that continue to refer to LIBOR may be impacted if there is a change in the availability or calculation of LIBOR. While we expect LIBOR to continue to be available in substantially its current form until the end of 2021, it is possible that LIBOR quotes will become unavailable prior to that point and that it may be discontinued. This could result, for example, if sufficient LIBOR panel banks decline to make submissions to the LIBOR administrator. Discontinuation of LIBOR prior to that time may cause significant disruption to financial markets and have adverse consequences for market participants.

The value of loans, securities, or derivative instruments tied to LIBOR, the trading market for LIBOR-based securities and the Company’s risk exposures could also be impacted upon LIBOR’s discontinuance or if it is limited. If LIBOR becomes unavailable earlier than the end of 2021, the risks and consequences associated with transitioning to an alternative reference rate are likely to be accelerated and magnified due, in part, to the shorter time available for preparing for the transition.

The replacement of LIBOR may adversely affect the Company’s revenue and expenses associated with financial instruments tied to LIBOR, and the value of those financial instruments, and may have adverse tax or accounting impacts, and result in compliance, legal, operational and systems costs and risks, which, in turn, could adversely impact our businesses and results of operations.

Company Factors

Adverse California economic conditions could adversely affect our business

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

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growth in home prices in some California markets may be unsustainable relative to market fundamentals and home price declines may occur.

In addition, the State of California has experienced budget shortfalls or deficits that have 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 and California’s budgetary situation has improved considerably (with a budget surplus being forecast for the coming year by the nonpartisan legislative analyst). However, there can be no assurance that the state’s fiscal and budgetary challenges will not recur. Also, municipalities and other governmental units within California have experienced budgetary difficulties and several California municipalities have filed for protection under the Bankruptcy Code. As a result, concerns also have arisen regarding the outlook for the governmental obligations of California municipalities and other governmental units.

A substantial majority of our assets, deposits and interest and fee income is generated in California. As a result, poor economic conditions in California may cause us to incur losses associated with higher default rates and decreased collateral values in our loan portfolio. If the budgetary and fiscal difficulties of the California state government and California municipalities and other governmental units were to recur or economic conditions in California decline, we expect that our level of problem assets could increase and our prospects for growth could be impaired. For approximately the past six years, California experienced various episodes of severe drought conditions. While rainfall levels have improved, there can be no assurance that the drought will not return with consequent difficulties for the California economy, particularly in the agricultural sector. The long-run impact of this and other measures in response to the drought on the California economy cannot be predicted.

Wildfires have occurred and continue to occur in a number of California counties where the Bank has branches and does business. These fires have resulted in numerous fatalities and injuries and substantial property damage to homes, businesses and infrastructure in affected communities. California and other Western states where the Bank does business have been the subject of other major wildfires or natural disasters, including mudslides, flooding and seismic events. In 2019, Pacific Gas and Electric Company and other California electric utilities instituted a program of public safety power outages when weather conditions and fire danger warranted. It can be expected that these events will continue to occur from time to time in the areas served by the Bank, and these natural disasters may adversely affect the Bank’s business and that of its customers.

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Item 6. Exhibits

EXHIBIT INDEX



Exhibit No.		Description
31.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ⁽¹⁾
31.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ⁽¹⁾
32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ⁽²⁾
32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ⁽²⁾
101		Pursuant to Rule 405 of Regulation S-T, the following financial information from the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019, is formatted in XBRL interactive data files: (i) Consolidated Statements of Income; (ii) Consolidated Statements of Comprehensive Income; (iii) Consolidated Balance Sheets; (iv) Consolidated Statements of Changes in Stockholders' Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Financial Statements (1)


(1)	Filed herewith.

(2)

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

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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.



	MUFG AMERICAS HOLDINGS CORPORATION (Registrant)
Date: November 8, 2019	By:	/s/ STEPHEN E. CUMMINGS
		Stephen E. Cummings President and Chief Executive Officer (Principal Executive Officer)
Date: November 8, 2019	By:	/s/ JOHANNES WORSOE
		Johannes Worsoe Chief Financial Officer (Principal Financial Officer)
Date: November 8, 2019	By:	/s/ NEAL HOLLAND
		Neal Holland Controller and Chief Accounting Officer (Principal Accounting Officer)