8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 8-K/A

Amendment No. 1

Current Report

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)  April 30, 2010

UnionBanCal Corporation

(Exact name of registrant as specified in its charter)

1-15081

(Commission file number)

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

400 California Street

San Francisco, California 94104-1302

(Address of principal executive offices) (Zip Code)

(415) 765-2969

Registrant’s telephone number, including area code

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 23 0.425)

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240. 14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Explanatory Note

On May 6, 2010, UnionBanCal Corporation (UNBC or the Company) filed a Current Report on Form 8-K (the Original Report) to report that its wholly owned subsidiary, Union Bank, N.A. (the Bank) had entered into a purchase and assumption agreement on April 30, 2010 (the Agreement) with the Federal Deposit Insurance Corporation (FDIC), as receiver of Frontier Bank (Frontier), Everett, Washington and the FDIC in its corporate capacity, pursuant to which the Bank acquired certain assets and assumed certain liabilities of Frontier.

This Current Report on Form 8-K/A (the Amendment) amends and supplements the disclosure provided in Items 2.01 and 9.01 of the Original Report. Except as otherwise provided herein, the other disclosures made in the Original Report remain unchanged.

Statements made in this Amendment, other than those concerning historical financial information, may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties. These forward-looking statements include, without limitation, statements regarding UNBC’s expectations concerning its financial condition, operating results, cash flows, liquidity and capital resources. A discussion of risks, uncertainties and other factors that could cause actual results to differ materially from management’s expectations is set forth under the captions “Forward-Looking Statements”, “Risk Factors” and “Management’s Discussion and Analysis of Results of Operations and Financial Condition” in UNBC’s Annual Report on Form 10-K for the year ended December 31, 2009 and in UNBC’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010.

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Item 2.01 Completion of Acquisition or Disposition of Assets

The following discussion of assets acquired and liabilities assumed are presented at estimated fair value on the date of the Agreement. The fair values of the assets acquired and liabilities assumed were determined as described in Note 3 to UNBC’s Statement of Assets Acquired and Liabilities Assumed, dated as of April 30, 2010 (the Acquisition Date), and the accompanying notes thereto, which is attached hereto as Exhibit 99.1 and incorporated herein by reference (the Statement). These fair value estimates are considered preliminary, and are subject to change for up to one year after the Acquisition Date as additional information relative to closing date fair values becomes available. Union Bank and the FDIC are engaged in ongoing discussions that may impact which assets and liabilities are ultimately acquired or assumed by the Bank and the purchase price. In addition, the tax treatment of FDIC assisted acquisitions is complex and subject to interpretations that may result in future adjustments of deferred taxes as of the Acquisition Date. The disclosure set forth in this Item 2.01 reflects the status of these items to the best of management’s knowledge as of July 16, 2010.

Under the terms of the Agreement, the Bank acquired certain assets of Frontier with a fair value of $2.9 billion, including $1.6 billion of loans, $79 million of securities available for sale, $219 million of cash and cash equivalents, $155 million of other real estate owned (OREO), $860 million related to the FDIC’s indemnification of UNBC against certain future losses described below and $24 million of other assets. Liabilities with a fair value of $2.9 billion were assumed, including $2.5 billion of deposits and $392 million of borrowings and other liabilities.

The assets were acquired at an 11 percent discount to Frontier’s book value and the deposits were assumed without a premium. The Bank paid no cash or other consideration related to this acquisition. The Bank recorded a payable to the FDIC totaling $9.5 million for consideration of the net assets acquired (i.e., the net difference between the assets acquired and the liabilities assumed) as a result of the acquisition.

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The Bank did not immediately acquire the banking facilities, including furniture, fixtures, and equipment, of Frontier as part of the Agreement. However, the Bank has the option to purchase these assets at fair market value from the FDIC. The term of this option expires 90 days after the Acquisition Date, unless extended by the FDIC.  As of the filing date of this Form 8-K/A, the Bank had not opted to purchase any of these assets.

In addition, the Bank also entered into two loss share agreements with the FDIC — one for single-family residential mortgage loans and one for commercial loans and other covered assets. Pursuant to the terms of these loss share agreements, the FDIC’s obligation to reimburse the Bank for losses with respect to loans and OREO (collectively referred to as covered assets) begins with the first dollar of loss incurred. Pursuant to the terms of the loss share agreements, the FDIC is obligated to reimburse the Bank for 80 percent of losses with respect to the covered assets. The Bank will reimburse the FDIC for 80 percent of recoveries with respect to losses for which the FDIC paid the Bank under the loss share agreements.

The loss share agreement applicable to single-family residential mortgage loans provides for FDIC loss sharing and Bank reimbursement to the FDIC for recoveries for ten years from the Acquisition Date. The loss share agreement applicable to commercial loans and other covered assets provides for FDIC loss sharing for five years and Bank reimbursement of recoveries to the FDIC for a total of eight years.

The loss share agreements are subject to certain servicing procedures as specified in the agreements. The fair value of the loss share agreements was recorded as an indemnification asset at an estimated fair value of $860 million on the Acquisition Date.

In June 2020, approximately ten years following the Acquisition Date, the Bank is required to pay to the FDIC 50 percent of the excess, if any of (i) 20 percent of the intrinsic loss estimate over (ii) the sum of (A) 25 percent of the asset discount plus (B) 25 percent of the cumulative shared-loss payments (as defined in the loss share agreements) plus (C) the cumulative servicing amount (as defined in the loss share agreements). The fair value of the obligation was recorded as an FDIC indemnification liability at an estimated fair value of $37 million on the Acquisition Date.

The foregoing summary of the Agreement, as well as the loss share agreements, is not complete and is qualified in its entirety by reference to the full text of the Agreement, the loss share agreements, and certain other exhibits attached to the Agreement, a copy of which was previously filed as Exhibit 2.1 to the Original Report and is incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits

(a) Financial Statements of Businesses Acquired and Exhibits

Discussion

As set forth in Item 2.01 above, on April 30, 2010, the Bank acquired certain assets and assumed certain deposits and other liabilities of Frontier pursuant to the Agreement. A narrative description of the anticipated effects of the acquisition on the Company’s financial condition, liquidity, capital resources and operating results is presented below. This discussion should be read in conjunction with the historical financial statements and the related notes of the Company, which have been filed with the Securities and Exchange Commission (SEC), and the Statement, which is attached hereto as Exhibit 99.1.

The acquired assets and assumed deposits represent 3.4 percent and 3.7 percent, respectively, of the Company’s total assets and total deposits as of March 31, 2010. As such, the Company expects a minimal impact to its financial position, results of operations and cash flows as a result of this acquisition.

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The Company estimated the Acquisition Date fair value of the acquired assets and assumed liabilities in accordance with applicable accounting guidance (see discussion at Note 3 to the Notes to the Statement of Assets Acquired and Liabilities Assumed, which is attached hereto as Exhibit 99.1). However, the amount that the Company realizes on these assets could differ materially from the carrying value reflected in the attached Statement as a result of changes in the timing and amount of collections on the acquired loans in future periods, among other reasons. Because of the loss share agreements with the FDIC on these assets, as described in Item 2.01 above, the Company does not expect to incur significant losses with respect to these assets. To the extent the actual values realized for the acquired loans differ from the estimated amount, the indemnification asset will generally be impacted in an offsetting manner due to the loss share support from the FDIC.

Financial Condition

Pursuant to the acquisition, the Bank purchased loans with fair value of $1.6 billion and a Frontier book value of $2.7 billion. This fair value amount represents approximately 3.5 percent of the Company’s total loans, net of the allowance for loan losses, at March 31, 2010. Additionally, the Bank acquired OREO with a fair value of $155 million and a Frontier book value of $174 million.

The Bank acquired $219 million in cash and cash equivalents, and $79 million in securities available for sale at fair value. A portion of the cash and cash equivalents acquired have been utilized to pay off all of the acquired advances that were outstanding with the FHLB.  The securities available for sale have been retained to create additional liquidity.

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The following table presents information with respect to the carrying value of certain earning assets acquired, as well as their principal amount and average contractual yield and term.

Schedule of Earning Assets Acquired

April 30, 2010

(Dollars in thousands)	Frontier Bank Book Balance		Fair Value		Average Months to Maturity	Contractual Interest Rate
Earning Assets
Securities Available for Sale:
U.S. Treasury	$	312	$	312	74	2.75	%
Other U.S. government	46,124		46,124		23	0.93	%
Residential mortgage-backed securities - agency	30,275		30,275		337	3.24	%
State and municipal	1,876		1,876		51	0.59	%
Total Securities Available for Sale	78,587		78,587		144	1.80	%
Covered Loans:
Commercial, financial, and industrial	730,668		464,365		37	6.90	%
Construction	893,273		345,690		7	8.19	%
Mortgage - Residential	104,126		95,421		103	6.99	%
Mortgage - Commercial	903,202		602,218		46	7.26	%
Consumer - Installment	47,736		33,550		58	7.27	%
Consumer - Revolving lines of credit	31,365		25,644		89	5.38	%
Total Covered Loans	2,710,370		1,566,888		33	7.46	%
Total Earning Assets	$	2,788,957	$	1,645,475

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The following table reflects the contractual maturities of covered loans at April 30, 2010:

(Dollars in thousands)	One Year or Less (1)		Over One Year Through Five Years		Over Five Years		Total
Commercial, financial and industrial	$	175,171	$	209,820	$	79,374	$	464,365
Construction	295,527		49,424		739		345,690
Mortgage:
Residential	32,107		36,926		26,388		95,421
Commercial	144,545		307,239		150,434		602,218
Total mortgage	176,652		344,165		176,822		697,639
Consumer:
Installment	12,563		14,670		6,317		33,550
Revolving lines of credit	1,157		5,308		19,179		25,644
Total consumer	13,720		19,978		25,496		59,194
Total covered loans	$	661,070	$	623,387	$	282,431	$	1,566,888
Total fixed rate covered loans due after one year							388,667
Total variable rate covered loans due after one year							517,151
Total loans due after one year							$	905,818

(1) Includes loans due on demand.

Pursuant to the acquisition, the Bank assumed deposits with a fair value of $2,488 million and a Frontier book value of $2,483 million. The fair value adjustment of $5 million relates solely to time deposits, as the fair values used for demand, transaction accounts and savings deposits are equal to book value. The fair value of assumed deposits represents approximately 3.7 percent of the Company’s total deposits of $66.6 billion at March 31, 2010. Demand, transaction and savings deposit accounts comprise $943 million of these assumed deposits.

The following table presents assumed time deposits of $100,000 and over by original contractual maturity:

(Dollars in thousands)
Three months or less	$	—
Over three months through six months	624
Over six months through twelve months	110,902
Over twelve months	238,114
Total assumed time deposits of $100,000 and over	$	349,640

In its assumption of the deposit liabilities, the Company believed that the customer relationships associated with these deposits have intangible value. The Company determined the fair value of a core deposit intangible asset totaling approximately $12.7 million, which will be amortized based on the estimated economic benefits received. In determining the valuation amount, deposits were analyzed based on factors such as type of deposit, expected customer attrition rates,  interest rates and age of deposit relationships.

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Operating Results and Cash Flows

The Company’s management has from time to time become aware of acquisition opportunities and has performed various levels of review related to potential acquisitions in the past. This transaction was attractive to the Company as it significantly increased the Bank’s market share in the Pacific Northwest.

The Company expects that the acquisition will have a minimal impact on its operating results in the near term. Based on March 31, 2010 information, excluding post-acquisition balance sheet changes, total assets increased by approximately 3.4 percent, or $2.9 billion, and total deposits increased by approximately 3.7 percent, or $2.5 billion.

The extent to which the Bank’s operating results may be adversely affected by the acquired loans is offset to a significant extent by the loss share agreements and the related discounts reflected in the fair value of these assets at the Acquisition Date. The fair values of the acquired loans and OREO reflect an estimate of expected losses related to these assets. As a result, the Company’s operating results would only be adversely affected by loan losses to the extent that such losses exceed the expected losses reflected in the fair value of these assets at the Acquisition Date. In addition, to the extent that the stated interest rate on acquired loans was not considered a market rate of interest at the Acquisition Date, appropriate adjustments to the Acquisition Date fair value were recorded. These adjustments mitigate the risk associated with the acquisition of loans earning a below-market rate of return.

The loss share agreements will likely impact the cash flows and operating results of the Company in both the short-term and the long-term. In the short-term, as stated above, it is likely that there will be a significant amount of the covered assets that will experience deterioration in payment performance or will be determined to have inadequate collateral values to repay the loans. In such instances, the Company will likely no longer receive payments from the borrowers, which will impact cash flows. The loss share agreements will not fully offset the financial effects of such a situation. However, if a loan is subsequently charged off or charged down after the Company exhausts its best efforts at collection, the loss share agreements will cover a substantial portion of the loss associated with the covered assets.

The effects of the loss share agreements on cash flows and operating results in the long-term will be similar to the short-term effects described above. The long-term effects that the Company may experience will depend primarily on the ability of the borrowers under the various loans covered by the loss share agreements to make payments over time. As the loss share agreements cover up to a 5-year period for commercial loans and other covered assets and a 10-year period for single-family residential loans, changing economic conditions will likely impact the timing of future charge-offs and the resulting reimbursements from the FDIC. The Company believes that any recapture of interest income and recognition of cash flows from the borrowers or received from the FDIC (as part of the FDIC loss share agreements) may be recognized unevenly over this period, as the Company exhausts its collection efforts under its normal practices. In addition, the Company recorded substantial discounts related to the purchase of these covered assets. A portion of these discounts will be accretable to income over the expected economic life of the loans.

Liquidity and Capital Resources

The Company believes that its liquidity position will be minimally impacted as a result of this transaction. The Company acquired $219 million in cash and cash equivalents and $79 million of securities available for sale. In addition, the Company recorded a payable of $9.5 million to the FDIC as consideration for assets acquired in excess of liabilities assumed.

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The Company also assumed deposits with a fair value of $2.5 billion. Of this amount, $640 million were in the form of highly liquid transaction accounts and savings accounts. Time deposits comprised $1.5 billion of total deposits assumed, or 62 percent. All of the FHLB advances, which totaled $383 million, were paid off subsequent to the acquisition.

At March 31, 2010, the Bank was “well-capitalized.” We estimate that the transaction will have a minimal impact on the capital ratios of the Bank and the Bank will remain “well-capitalized” after taking into consideration the results of the transaction. The Bank had the following capital ratios at March 31, 2010:

Tier 1 leverage ratio	8.36	%
Tier 1 risk based capital ratio	10.92	%
Total risk based capital ratio	13.27	%

Financial Statements

Attached hereto as Exhibit 99.1 and incorporated by reference into this Item 9.01(a) is a Statement of Assets Acquired and Liabilities Assumed by Union Bank, N.A. (a wholly owned subsidiary of UnionBanCal Corporation) related to its acquisition of Frontier at April 30, 2010 and the accompanying notes thereto.

Report of Independent Registered Public Accounting Firm

Statement of Assets Acquired and Liabilities Assumed at April 30, 2010

Notes to Statement of Assets Acquired and Liabilities Assumed

The Company has omitted certain financial information of Frontier required by Rule 3-05 of Regulation S-X and the related pro forma financial information under Article 11 of Regulation S-X in accordance with the guidance provided in Staff Accounting Bulletin 1:K, Financial Statements of Acquired Troubled Financial Institutions (SAB 1:K). SAB 1:K provides relief from the requirements of Rule 3-05 in certain instances, such as the Frontier transaction, where a registrant engages in an acquisition of a significant amount of assets of a troubled financial institution that involves pervasive federal assistance and audited financial statements of the troubled financial institution are not reasonably available.

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(d) Exhibits

2.1	Purchase and Assumption Agreement, among the Federal Deposit Insurance Corporation, receiver of Frontier Bank, Everett, Washington, the Federal Deposit Insurance Corporation and Union Bank, N.A., dated as of April 30, 2010.(1)
23.1	Consent of Deloitte & Touche LLP (2)
99.1	Statement of Assets Acquired and Liabilities Assumed at April 30, 2010 and accompanying notes thereto.(2)

(1) Incorporated by reference to exhibit 2.1 to the UnionBanCal Corporation Current Report on Form 8-K dated April 30, 2010.

(2) Filed herewith.

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SIGNATURES

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

	UNIONBANCAL CORPORATION
Date: July 16, 2010	By:	/s/ John F. Woods
		John F. Woods Vice Chairman and Chief Financial Officer

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EXHIBIT INDEX

2.1	Purchase and Assumption Agreement, among the Federal Deposit Insurance Corporation, receiver of Frontier Bank, Everett, Washington, the Federal Deposit Insurance Corporation and Union Bank, N.A., dated as of April 30, 2010.(1)
23.1	Consent of Deloitte & Touche LLP (2)
99.1	Statement of Assets Acquired and Liabilities Assumed at April 30, 2010 and accompanying notes thereto.(2)

(1) Incorporated by reference to exhibit 2.1 to the UnionBanCal Corporation Current Report on Form 8-K dated April 30, 2010.

(2) Filed herewith.

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EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-159741, 333-159741-01, 333-159741-02, 333-159741-03 on Form F-3 of our report dated July 16, 2010, relating to the statement of assets acquired and liabilities assumed by Union Bank, N.A. (a wholly owned subsidiary of UnionBanCal Corporation), pursuant to the Purchase and Assumption Agreement, dated April 30, 2010, which report appears in the April 30, 2010 Current Report on Form 8-K/A of UnionBanCal Corporation.

/s/ Deloitte & Touche LLP

San Francisco, California

July 16, 2010

EX-99.1

Exhibit 99.1

STATEMENT OF ASSETS ACQUIRED AND LIABILITIES ASSUMED

April 30, 2010

INDEX OF FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	2
Statement of Assets Acquired and Liabilities Assumed at April 30, 2010	3
Notes to Statement of Assets Acquired and Liabilities Assumed	4

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholder of UnionBanCal Corporation:

We have audited the accompanying statement of assets acquired and liabilities assumed by Union Bank, N.A. (the “Bank”), a wholly owned subsidiary of UnionBanCal Corporation (the “Company”), pursuant to the Purchase and Assumption Agreement, dated April 30, 2010, executed by the Bank with the Federal Deposit Insurance Corporation. This financial statement is the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statement based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such statement of assets acquired and liabilities assumed by Union Bank, N.A. pursuant to the Purchase and Assumption Agreement, dated April 30, 2010, is presented fairly, in all material respects, in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

San Francisco, California

July 16, 2010

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STATEMENT OF ASSETS ACQUIRED AND LIABILITIES ASSUMED

April 30, 2010

(Dollars in thousands)
Assets Acquired
Cash and due from banks	$	35,953
Interest bearing deposits in banks	5,000
Federal funds sold	178,395
Total cash and cash equivalents	219,348
Securities available for sale	78,587
Covered loans	1,566,888
Goodwill	10,669
Core deposit intangible	12,650
Indemnification asset	859,973
Covered other real estate owned	154,566
Other assets	23,611
Total assets acquired	$	2,926,292
Liabilities Assumed
Deposits:
Noninterest bearing	$	303,433
Interest bearing	2,184,304
Total deposits	2,487,737
Federal funds purchased and securities sold under repurchase agreements	1,940
Advances from Federal Home Loan Bank	383,359
Other borrowed funds	1,280
Indemnification liability	36,626
FDIC payable	9,459
Other liabilities	5,891
Total liabilities assumed	$	2,926,292

See accompanying notes to this financial statement.

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NOTES TO STATEMENT OF ASSETS ACQUIRED AND LIABILITIES ASSUMED

April 30, 2010

Note 1 — FDIC-Assisted Acquisition of Certain Assets and Assumption of Certain Liabilities of Frontier Bank

On April 30, 2010 (Acquisition Date), Union Bank, N.A. (the Bank), a wholly-owned subsidiary of UnionBanCal Corporation (UNBC or the Company), entered into a purchase and assumption agreement (the Agreement) with the Federal Deposit Insurance Corporation (FDIC) to acquire certain assets and assume certain liabilities of Frontier Bank (Frontier), a Washington state-chartered commercial bank headquartered in Everett, Washington.

Frontier operated 50 offices in Washington and Oregon. Excluding the effects of purchase accounting adjustments, the Bank assumed $2.5 billion of the deposits of Frontier. Additionally, the Bank acquired $2.7 billion in loans, $174 million of other real estate owned (OREO) and $79 million of securities available for sale. The assets were acquired at an 11 percent discount to Frontier’s book value and the deposits were assumed without a premium.  All acquired loans and OREO, totaling approximately $2.9 billion, are covered by loss share agreements (covered assets) between the FDIC and the Bank.

The assets acquired and liabilities assumed are presented at fair value on the Acquisition Date. The fair values of the assets acquired and liabilities assumed were determined as described in Note 3 below. These fair value estimates are considered preliminary and are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available. In addition, the tax treatment of FDIC assisted acquisitions is complex and subject to interpretations that may result in future adjustments of deferred taxes as of the Acquisition Date.

The Bank did not immediately acquire the banking facilities, including furniture, fixtures, and equipment, of Frontier as part of the Agreement. However, the Bank has the option to purchase these assets at fair market value from the FDIC. The term of this option expires 90 days after the Acquisition Date, unless extended by the FDIC.  As of the filing date of this Form 8-K/A, the Bank had not opted to purchase any of these assets. Currently, all such banking facilities and equipment are leased from the FDIC on a month-to-month basis.

Note 2 — Loss Share Agreement and Indemnification Asset

As part of the Agreement, the Bank and the FDIC also entered into two loss share agreements — one for single-family residential mortgage loans and one for commercial loans and other covered assets. Pursuant to the terms of these loss share agreements, the FDIC’s obligation to reimburse the Bank for losses with respect to certain loans and OREO begins with the first dollar of loss incurred. The terms of the loss share agreement with respect to all covered assets provides for the FDIC to reimburse the Bank 80 percent of covered losses, plus three months of interest on the outstanding balance of the charged-off loans. Gains and recoveries on covered assets will offset losses, or be paid to the FDIC, at the applicable loss share percentage at the time of recovery.

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The following table summarizes the assets covered by the loss share agreements, the amount covered by the FDIC and the fair value:

(Dollars in thousands)	Amount Covered		Fair Value
Loans held for investment	$	2,710,370	$	1,566,888
OREO	173,905		154,566
Total	$	2,884,275	$	1,721,454

The amounts covered by the loss share agreements are the pre-acquisition book values of the underlying assets, the contractual balance of unfunded commitments that were acquired, and certain default management expenses. The loss share agreement applicable to single family residential mortgage loans provides for FDIC loss sharing and the Bank reimbursement from the FDIC, in each case as described above, for ten years. The loss share agreement applicable to commercial loans and other covered assets provides for FDIC loss sharing for five years and the Bank reimbursement of recoveries to the FDIC for eight years, in each case as described above. The agreements with the FDIC also include an “upside on loss arrangement” provision that may result in an additional payment to the FDIC by the Bank if net losses on covered assets are less than  the intrinsic loss estimates subject to certain adjustments.

The indemnification asset, which totals $860 million on the Statement of Assets Acquired and Liabilities Assumed, reflects the present value of the expected net cash reimbursement related to the loss share agreements described above.

Note 3 — Basis of Presentation

The Bank has determined that the acquisition of the net assets of Frontier constitutes a business acquisition as defined by the Financial Accounting Standards Board (FASB) Codification Topic 805:  Business Combinations. Accordingly, the assets acquired and liabilities assumed are presented at their fair values as required by that topic. Fair values were determined based on the requirements of FASB Codification Topic 820:  Fair Value Measurements. In many cases, the determination of these fair values required management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. The following are descriptions of the methods used to determine the fair values of significant assets and liabilities.

Cash, due from banks, interest-bearing deposits in banks and federal funds sold

The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of these assets, which have original maturities of less than 90 days.

Securities available for sale

Fair values for securities available for sale are based on quoted market prices.

Loans

Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, risk classification, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and current discount rates. Loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. The discount rates used for loans are based on current market rates for new originations of comparable loans and include adjustments for liquidity concerns. The discount rate does not include a factor for credit losses as that has been included in the estimated cash flows.

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Core deposit intangible

The core deposit intangible asset represents the value of a low cost source of stable funding and the relationships that Frontier had with its deposit customers. The fair value of this intangible asset was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, interest cost, reserve requirements, the maintenance cost attributable to customer deposits, and alternative funding sources.

Other real estate owned

OREO is presented at the estimated present value that management expects to receive when the property is sold, net of related costs of disposal.

Indemnification asset

The indemnification asset is measured separately from the related covered assets as it is not contractually embedded in the assets and is not transferable with the assets should the Bank choose to dispose of them. Fair value was estimated using projected cash flows related to the loss share agreements based on the expected reimbursements for losses and the applicable loss share percentages. These expected reimbursements do not include reimbursable amounts related to future covered expenditures. These cash flows were discounted to reflect the uncertainty of the timing and receipt of the loss share reimbursement from the FDIC.

Indemnification liability

The indemnification liability is measured separately from the related covered assets and indemnification asset. The indemnification liability represents the amount pursuant to the loss share agreements that the Bank is expected to pay to the FDIC ten years following the Acquisition Date, subject to certain payment thresholds. The fair value of the indemnification liability was estimated using the known components of the calculation (such as the intrinsic loss estimate and asset discount) and the estimated components (such as expected loss share payments and servicing fees). The fair value of the obligation was recorded as an indemnification liability at an estimated fair value of $36.6 million on the Acquisition Date.

Deferred taxes

Deferred taxes  relate to the difference between the financial statement and tax basis of the acquired loans, the loss share indemnification asset and certain assumed liabilities. Deferred taxes are reported based upon the principles in FASB Codification Topic 740:  Income Taxes,  and are calculated based on the estimated federal and state income tax rates currently in effect for UNBC.  There were no net deferred taxes recorded as of the Acquisition Date.

Deposits

The fair values used for the demand, transaction accounts and savings deposits are, by definition, equal to the amount payable on demand at the reporting date. The fair values for time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered to the interest rates embedded on such time deposits.

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Advances from the Federal Home Loan Bank

The advances from the Federal Home Loan Bank (FHLB) were recorded at their estimated fair value of $383 million, which was derived using pricing supplied by the FHLB. Subsequent to acquisition, all of these advances were repaid.

Note 4 — Securities Available for Sale

The table below reflects the fair values of acquired securities available for sale at April 30, 2010:

(Dollars in thousands)
Securities available for sale:
U.S. Treasury	$	312
Other U.S. government	46,124
Residential mortgage-backed securities - agency	30,275
State and municipal	1,876
Total securities available for sale	$	78,587

The estimated fair values of securities available for sale are shown below by contractual maturity. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

(Dollars in thousands)
Due within one year	$	21,680
Due after one through five years	24,954
Due after five through ten years	1,678
Due after ten years	30,275
Total securities available for sale	$	78,587

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Note 5 — Loans

The composition of the fair values of loans acquired at April 30, 2010 is as follows:

(Dollars in thousands)
Covered loans:
Commercial, financial and industrial	$	464,365
Construction	345,690
Mortgage:
Residential	95,421
Commercial	602,218
Total mortgage	697,639
Consumer:
Installment	33,550
Revolving lines of credit	25,644
Total consumer	59,194
Total covered loans held for investment	$	1,566,888

The acquired loans are referred to as “covered loans” as the Bank will be reimbursed for a substantial portion of any future losses on them under the terms of the FDIC loss share agreements. At the Acquisition Date, the estimated fair value of the acquired impaired loan portfolio of Frontier subject to the loss share agreements was $1.6 billion, which represents the expected cash flows from the portfolio. The amount by which the undiscounted expected cash flows exceed the estimated fair value (the “accretable yield”) is accreted into interest income over the life of the loans. The difference between the undiscounted contractual cash flows and the undiscounted expected cash flows is the nonaccretable difference. The nonaccretable difference represents an estimate of the credit risk in acquired loan portfolio of Frontier at the Acquisition Date.

The following table presents the fair value of loans pursuant to accounting standards for acquired impaired loans (i.e., FASB Codification Topic 310-30: Loans and Debt Securities acquired with Deteriorated Credit Quality) at April 30, 2010:

(Dollars in thousands)
Contractually-required principal and interest	$	3,071,025
Nonaccretable difference	1,456,373
Cash flows expected to be collected	1,614,652
Accretable yield	205,815
Fair value of impaired loans	$	1,408,837

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The following table presents the  loans pursuant to accounting standards for acquired non-impaired loans (i.e., FASB Codification Topic 805: Business Combination) at April 30, 2010:

(Dollars in thousands)
Unpaid principal balance	$	202,863
Fair value adjustment	(44,812		)
Fair value of non-impaired loans	$	158,051

The acquired loans are and will continue to be subject to the Bank’s internal credit review. As a result, if credit deterioration is noted subsequent to the Acquisition Date, such deterioration will be measured through the Bank’s loss reserving methodology and a provision for loan losses will be charged to earnings with a partially offsetting noninterest income amount reflecting the increase to the FDIC indemnification asset for covered loans.

Note 6 — Goodwill and Other Intangible Assets

The Statement of Assets Acquired and Liabilities Assumed reflects goodwill and a core deposit intangible asset totaling $10.7 million and $12.7 million, respectively, at April 30, 2010. The core deposit intangible asset will be amortized over 12 years based upon the estimated economic benefits received. Estimated future amortization expense of the core deposit intangible asset at April 30, 2010 is as follows:

(Dollars in thousands)
Estimated amortization expense for the years ending:
Remaining 2010	$	885
2011	1,594
2012	1,916
2013	2,045
2014	1,719
Thereafter	4,491
Total	$	12,650

The goodwill arising from the acquisition of certain assets and assumption of liabilities of Frontier from the FDIC reflects the increased market share and related synergies that are expected to arise from the transaction. The amount of goodwill is the residual difference in the fair values of the assets acquired net of the liabilities assumed and the payable to the FDIC for net assets acquired. The goodwill is deductible for income tax purposes.

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The following table presents the net assets acquired and the estimated purchase accounting adjustments resulting in goodwill as of April 30, 2010:

(Dollars in thousands)
Net assets acquired per Agreement	$	363,146
Purchase accounting adjustments:
Loans	(1,143,482		)
Core deposit intangible	12,650
Indemnification asset	859,973
Covered OREO	(19,339		)
Deposits	(4,945		)
Indemnification liability	(36,626		)
Other, net	(32,587		)
Total purchase accounting adjustments	(364,356		)
Fair value of net assets (liabilities) acquired	(1,210		)
FDIC payable	(9,459		)
Goodwill	$	10,669

Note 7 — Deposits

The fair values of deposits assumed are composed of the following at April 30, 2010:

(Dollars in thousands)
Deposits:
Noninterest bearing	$	303,433
Interest bearing:
Transaction accounts	427,447
Savings	212,598
Time deposits:
Time deposits less than $100,000	1,194,619
Time deposits of $100,000 and over	349,640
Total time deposits	1,544,259
Total interest bearing deposits	2,184,304
Total deposits	$	2,487,737

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At April 30, 2010, the fair values of time deposits of $100,000 and over, detailed by original contractual maturity, were as follows:

(Dollars in thousands)
Three months or less	$	—
Over three months through six months	624
Over six months through twelve months	110,902
Over twelve months	238,114
Total assumed time deposits of $100,000 and over	$	349,640

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