Business Combinations

12 Months Ended

Dec. 31, 2012

Business Combinations

Note 2—Business Combinations

On December 1, 2012, the Company completed its acquisition of Pacific Capital Bancorp (PCBC), a bank holding company headquartered in Santa Barbara, California, for $1.5 billion in cash. The transaction enhanced the Company’s geographic footprint within California’s Central Coast region where PCBC’s principal subsidiary, Santa Barbara Bank & Trust, N.A., conducted its banking activities. This acquisition strengthened the Company’s ability to serve customers through greater scale and distribution in community banking, consumer, small business lending, and wealth management.

Excluding the effects of purchase accounting adjustments, the Company acquired total assets of $6.0 billion, including $3.7 billion in loans, and $1.2 billion of securities available for sale. In addition, the Company assumed $4.7 billion of deposits, $313 million of other short-term borrowings and $73 million of long-term debt and other borrowings.

The assets acquired and liabilities assumed from PCBC were recorded at their estimated fair values on the acquisition date. These fair value estimates are considered provisional, as additional analysis will be performed on certain assets and liabilities in which fair values are primarily determined through the use of inputs that are not observable from market-based information. Management may further adjust the provisional fair values for a period of up to one year from the date of acquisition. The assets and liabilities that continue to be provisional include loans, intangible assets, OREO, and the residual effects that the adjustments would have on goodwill.

The following table presents the net assets acquired from PCBC and the estimated purchase accounting adjustments, which resulted in goodwill as of the acquisition date:

(Dollars in millions)	December 1, 2012
Purchase price	$	1,516
Net assets acquired		859
Purchase accounting adjustments:
Securities available for sale		8
Loans held for investment		141
Intangible assets		18
Other assets		128
Deposits		(12	)
Other short-term borrowings		(36	)
Long-term debt		(14	)
Other liabilities		11
Total purchase accounting adjustments		244
Fair value of net assets acquired		1,103
Goodwill	$	413

The goodwill arising from the acquisition reflects the increased market share and related synergies that are expected to be gained. The goodwill has been initially assigned to the Company’s “Other” segment, as the final assignment of goodwill to the Company’s reportable business segments has not been completed as of the date of this report. There was no tax-deductible goodwill in the transaction.

The following table reflects the estimated fair values of the assets acquired and liabilities assumed for the PCBC transaction on the acquisition date:

(Dollars in millions)	December 1, 2012
Assets:
Cash and due from banks	$	733
Securities available for sale		1,196
Loans held for investment		3,795
Intangible assets		74
Goodwill		413
Other assets		508
Total assets acquired	$	6,719
Liabilities:
Deposits	$	4,670
Other short-term borrowings		349
Long-term debt		87
Other liabilities		97
Total liabilities assumed	$	5,203
Net assets acquired	$	1,516

Included in the table above are loans with fair values totaling approximately $3.0 billion, which were not subject to the requirements of the accounting standards for purchased credit-impaired loans. As of the acquisition date, the gross contractual amounts receivable for these loans totaled approximately $3.6 billion, of which an estimated $159 million is expected to be uncollectible.

The following table presents information related to the purchased credit-impaired loans acquired from PCBC as of the December 1, 2012 acquisition date:

(Dollars in millions)	As of December 1, 2012
Contractually required payments receivable	$	1,222
Nonaccretable difference		(263	)
Cash flows expected to be collected		959
Accretable yield		171
Fair value	$	788
Outstanding balance	$	1,007
Carrying amount	$	788

For a description of the methods used to determine the acquisition date fair values of the assets and liabilities presented above, see Note 16 to these consolidated financial statements.

In connection with the acquisition, the Company incurred $48 million of acquisition-related costs during 2012, which were primarily recorded in “Salaries and employee benefits” and “Professional and outside services,” within noninterest expense.

Actual and Pro Forma Impact of Acquisition:

The following table presents PCBC’s results of operations from the acquisition date of December 1, 2012, through December 31, 2012, that are included in the Company’s consolidated statement of income for the year ended December 31, 2012.

(Dollars in millions)	December 1, 2012, to December 31, 2012
Net interest income	$	14
Noninterest income		5
Total revenue		19
Net income attributable to UNBC	$	8

The following table presents supplemental pro forma condensed consolidated statements of income as if the acquisition of PCBC had occurred on January 1, 2011. This unaudited pro forma information does not necessarily reflect the results of operations that would have resulted had the acquisition been completed at the beginning of the periods presented, nor is it indicative of the results of operations in future periods.

	Year ended December 31,
(Dollars in millions)	2012		2011
Net interest income	$	2,831	$	2,678
Noninterest income		846		867
Total revenue		3,677		3,545
Net income attributable to UNBC	$	732	$	827

The unaudited pro forma information includes the following pro forma pre-tax adjustments:

• Additional amortization expense related to the fair value adjustments to assets acquired and liabilities assumed ($31 million in the pre-acquisition period in 2012 and $37 million in 2011).

• Elimination of $74 million of acquisition-related costs in 2012 ($48 million incurred by the Company in 2012 and $26 million incurred by PCBC in the pre-acquisition period of 2012).

Previous Business Combinations

On April 16 and 30, 2010, the Bank entered into Purchase and Assumption Agreements (Agreements) with the FDIC to acquire certain assets and assume certain liabilities of Tamalpais and Frontier, respectively. Pursuant to the Agreements, the Bank acquired $572 million and $2.9 billion of assets at fair value related to Tamalpais and Frontier, respectively.