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Business Combinations
9 Months Ended
Sep. 30, 2023
Business Combinations [Abstract]  
Business Combinations
 Note 3
 
  Business Combinations
MUFG Union Bank Acquisition
On December 1, 2022, the Company acquired MUB’s core regional banking franchise from MUFG. Pursuant to the terms of the Share Purchase Agreement, the Company acquired all of the issued and outstanding shares of common stock of MUB for a purchase price consisting of $5.5 billion in cash and approximately 44 million shares of common stock of the Company. Under the terms of the Share Purchase Agreement, the purchase price was based on MUB having a tangible book value of $6.25 billion at the closing of the acquisition. At the closing of the acquisition, MUB had $3.5 billion of tangible book value over the $6.25 billion target, consisting of additional cash. The additional cash received is required to be repaid to MUFG on or prior to the fifth anniversary date of the completion of the purchase, in accordance with the terms of the Share Purchase Agreement. As such, it is recognized as debt at the parent company. On August 3, 2023, the Company repaid $936 million of its debt obligation from the proceeds of the issuance of 24 million shares of common stock of the Company to an affiliate of MUFG. The acquisition has been accounted for as a business combination. Accordingly, the assets acquired and liabilities assumed from MUB were recorded at fair value as of the acquisition date. The determination of fair value requires 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. Fair value estimates related to the assets and liabilities from MUB are subject to adjustment for up to one year after the closing date of the acquisition as additional information becomes available. Valuations subject to adjustment include certain other assets.
In connection with the transaction, the Company recorded within noninterest expense nonrecurring merger and integration charges of $284 million in the third quarter and $838 million in the first nine months of 2023, compared with $42 million and $239 million in same periods of 2022, respectively. These expenses were primarily comprised of personnel, legal, advisory and technology related costs.
The following table includes the fair value of consideration transferred and the preliminary fair value of the identifiable tangible and intangible assets and liabilities from MUB:
 
December 1, 2022 (Dollars in Millions)
 
Acquisition consideration
 
Cash
  $ 5,500  
Market value of shares of common stock
    2,014  
 
 
 
 
Total consideration transferred at acquisition close date
    7,514  
Discounted liability to MUFG (a)
    2,944  
 
 
 
 
Total
  $ 10,458  
 
 
 
 
Fair Value of MUB assets and liabilities
 
Assets
 
Cash and due from banks
  $ 17,754  
Investment securities
    22,725  
Loans held for sale
    2,220  
Loans
    53,395  
Less allowance for loan losses
    (463
 
 
 
 
Net loans
    52,932  
Premises and equipment
    646  
Other intangible assets (excluding goodwill)
    2,808  
Other assets
    4,764  
 
 
 
 
Total assets
  $ 103,849  
 
 
 
 
Liabilities
 
Deposits
  $ 86,110  
Short-term borrowings
    4,777  
Long-term debt
    2,584  
Other liabilities
    2,246  
 
 
 
 
Total liabilities
    95,717  
 
 
 
 
Less: Net assets
  $ 8,132  
 
 
 
 
Goodwill
  $ 2,326  
 
(a)
Represents $3.5 billion of noninterest-bearing additional cash held by MUB upon close of the acquisition to be delivered to MUFG on or prior to December 1, 2027, discounted at the Company’s
5-year
unsecured borrowing rate as of the acquisition date, per authoritative accounting guidance.
Preliminary goodwill of $2.3 billion recorded in connection with the transaction resulted from the reputation, operating model and expertise of MUB. The amount of goodwill recorded reflects the increased market share and related synergies that are expected to result from the acquisition, and represents the excess purchase price over the
 
estimated fair value of the net assets from MUB. The goodwill was allocated to the Company’s business segments on a preliminary basis and is not deductible for income tax purposes. Refer to Note 11 in the Company’s Annual Report on Form
10-K
for the year ended December 31, 2022, for the amount of goodwill allocated to each business segment in connection with the transaction.
For further information on the fair value and unpaid principal balance of loans from the MUB acquisition, as well as the methods used to determine the fair values of the significant assets acquired and liabilities assumed, refer to Note 3 in the Company’s Annual Report on Form
10-K
for the year ended December 31, 2022.
During the first quarter of 2023, the Company completed the divestiture of three MUB branches to HomeStreet Bank, a wholly owned subsidiary of HomeStreet, Inc., to satisfy regulatory requirements related to the acquisition. There were approximately $400 million in deposits and $22 million in loans divested as part of this transaction.