Bank of America 2006 Annual Report Download - page 114

The MBNA merger was accounted for under the purchase method of
accounting in accordance with SFAS No. 141, “Business Combinations.”
The purchase price has been allocated to the assets acquired and the
liabilities assumed based on their fair values at the MBNA merger date as
summarized in the following table.
MBNA Purchase Price Allocation
(In millions, except per share amounts)
Purchase price
Purchase price per share of the Corporation’s common stock
(1)
$45.856
Exchange ratio 0.5009
Purchase price per share of the Corporation’s common stock exchanged $22.969
Cash portion of the MBNA merger consideration 4.125
Implied value of one share of MBNA common stock 27.094
MBNA common stock exchanged 1,260
Total value of the Corporation’s common stock and cash exchanged $34,139
Fair value of outstanding stock options and direct acquisition costs 467
Total purchase price $34,606
Allocation of the purchase price
MBNA stockholders’ equity $13,410
MBNA goodwill and other intangible assets (3,564)
Adjustments to reflect assets acquired and liabilities assumed at fair value:
Loans and leases (292)
Premises and equipment (563)
Identified intangibles
(2)
7,881
Other assets (683)
Deposits (97)
Exit and termination liabilities (269)
Other personnel-related liabilities (634)
Other liabilities and deferred income taxes (564)
Long-term debt (409)
Fair value of net assets acquired 14,216
Goodwill resulting from the MBNA merger (3) $ 20,390
(1) The value of the shares of common stock exchanged with MBNA shareholders was based upon the average of the closing prices of the Corporation’s common stock for the period commencing two trading days before, and
ending two trading days after, June 30, 2005, the date of the MBNA merger announcement.
(2) Includes purchased credit card relationships of $5,698 million, affinity relationships of $1,641 million, core deposit intangibles of $214 million, and other intangibles, including trademarks, of $328 million. The amortization
life for core deposit intangibles is 10 years, purchased credit card relationships and affinity relationships are 15 years, and other intangibles over periods not exceeding 10 years. These intangibles are primarily amortized on
an accelerated basis.
(3) No Goodwill is expected to be deductible for tax purposes. Substantially all Goodwill was allocated to Global Consumer and Small Business Banking.
As a result of the MBNA merger, the Corporation acquired certain
loans for which there was, at the time of the merger, evidence of deterio-
ration of credit quality since origination and for which it was probable that
all contractually required payments would not be collected. These loans
were accounted for in accordance with SOP 03-3 which requires that pur-
chased impaired loans be recorded at fair value as of the merger date.
The purchase accounting adjustment to reduce impaired loans to fair value
resulted in an increase in Goodwill. In addition, an adjustment was made
to the Allowance for Loan and Lease Losses for those impaired loans
resulting in a decrease in Goodwill. The outstanding balance and fair value
of such loans was approximately $1.3 billion and $940 million as of the
merger date. At December 31, 2006, there were no outstanding balances
for such loans.
Unaudited Pro Forma Condensed Combined
Financial Information
The following unaudited pro forma condensed combined financial
information presents the results of operations of the Corporation had the
MBNA merger taken place at January 1, 2005 and 2004. Included in the
2004 pro forma amounts are FleetBoston results for the three months
ended March 31, 2004.
Pro Forma
(Dollars in millions) 2005 2004
Net interest income $34,029 $32,831
Noninterest income 32,647 30,523
Total revenue 66,676 63,354
Provision for credit losses 5,082 3,983
Gains on sales of debt securities 1,084 1,775
Merger and restructuring charges 1,179 624
Other noninterest expense 34,411 34,373
Income before income taxes 27,088 26,149
Net income 18,157 17,300
Merger and Restructuring Charges in the above table include a non-
recurring restructuring charge related to legacy MBNA of $767 million for
2005. Pro forma Earnings per Common Share and Diluted Earnings per
Common Share were $3.90 and $3.86 for 2005, and $3.68 and $3.62
for 2004.
112 Bank of America 2006