Bank of America 2007 Annual Report Download - page 129

The Corporation acquired certain loans for which there was, at the
time of the merger, evidence of deterioration of credit quality since origi-
nation and for which it was probable that all contractually required pay-
ments would not be collected. The outstanding contractual balance of
such loans was approximately $850 million and the recorded fair value
was approximately $650 million as of the merger date. At December 31,
2007, the outstanding contractual balance of such loans was approx-
imately $710 million and the recorded fair value was approximately $590
million.
U.S. Trust Corporation Merger
On July 1, 2007, the Corporation acquired all the outstanding shares of
U.S. Trust Corporation for $3.3 billion in cash. The Corporation allocated
$1.6 billion to goodwill and $1.3 billion to intangible assets as part of the
preliminary purchase price allocation. U.S. Trust Corporation’s results of
operations were included in the Corporation’s results beginning July 1,
2007. The acquisition significantly increased the size and capabilities of
the Corporation’s wealth management business and positions it as one of
the largest financial services companies managing private wealth in the
U.S.
MBNA Merger
On January 1, 2006, the Corporation acquired 100 percent of the out-
standing stock of MBNA for $34.6 billion. In connection therewith,
1,260 million shares of MBNA common stock were exchanged for
631 million shares of the Corporation’s common stock. Prior to the MBNA
merger, this represented approximately 16 percent of the Corporation’s
outstanding common stock. MBNA shareholders also received cash of
$5.2 billion. The MBNA merger was a tax-free merger for the Corporation.
The acquisition expanded the Corporation’s customer base and its oppor-
tunity to deepen customer relationships across the full breadth of the
Corporation by delivering innovative deposit, lending and investment prod-
ucts and services to MBNA’s customer base. Additionally, the acquisition
allowed the Corporation to significantly increase its affinity relationships
through MBNA’s credit card operations and sell these credit cards through
the Corporation’s delivery channels (including the retail branch network).
MBNA’s results of operations were included in the Corporation’s results
beginning January 1, 2006.
The MBNA merger was accounted for under the purchase method of
accounting in accordance with SFAS 141. 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 table
below.
MBNA Purchase Price Allocation
(Dollars 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 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 deductible for tax purposes. Substantially all goodwill was allocated to Global Consumer and Small Business Banking.
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