PNC Bank 2008 Annual Report Download - page 102

N OTE 2A CQUISITIONS AND D IVESTITURES
2008
N ATIONAL C ITY C ORPORATION
On December 31, 2008, we acquired National City for
approximately $6.1 billion. The total consideration included
approximately $5.6 billion of common stock, representing
approximately 95 million shares, $150 million of preferred
stock and cash of $379 million paid to warrant holders by
National City. The transaction requires no future contingent
consideration payments.
National City, based in Cleveland, Ohio, was one of the
nation’s largest financial services companies. At
December 31, 2008, prior to our acquisition, National City had
total assets of approximately $153 billion and total deposits of
approximately $101 billion. National City operates through an
extensive network in Ohio, Florida, Illinois, Indiana,
Kentucky, Michigan, Missouri, Pennsylvania and Wisconsin
and also conducts selected consumer lending businesses and
other financial services on a nationwide basis. Its primary
businesses include commercial and retail banking, mortgage
financing and servicing, consumer finance and asset
management. The primary reasons for the merger with
National City were to enhance shareholder value, to improve
PNC’s competitive position in the financial services industry
and to further expand PNC’s existing branch network in states
where it currently operates as well as expanding into new
markets.
This acquisition was accounted for under the purchase method
of accounting. The purchase price was allocated to the
National City assets acquired and liabilities assumed using
their estimated fair values as of the acquisition date,
December 31, 2008. Since the acquisition occurred at year
end, no results of operations of National City are included in
the Consolidated Income Statement. The summary
computation of the purchase price and the allocation of the
purchase price to the net assets of National City are presented
below. The allocation of the purchase price may be modified
through 2009 as more information, such as appraisals,
contracts, reviews of legal documentation, and selected key
borrower data, is obtained about the fair value of assets
acquired and liabilities assumed and may result in goodwill.
We also have not yet finalized our plans to exit National City
facilities or identified employee terminations. Completion of
these plans will likely result in additional liabilities in future
periods.
(In millions, except per share data)
Net assets acquired
National City stockholders’ equity $13,432
Cash paid to certain warrant holders by National City 379
National City goodwill and other intangibles (3,275)
Gross net assets acquired $10,536
Preliminary adjustments to reflect fair value of net assets acquired
Principal balance of loans (a) (9,831)
Allowance for loan losses on impaired loans 2,632
Other adjustments to loans 433
Deferred taxes 2,720
Other assets 331
Other intangibles, including servicing rights 1,084
Deposits (a) (1,930)
Borrowed funds (a) 2,395
Accrued expenses and other liabilities (900) (3,066)
Adjusted net assets acquired 7,470
Purchase price
National City common shares outstanding 2,420
Exchange ratio per share 0.0392
PNC common stock equivalent 94.86
Less: Fractional shares 0.06
PNC common stock issued 94.80
Average PNC share price over days surrounding announcement (b) $ 59.09
Purchase price for National City common shares outstanding $ 5,601
National City preferred stock converted to PNC preferred stock 150
Value of National City options converted to PNC options 2
Cash paid to certain warrant holders by National City 379
Cash in lieu of fractional shares 1
Total purchase price 6,133
Excess of fair value of adjusted net assets acquired over purchase price (c) $ 1,337
(a) Amounts include premium, discount and other fair value adjustments.
(b) The value of PNC common stock was determined by averaging its closing price for five trading days, including the announcement date of October 24, 2008.
(c) The fair value of the net assets of National City exceeded the purchase price. In accordance with SFAS 141 “Business Combinations”, the fair value allocated to premises, equipment
and leasehold improvements and other intangibles reduced these balances by $891 million and $446 million, respectively.
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