Fifth Third Bank 2005 Annual Report Download - page 79

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fifth Third Bancorp 77
Loans held for sale:
The fair value of loans held for sale was
estimated based on outstanding commitments from investors or
current investor yield requirements.
Deposits:
Fair values for other time, certificates of deposit–
$100,000 and over and foreign office were estimated using a
discounted cash flow calculation that applies interest rates currently
being offered for deposits of similar remaining maturities.
Long-term debt:
Fair value of long-term debt was based on
quoted market prices, when available, and a discounted cash flow
calculation using prevailing market rates for borrowings of similar
terms.
Commitments to extend credit:
Fair values of loan
commitments were based on estimated probable credit losses.
Letters of credit:
Fair values of letters of credit were based on
unamortized fees on the letters of credit.
Derivative assets and derivative liabilities:
Fair values were
based on the estimated amount the Bancorp would receive or pay
to terminate the derivative contracts, taking into account the
current interest rates and the creditworthiness of the
counterparties. The fair values represent an asset or liability at
December 31, 2005.
Bank owned life insurance assets:
Fair values of insurance
policies owned by the Bancorp were based on the insurance
contract’s cash surrender value, net of any policy loans.
26. BUSINESS COMBINATIONS
On January 1, 2005, the Bancorp acquired in a merger 100% of the
outstanding stock of First National, a bank holding company
headquartered in Naples, Florida. First National operated 77 full-
service banking centers located primarily in Orlando, Tampa,
Sarasota, Naples and Fort Myers. The acquisition of First National
allows the Bancorp to expand its presence in the rapidly expanding
Florida market.
Under the terms of the transaction, each share of First
National common stock was exchanged for .5065 shares of the
Bancorp’s common stock, resulting in the issuance of 30.6 million
shares of common stock. The common stock issued to effect the
transaction was valued at $47.30 per share, the closing price of the
Bancorp’s common stock on the previous trading day, for a total
transaction value of $1.5 billion. The total purchase price also
included the fair value of stock awards issued in exchange for stock
awards held by First National employees, for which the aggregate
fair value was $63 million.
The assets and liabilities of First National were recorded on
the balance sheet at their respective fair values as of the closing
date. The results of First National’s operations were included in
the Bancorp’s Consolidated Statements of Income from the date of
acquisition. In addition, the Bancorp realized charges against its
earnings for acquisition related expenses of $8 million during 2005.
The acquisition related expenses consisted primarily of travel and
relocation costs, printing, closure of duplicate facilities, supplies
and other costs associated with the conversion.
The transaction resulted in total goodwill and intangible assets
of $1.3 billion based upon the purchase price, the fair values of the
acquired assets and assumed liabilities and applicable purchase
accounting adjustments. Of this total intangibles amount, $85
million was allocated to core deposit intangibles, $7 million was
allocated to customer lists and $13 million was allocated to
noncompete agreements. The core deposit intangible and the
customer lists are being amortized using an accelerated method
over ten years. The noncompete agreements are being amortized
using the straight-line method over the duration of the agreements.
The remaining $1.2 billion of intangible assets was recorded as
goodwill. Goodwill recognized in the First National acquisition is
not deductible for income tax purposes.
On June 11, 2004, the Bancorp completed the acquisition of
Franklin Financial, a bank holding company located in the
Nashville, Tennessee metropolitan market.
Under the terms of the transaction, each share of Franklin
Financial common stock was exchanged for .5933 shares of the
Bancorp’s common stock, resulting in the issuance of 5.1 million
shares of common stock. The common stock issued to effect the
transaction was valued at $55.52 per share for a total transaction
value of $317 million. The total purchase price also includes the
fair value of stock awards issued in exchange for stock awards held
by Franklin employees, for which the aggregate fair value was $36
million.
The assets and liabilities of Franklin Financial were recorded
on the balance sheet at their respective fair values as of the closing
date. The results of Franklin Financial’s operations were included
in the Bancorp’s Consolidated Statements of Income from the date
of acquisition. The transaction resulted in total intangible assets of
$281 million based upon the purchase price, the fair values of the
acquired assets and assumed liabilities and applicable purchase
accounting adjustments. Of this total intangibles amount, $7
million was allocated to core deposit intangibles, $6 million was
allocated to customer lists and $2 million was allocated to
noncompete agreements. The core deposit intangible and the
customer lists are being amortized using an accelerated method
over seven and five years, respectively. The noncompete
agreements are being amortized using the straight-line method over
the duration of the agreements. The remaining $266 million of
intangible assets was recorded as goodwill. Goodwill recognized in
the Franklin Financial acquisition is not deductible for income tax
purposes.
The pro forma effect of the financial results of First National
and Franklin Financial excluded from the results of operations
prior to the dates of acquisition were not material to the Bancorp’s
financial condition and operating results for the periods presented.