Bank of America 2007 Annual Report Download - page 130

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 $1.3 billion and the fair value was approx-
imately $940 million as of the merger date. At December 31, 2007 and
2006, there was no outstanding contractual balance of such loans.
Unaudited Pro Forma Condensed Combined Financial Information
for MBNA
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.
Pro Forma
(Dollars in millions) 2005
Net interest income $34,029
Noninterest income 33,731
Total revenue, net of interest expense 67,760
Provision for credit losses 5,082
Merger and restructuring charges 1,179
Other noninterest expense 34,411
Income before income taxes 27,088
Net income 18,157
Merger and restructuring charges in the preceding table include a
nonrecurring restructuring charge related to legacy MBNA of $767 million
for 2005. Pro forma earnings per common share and diluted earnings per
common share would have been $3.90 and $3.86 for 2005.
Merger and Restructuring Charges
Merger and restructuring charges are recorded in the Consolidated State-
ment of Income and include incremental costs to integrate the operations
of the Corporation, LaSalle, U.S. Trust Corporation, MBNA and FleetBoston
Financial Corporation (FleetBoston). These charges represent costs asso-
ciated with these one-time activities and do not represent ongoing costs of
the fully integrated combined organization. The following table presents
severance and employee-related charges, systems integrations and
related charges, and other merger-related charges.
(Dollars in millions) 2007
(1)
2006 2005
(2)
Severance and employee-related charges $106 $85 $39
Systems integrations and related charges 240 552 218
Other 64 168 155
Total merger and restructuring
charges $410 $805 $412
(1) Included for 2007 are merger-related charges of $233 million, $109 million and $68 million related to
the MBNA, U.S. Trust Corporation and LaSalle mergers, respectively.
(2) Charges for 2005 relate to the FleetBoston merger.
Merger-related Exit Cost and Restructuring Reserves
The following table presents the changes in exit cost and restructuring reserves for 2007 and 2006.
Exit Cost Reserves
(1)
Restructuring Reserves
(2)
(Dollars in millions) 2007 2006 2007 2006
Balance, January 1 $ 125 $– $67 $–
Exit cost and restructuring charges:
MBNA – 269 17 160
U.S. Trust Corporation 52 – 38 –
LaSalle 339 – 47 –
Cash payments (139) (144) (61) (93)
Balance, December 31 $ 377 $ 125 $108 $67
(1) Exit cost reserves were established in purchase accounting resulting in an increase in goodwill.
(2) Restructuring reserves were established by a charge to merger and restructuring charges.
As of December 31, 2006, there were $125 million of exit cost
reserves related to the MBNA merger, including $121 million for sev-
erance, relocation and other employee-related expenses and $4 million for
contract terminations. During 2007, $391 million was added to the exit
cost reserves of which $52 million and $339 million related to the U.S.
Trust Corporation and LaSalle mergers. Included in the $391 million exit
cost charges during 2007 were approximately $193 million in severance,
relocation and other employee-related costs and $198 million in contract
terminations. Cash payments of $139 million during 2007 consisted of
$127 million in severance, relocation and other employee-related costs
and $12 million for contract terminations.
As of December 31, 2006, there were $67 million of restructuring
reserves related to the MBNA acquisition, including $58 million related to
severance and other employee-related expenses and $9 million related to
contract terminations. During 2007, $102 million was added to the
restructuring reserves of which $17 million, $38 million and $47 million
related to severance and other employee-related expenses associated with
the MBNA, U.S. Trust Corporation and LaSalle mergers, respectively. Cash
payments of $61 million during 2007 consisted of $56 million in sev-
erance and other employee-related costs and $5 million in contract termi-
nations.
Payments under exit cost and restructuring reserves associated with
the MBNA merger were substantially completed in 2007 while payments
associated with the U.S. Trust Corporation and LaSalle mergers will con-
tinue into 2009.
128 Bank of America 2007