Huntington National Bank 2007 Annual Report Download - page 19

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UNIZAN FINANCIAL CORP.
The merger with Unizan Financial Corp. (Unizan) was completed on March 1, 2006. At the time of acquisition, Unizan had assets
of $2.5 billion, including $1.6 billion of loans and core deposits of $1.5 billion. The impact of this acquisition was included in our
consolidated results for the last ten months of 2006. As a result, performance comparisons between 2006 and 2005 are affected.
IMPACT METHODOLOGY
For both the Sky Financial and Unizan acquisitions, comparisons of the reported results are impacted as follows:
– Increased the absolute level of reported average balance sheet, revenue, expense, and the absolute level of certain credit
quality results.
– Increased the absolute level of reported non-interest expense items because of costs incurred as part of merger integration
activities, most notably employee retention bonuses, outside programming services related to systems conversions,
occupancy expenses, and marketing expenses related to customer retention initiatives. These net merger costs were
$85.1 million for 2007, $3.7 million for 2006, and $0.7 million for 2005.
Given the significant impact of the mergers on reported results, we believe that an understanding of the impacts of each merger is
necessary to understand better underlying performance trends. When comparing post-merger period results to premerger periods,
we use the following terms when discussing financial performance:
– “Merger-related” refers to amounts and percentage changes representing the impact attributable to the merger.
– “Merger costs” represent non-interest expenses primarily associated with merger integration activities, including severance
expense for key executive personnel.
– “Non-merger-related” refers to performance not attributable to the merger, and includes “merger efficiencies”, which
represent non-interest expense reductions realized as a result of the merger.
After completion of our mergers, we combine the acquired companies’ operations with ours, and do not monitor the subsequent
individual results of the acquired companies. As a result, the following methodologies were implemented to estimate the
approximate effect of the mergers used to determine “merger-related” impacts.
Balance Sheet Items
Sky Financial
For average loans and leases, as well as total average deposits, Sky Financial’s balances as of June 30, 2007, adjusted for purchase
accounting adjustments, and transfers of loans to loans held-for-sale, were used in the comparison. To estimate the impact on 2007
average balances, it was assumed that the June 30, 2007 balances, as adjusted, remained constant over time.
Unizan
For average loans and leases, as well as core average deposits, balances as of the acquisition date were pro-rated to the post-merger
period being used in the comparison. For example, to estimate the impact on 2006 first quarter average balances, one-third of the
closing date balance was used as those balances were in reported results for only one month of the quarter. Quarterly estimated
impacts for the 2006 second, third, and fourth quarter results were developed using this same pro-rata methodology. Full-year
2006 estimated results represent the annual average of each quarter’s estimate. This methodology assumes acquired balances will
remain constant over time.
Income Statement Items
Sky Financial
Sky Financial’s actual results for the first six months of 2007, adjusted for the impact of unusual items and purchase accounting
adjustments, were determined. This six-month adjusted amount was multiplied by two to estimate an annual impact. This
methodology does not adjust for any market related changes, or seasonal factors in Sky Financial’s 2007 six-month results. Nor
does it consider any revenue or expense synergies realized since the merger date. The one exception to this methodology of holding
the estimated annual impact constant relates to the amortization of intangibles expense where the amount is known and is
therefore used.
17
MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED