Huntington National Bank 2006 Annual Report Download - page 21

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MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
5. S
HARE
-
BASED COMPENSATION
.— In 2006, we adopted Statement No. 123R, Share-Based Payment, which resulted in
recognizing as personnel expense, the impact of share-based compensation, primarily in the form of stock option grants.
Adoption of stock option expensing added $18.6 million, pre-tax, to personnel expense in 2006. (See Note 19 to the
Consolidated Financial Statements.)
6. B
ALANCE SHEET RESTRUCTURING
.— In 2006, we utilized the excess capital resulting from the favorable resolution to
certain federal income tax audits to restructure certain under-performing components of the balance sheet. We believe
that these actions will benefit the net interest margin in future periods. Our actions included the review of $2.1 billion
of securities for potential sale, the refinancing of a portion of our FHLB funding, and the sale of approximately
$100 million of residential mortgage loans. The review of securities for sale resulted in an initial impairment of
$57.5 million, which was recorded as a securities loss. The completion of this review resulted in an additional
$9.0 million of securities losses, as well as $6.8 million of other than temporary impairment on certain sub-prime
mortgage backed securities not included in the initial review. Total securities losses as a result of these actions totaled
$73.3 million. The refinancing of FHLB funding and the sale of mortgage loans resulted in total charges of $4.4 million,
resulting in total balance sheet restructuring costs of $77.7 million ($0.21 per common share).
7. O
THER SIGNIFICANT ITEMS INFLUENCING EARNINGS PERFORMANCE COMPARISONS
.
2006
– $10.0 million pre-tax contribution to the Huntington Foundation.
– $7.4 million pre-tax equity investment gains.
– $5.5 million pre-tax increase in automobile lease residual value losses. This increase reflected higher relative losses
on certain vehicles sold at auction, most notably high-line imports and larger sport utility vehicles.
– $4.8 million in severance and consolidation expenses, pre-tax. This reflected fourth quarter severance-related
expenses associated with a reduction of 75 Regional Banking staff positions, as well as costs associated with the
previously announced retirements of a vice chairman and an executive vice president.
– $3.3 million pre-tax gain on the sale of MasterCard˛ stock.
– $3.2 million pre-tax negative impact associated with the write-down of equity method investments.
– $2.3 million pre-tax unfavorable impact due to a cumulative adjustment to defer home equity annual fees.
2005
– $8.8 million pre-tax investment securities losses, resulting from our decision to reduce our exposure to certain
unsecured federal agency securities.
– $6.5 million pre-tax impact to provision expense associated with the charge-off of a single large commercial credit.
– $5.1 million of pre-tax severance and consolidation expenses associated with the consolidation of certain operations
functions, including the closing of an item-processing center in Michigan. This item increased non-interest expense.
– $3.7 million pre-tax expense associated with the now-closed SEC investigation and regulatory-related written
agreements.
– $2.6 million pre-tax write-offs of equity investments. This item lowered non-interest income.
2004
– $14.2 million pre-tax gain on the sale of automobile loans associated with the objective of lowering total credit
exposure to this sector.
– $13.6 million pre-tax expense associated with the now-closed SEC investigation and regulatory-related written
agreements.
– $11.1 million pre-tax reduction to provision expense, reflecting a recovery of a single large commercial credit
previously charged-off in 2002.
– $7.8 million pre-tax property lease impairments. This item increased non-interest expense.
19