Huntington National Bank 2007 Annual Report Download - page 69

NON-INTEREST EXPENSE
(This section should be read in conjunction with Significant Items 1, 4, 6, 7, and 9.)
Non-interest expense increased $171.8 million from the year-ago quarter. The $136.6 million of merger-related expenses and
$44.4 million of merger costs drove the increase, as non-merger-related expenses declined. Table 39 details the $171.8 million
increase in reported total non-interest expense.
Table 39 — Non-Interest Expense — Estimated Merger-Related Impact
(in thousands) 2007 2006 Amount Percent
Merger
Related
Merger
Costs Amount %
(1)
Fourth Quarter Change
Non-Merger
Related
Personnel costs $214,850 $137,944 $ 76,906 56% $ 68,250 $22,780 $(14,124) (6.2)%
Outside data processing and other
services 39,130 20,695 18,435 89.1 12,262 7,005 (832) (2.1)
Net occupancy 26,714 17,279 9,435 54.6 10,184 1,204 (1,953) (6.8)
Equipment 22,816 18,151 4,665 25.7 4,799 175 (309) (1.3)
Amortization of intangibles 20,163 2,993 17,170 573.7 17,431 — (261) (1.3)
Marketing 16,175 6,207 9,968 160.6 4,361 6,915 (1,308) (7.5)
Professional services 14,464 8,958 5,506 61.5 2,707 3,447 (648) (4.3)
Telecommunications 8,513 4,619 3,894 84.3 2,224 954 716 9.2
Printing and supplies 6,594 3,610 2,984 82.7 1,374 1,043 567 9.4
Other expense 68,215 43,364 24,851 57.3 13,048 893 10,910 19.0
Sub-total before automobile operating lease
expense 437,634 263,820 173,814 65.9 136,640 44,416 (7,242) (1.6)
Automobile operating lease expense 1,918 3,970 (2,052) (51.7) — — (2,052) (51.7)
Total non-interest expense $439,552 $267,790 $171,762 64.1% $136,640 $44,416 $ (9,294) (2.1)%
(1) Calculated as non-merger related / (prior period + merger-related + merger-costs).
The $9.3 million, or 2%, non-merger-related decline reflected:
– $14.1 million, or 6%, decline in personnel expense, reflecting merger efficiencies including the impact of the reduction of
828, or 6%, full-time equivalent staff during the 2007 third quarter and a 387, or 3%, reduction during the 2007 fourth
quarter.
– $2.0 million, or 7%, decline in net occupancy expense, reflecting merger efficiencies.
Partially offset by:
– $10.9 million, or 19%, increase in other expense. The increase reflected the current quarter’s $24.9 million Visa»
indemnification charge and $8.9 million of increases to litigation reserves on existing cases, partially offset by a $10.0 million
reduction in Huntington charitable foundation contributions and merger efficiencies. (See “Significant Items”).
INCOME TAXES
The provision for income taxes in the 2007 fourth quarter was a benefit of $158.9 million. The effective tax rate for the 2007
fourth quarter was a tax benefit of 39.9%.
CREDIT QUALITY
In addition to the negative impact from Franklin on credit quality performance measures, there was also deterioration in non-
Franklin-related loans. This reflected the negative impact of the continued economic weakness in our Midwest markets, most
notably among our borrowers in eastern Michigan and northern Ohio, and within the residential real estate development portfolio.
Consumer loans also saw negative trends impacted by the softening economy, but less so. These factors resulted in significantly
higher absolute and relative levels of net charge-offs, NALs, and NPAs. To maintain the adequacy of our reserves, there was a
commensurate significant increase in the provision for credit losses (see “Provision for Credit Losses” discussion, above) in order
to increase the absolute and relative levels of our ACL.
Since Franklin impacted credit performance metrics significantly, the discussion that follows detail the Franklin impact on those
metrics, as well as the performance of the remaining non-Franklin-related loans and leases.
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MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED