UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY PERIOD ENDED March 31, 2006
Commission File Number 0-2525
Huntington Bancshares Incorporated
     
Maryland   31-0724920
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
41 South High Street, Columbus, Ohio 43287
Registrant’s telephone number (614) 480-8300
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ
  Accelerated filer o   Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No
There were 245,275,565 shares of Registrant’s without par value common stock outstanding on April 30, 2006.

Huntington Bancshares Incorporated
INDEX
         
Part I. Financial Information
       
 
       
Item 1. Financial Statements (Unaudited)
       
 
       
Condensed Consolidated Balance Sheets at March 31, 2006, December 31, 2005, and March 31, 2005
    3  
 
       
Condensed Consolidated Statements of Income for the three months ended March 31, 2006 and 2005
    4  
 
       
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2006 and 2005
    5  
 
       
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2006 and 2005
    6  
 
       
Notes to Unaudited Condensed Consolidated Financial Statements
    7  
 
       
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
    26  
 
       
Item 3. Quantitative and Qualitative Disclosures about Market Risk
    83  
 
       
Item 4. Controls and Procedures
    83  
 
       
Part II. Other Information
       
 
       
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    83  
 
       
Item 6. Exhibits
    83  
 
       
Signatures
    84  
  EX-31.1
  EX-31.2
  EX-32.1
  EX-32.2

2

Part 1. Financial Information
Item 1. Financial Statements
Huntington Bancshares Incorporated
Condensed Consolidated Balance Sheets
                         
    March 31,   December 31,   March 31,
(in thousands, except number of shares)   2006   2005   2005
    (Unaudited)           (Unaudited)
Assets
                       
Cash and due from banks
  $ 797,258     $ 966,445     $ 914,699  
Federal funds sold and securities purchased under resale agreements
    349,098       74,331       144,980  
Interest bearing deposits in banks
    23,204       22,391       29,551  
Trading account securities
    111,208       8,619       100,135  
Loans held for sale
    311,138       294,344       252,932  
Investment securities
    5,034,359       4,526,520       4,052,875  
Loans and leases
                       
Commercial and industrial loans
    6,940,649       6,809,208       6,064,019  
Commercial real estate loans
    4,877,382       4,036,171       4,526,510  
Automobile loans
    2,053,777       1,985,304       2,066,264  
Automobile leases
    2,154,883       2,289,015       2,476,098  
Home equity loans
    4,816,196       4,638,841       4,594,586  
Residential mortgage loans
    4,604,705       4,193,139       3,995,769  
Other consumer loans
    697,997       520,488       483,219  
 
Total loans and leases
    26,145,589       24,472,166       24,206,465  
Allowance for loan and lease losses
    (283,839 )     (268,347 )     (264,390 )
 
Net loans and leases
    25,861,750       24,203,819       23,942,075  
 
Operating lease assets
    174,839       229,077       466,550  
Bank owned life insurance
    1,060,305       1,001,542       973,164  
Premises and equipment
    375,740       360,677       354,979  
Goodwill
    579,246       212,530       212,200  
Other intangible assets
    60,563       4,956       5,580  
Accrued income and other assets
    927,201       859,554       732,879  
 
Total assets
  $ 35,665,909     $ 32,764,805     $ 32,182,599  
 
 
                       
Liabilities and shareholders’ equity
                       
Liabilities
                       
Deposits in domestic offices
                       
Demand deposits — non-interest bearing
  $ 3,776,790     $ 3,390,044     $ 3,186,187  
Interest bearing
    20,326,575       18,548,943       18,182,951  
Deposits in foreign offices
    451,798       470,688       401,835  
 
Total deposits
    24,555,163       22,409,675       21,770,973  
Short-term borrowings
    1,687,536       1,889,260       1,033,496  
Federal Home Loan Bank advances
    1,658,486       1,155,647       903,871  
Other long-term debt
    2,035,576       2,418,419       3,138,626  
Subordinated notes
    1,283,359       1,023,371       1,025,612  
Allowance for unfunded loan commitments and letters of credit
    39,301       36,957       31,610  
Deferred income tax liability
    685,559       743,655       781,152  
Accrued expenses and other liabilities
    640,749       530,320       907,486  
 
Total liabilities
    32,585,729       30,207,304       29,592,826  
 
 
                       
Shareholders’ equity
                       
Preferred stock — authorized 6,617,808 shares; none outstanding
                 
Common stock — without par value; authorized 500,000,000 shares; issued 257,866,255 shares; outstanding 245,183,441; 224,106,172 and 232,002,213 shares, respectively.
    2,548,185       2,491,326       2,484,832  
Less 12,682,814; 33,760,083 and 25,864,042 treasury shares respectively.
    (273,120 )     (693,576 )     (490,139 )
Accumulated other comprehensive loss
    (31,434 )     (22,093 )     (18,686 )
Retained earnings
    836,549       781,844       613,766  
 
Total shareholders’ equity
    3,080,180       2,557,501       2,589,773  
 
 
                       
Total liabilities and shareholders’ equity
  $ 35,665,909     $ 32,764,805     $ 32,182,599  
 
See notes to unaudited condensed consolidated financial statements

3

Huntington Bancshares Incorporated
Condensed Consolidated Statements of Income
(Unaudited)
                 
    Three Months Ended
    March 31,
(in thousands, except per share amounts)   2006   2005
 
Interest and fee income
               
Loans and leases
               
Taxable
  $ 399,346     $ 325,595  
Tax-exempt
    509       312  
Investment securities
               
Taxable
    52,443       38,235  
Tax-exempt
    5,712       4,307  
Other
    6,777       7,656  
 
Total interest income
    464,787       376,105  
 
Interest expense
               
Deposits
    148,314       89,168  
Short-term borrowings
    14,665       4,828  
Federal Home Loan Bank advances
    14,488       8,683  
Subordinated notes and other long-term debt
    43,640       38,228  
 
Total interest expense
    221,107       140,907  
 
Net interest income
    243,680       235,198  
Provision for credit losses
    19,540       19,874  
 
Net interest income after provision for credit losses
    224,140       215,324  
 
Operating lease income
    19,390       46,732  
Service charges on deposit accounts
    41,222       39,418  
Trust services
    21,278       18,196  
Brokerage and insurance income
    15,193       13,026  
Bank owned life insurance income
    10,242       10,104  
Other service charges and fees
    11,509       10,159  
Mortgage banking income
    17,832       12,061  
Securities gains (losses), net
    (20 )     957  
Gains on sales of automobile loans
    448        
Other income
    22,440       17,397  
 
Total non-interest income
    159,534       168,050  
 
Operating lease expense
    14,607       37,948  
Personnel costs
    131,557       123,981  
Net occupancy
    17,966       19,242  
Outside data processing and other services
    19,851       18,770  
Equipment
    16,503       15,863  
Professional services
    5,365       9,459  
Marketing
    7,798       6,454  
Telecommunications
    4,825       4,882  
Printing and supplies
    3,074       3,094  
Amortization of intangibles
    1,075       204  
Other expense
    15,794       18,380  
 
Total non-interest expense
    238,415       258,277  
 
Income before income taxes
    145,259       125,097  
Provision for income taxes
    40,803       28,578  
 
Net income
  $ 104,456     $ 96,519  
 
 
               
Average common shares — basic
    230,976       231,824  
Average common shares — diluted
    234,371       235,053  
 
               
Per common share
               
Net income — basic
  $ 0.45     $ 0.42  
Net income — diluted
    0.45       0.41  
Cash dividends declared
    0.25       0.20  
See notes to unaudited condensed consolidated financial statements

4

Huntington Bancshares Incorporated
Condensed Consolidated Statements of Changes in Shareholders’ Equity
                                                         
                                    Accumulated        
                                    Other        
    Common Stock   Treasury Shares   Comprehensive   Retained    
(in thousands)   Shares   Amount   Shares   Amount   Income (Loss)   Earnings   Total
 
Three Months Ended March 31, 2005 (Unaudited):
                                                       
Balance, beginning of period
    257,866     $ 2,484,204       (26,261 )   $ (499,259 )   $ (10,903 )   $ 563,596     $ 2,537,638  
Comprehensive Income:
                                                       
Net income
                                            96,519       96,519  
Unrealized net losses on investment securities arising during the period, net of reclassification of net realized gains
                                    (20,789 )             (20,789 )
Unrealized gains on cash flow hedging derivatives
                                    13,006               13,006  
 
                                                       
Total comprehensive income
                                                    88,736  
 
                                                       
Cash dividends declared ($0.20 per share)
                                            (46,349 )     (46,349 )
Stock options exercised
            198       399       7,577                       7,775  
Other
            430       188       1,543                       1,973  
 
 
                                                       
Balance, end of period (Unaudited)
    257,866     $ 2,484,832       (25,674 )   $ (490,139 )   $ (18,686 )   $ 613,766     $ 2,589,773  
 
 
                                                       
Three Months Ended March 31, 2006 (Unaudited):
                                                       
Balance, beginning of period
    257,866     $ 2,491,326       (33,760 )   $ (693,576 )   $ (22,093 )   $ 781,844     $ 2,557,501  
Comprehensive Income:
                                                       
Net income
                                            104,456       104,456  
Cumulative effect of change in accounting principle for servicing financial assets, net of tax of $6,521
                                            12,110       12,110  
Unrealized net losses on investment securities arising during the period, net of reclassification of net realized gains
                                    (18,694 )             (18,694 )
Unrealized gains on cash flow hedging derivatives
                                    9,353               9,353  
 
                                                       
Total comprehensive income
                                                    107,225  
 
                                                       
Cash dividends declared ($0.25 per share)
                                            (61,861 )     (61,861 )
Shares issued pursuant to acquisition
            53,366       25,350       522,390                       575,756  
Stock based compensation expense, including related tax effects
            4,273                                       4,273  
Stock options exercised
            (782 )     569       11,671                       10,889  
Treasury shares purchased
                    (4,831 )     (113,326 )                     (113,326 )
Other
            2       (11 )     (279 )                     (277 )
 
 
                                                       
Balance, end of period (Unaudited)
    257,866     $ 2,548,185       (12,683 )   $ (273,120 )   $ (31,434 )   $ 836,549     $ 3,080,180  
 
See notes to unaudited condensed consolidated financial statements.

5

Huntington Bancshares Incorporated
Condensed Consolidated Statements of Cash Flows
(Unaudited)
                 
    Three Months Ended
    March 31,
(in thousands of dollars)   2006   2005
 
Operating activities
               
Net income
  $ 104,456     $ 96,519  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Provision for credit losses
    19,540       19,874  
Depreciation on operating lease assets
    13,437       34,703  
Other depreciation and amortization
    18,177       20,255  
Mortgage servicing rights valuation adjustments, including amortization
    (5,681 )     1,001  
Stock-based compensation expense, net of related tax effects
    4,273        
Deferred income tax (benefit) expense
    (59,449 )     2,195  
(Increase) decrease in trading account securities
    (23,845 )     209,495  
Originations of loans held for sale
    (616,943 )     (418,494 )
Principal payments on and proceeds from loans held for sale
    600,149       389,031  
Losses (gains) on sales of investment securities
    20       (957 )
Gains on sales of loans
    (448 )      
Increase of cash surrender value of bank owned life insurance
    (10,242 )     (10,104 )
(Decrease) increase in payable to investors in sold loans
    (7,134 )     12,304  
Other, net
    (11,056 )     54,036  
 
Net cash provided by operating activities
    25,254       409,858  
 
 
               
Investing activities
               
Decrease (increase) in interest bearing deposits in banks
    2,283       (7,153 )
Net cash received for acquisition
    66,507        
Proceeds from:
               
Maturities and calls of investment securities
    110,777       110,100  
Sales of investment securities
    61,687       672,375  
Purchases of investment securities
    (462,392 )     (629,508 )
Net loan and lease originations, excluding sales
    (28,721 )     (678,043 )
Purchases of equipment for operating lease assets
    (8,592 )     (3,388 )
Proceeds from sale of operating lease assets
    47,952       85,843  
Proceeds from sale of premises and equipment
    1,692       28  
Purchases of premises and equipment
    (7,476 )     (12,708 )
Proceeds from sales of other real estate
    2,311       37,347  
 
Net cash used for investing activities
    (213,972 )     (425,107 )
 
 
               
Financing activities
               
Increase in deposits
    449,778       1,008,131  
Decrease in short-term borrowings
    (280,864 )     (173,737 )
Proceeds from issuance of subordinated notes
    250,000        
Proceeds from Federal Home Loan Bank advances
    1,407,050       7,789  
Maturity of Federal Home Loan Bank advances
    (1,007,161 )     (375,006 )
Maturity of long-term debt
    (380,390 )     (860,000 )
Dividends paid on common stock
    (41,678 )     (45,384 )
Repurchases of common stock
    (113,326 )      
Net proceeds from issuance of common stock
    10,889       7,775  
 
Net cash provided by (used for) financing activities
    294,298       (430,432 )
 
Change in cash and cash equivalents
    105,580       (445,681 )
Cash and cash equivalents at beginning of period
    1,040,776       1,505,360  
 
Cash and cash equivalents at end of period
  $ 1,146,356     $ 1,059,679  
 
 
               
Supplemental disclosures:
               
Income taxes paid
  $ 45,874     $ 14,239  
Interest paid
    212,279       123,706  
Non-cash activities
               
Common stock dividends accrued, paid in subsequent quarter
    49,060       36,804  
Stock issued for purchase acquisition
    575,756        
See notes to unaudited condensed consolidated financial statements.

6

Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 — Basis of Presentation
     The accompanying unaudited condensed consolidated financial statements of Huntington Bancshares Incorporated (Huntington or the Company) reflect all adjustments consisting of normal recurring accruals, which are, in the opinion of Management, necessary for a fair presentation of the consolidated financial position, the results of operations, and cash flows for the periods presented. These unaudited condensed consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission (SEC or Commission) and, therefore, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been omitted. The Notes to the Consolidated Financial Statements appearing in Huntington’s 2005 Annual Report on Form 10-K (2005 Form 10-K), which include descriptions of significant accounting policies, as updated by the information contained in this report, should be read in conjunction with these interim financial statements.
     Certain amounts in the prior-year’s financial statements have been reclassified to conform to the 2006 presentation.
     For statement of cash flows purposes, cash and cash equivalents are defined as the sum of “Cash and due from banks” and “Federal funds sold and securities purchased under resale agreements.”
Note 2 — New Accounting Pronouncements
Financial Accounting Standards Board (FASB) Statement No. 123 (revised 2004), Share-Based Payment (Statement No. 123R) - Statement 123R was issued in December 2004, requiring that the compensation cost relating to share-based payment transactions be recognized in the financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. Statement 123R covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. Statement 123R replaces FASB Statement No. 123, Accounting for Stock-Based Compensation (Statement 123) , and supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). Statement 123, as originally issued in 1995, established as preferable a fair-value-based method of accounting for share-based payment transactions with employees. However, that Statement permitted entities the option of continuing to apply the guidance in APB 25, as long as the footnotes to financial statements disclosed pro forma net income under the preferable fair-value-based method. Effective January 1, 2006, Huntington has adopted Statement 123R. The impact of adoption to Huntington’s results of operations is presented in Note 10.
Financial Accounting Standards Board (FASB) Statement No. 154, Accounting Changes and Error Corrections — a replacement of APB Opinion No. 20 and FASB Statement No. 3 (Statement No. 154) - In May 2005, the FASB issued Statement No. 154, which replaces APB Opinion No. 20, Accounting Changes , and Statement No. 3, Reporting Accounting Changes in Interim Financial Statements . Statement No. 154 changes the requirements for the accounting for and reporting of a change in accounting principle. Statement No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The impact of this new pronouncement was not material to Huntington’s financial condition, results of operations, or cash flows.
FASB Statement No. 155, Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140 (Statement No. 155) - On February 16, 2006, the FASB issued Statement No. 155. Statement No. 155 amends Statement No. 133 to simplify the accounting for certain derivatives embedded in other financial instruments (hybrid financial instruments) by permitting fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise required bifurcation, provided that the entire hybrid financial instrument is accounted for on a fair value basis. Statement No. 155 also establishes the requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, which replaces the interim guidance in Derivative Instrument Group Issue D1, Recognition and Measurement of Derivatives: Application of Statement 133 to Beneficial Interests in Securitized Financial Assets . Statement No. 155 amends Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities—a replacement of FASB Statement 125 (Statement No. 140), to allow a qualifying special-purpose entity to hold a derivative financial instrument that pertains to beneficial interests other than another derivative financial instrument. Statement No. 155 is effective for all financial instruments acquired or issued after the beginning of the first fiscal year that begins after September 15, 2006, with earlier adoption allowed. Huntington adopted Statement No. 155 effective January 1, 2006, with no impact to reported financial results.

7

FASB Statement No. 156, Accounting for Servicing of Financial Assets — an amendment of FASB Statement No. 140 ( Statement No. 156) - In March 2006, the FASB issued Statement No. 156, an amendment of Statement No. 140. The Statement requires all separately recognized servicing rights be initially measured at fair value, if practicable. For each class of separately recognized servicing assets and liabilities, this statement permits Huntington to choose either to report servicing assets and liabilities at fair value or at amortized cost. Under the fair value approach, servicing assets and liabilities are recorded at fair value at each reporting date with changes in fair value recorded in earnings in the period in which the changes occur. Under the amortized cost method, servicing assets and liabilities are amortized in proportion to and over the period of estimated net servicing income or net servicing loss and are assessed for impairment based on fair value at each reporting date. The statement is effective for fiscal years beginning after September 15, 2006, and allows early adoption as of the beginning of a fiscal year for which the entity has not previously issued interim financial statements. Huntington elected to adopt the provisions of Statement No. 156 for mortgage servicing rights effective January 1, 2006 and has recorded mortgage servicing assets using the fair value provision of the standard. The adoption of Statement No. 156 resulted in an $18.6 million increase in the carrying value of mortgage servicing right assets as of January 1, 2006. The cumulative effect of this change was $12.1 million, net of taxes, which is reflected as an increase in retained earnings in the Condensed Consolidated Statement of Shareholders’ Equity. (See Note 5).
Proposed Interpretation of Statement No. 109, Accounting for Uncertain Tax Positions - In July 2005, the FASB issued an exposure draft of a proposed interpretation on accounting for uncertain tax positions under Statement No. 109, Accounting for Income Taxes . The exposure draft contains proposed guidance on the recognition and measurement of uncertain tax positions. If adopted as proposed, the Company would be required to recognize, in its financial statements, the best estimate of the impact of a tax position, only if that tax position is probable of being sustained on audit based solely on the technical merits of the position. The proposed effective date for the interpretation was originally scheduled for December 31, 2005, with a cumulative effect of a change in accounting principle to be recorded upon the initial adoption. In January 2006, FASB decided to make forthcoming rules on certain tax positions effective in 2007. FASB also moved to a view that such recognition should be changed from the tax position being ''probable of being sustained on audit based solely on the technical merits of the position’’ to a less stringent benchmark of ''more likely than not’’ that the position would be sustained on audit or final resolution through legal action or settlement. FASB expects to publish the planned rules on uncertain tax positions in 2006. Huntington is currently evaluating the impact this proposed interpretation will have on its consolidated financial statements.
Proposed FASB amendment to FAS 128, Earnings Per Share - In September 2005, the FASB issued an Exposure Draft, Earnings Per Share, an amendment of FASB Statement No. 128 . This Exposure Draft would amend FASB Statement No. 128, Earnings Per Share , to clarify guidance for mandatorily convertible instruments, the treasury stock method, contracts that may be settled in cash or shares and contingently issuable shares. The proposed Exposure Draft as currently drafted would be effective for interim and annual periods ending after June 15, 2006. Retrospective application would be required for all changes to FASB Statement No. 128, except that retrospective application would be prohibited for contracts that were either settled in cash prior to adoption or modified prior to adoption to require cash settlement. Huntington does not expect adoption of this Statement to have a material effect on the calculation of basic or diluted earnings per share.
Proposed FASB amendment to FAS 132, Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132R - In March 2006, the FASB issued an Exposure Draft, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”. This Exposure Draft would amend the FASB Statements No. 87, 88, 106 and 132R. The intent of the Exposure Draft is to require an employer to recognize in its statement of financial position the overfunded or underfunded status of its defined benefit plans and to recognize as a component of other comprehensive income, net of tax, the actuarial gains and losses and prior service costs and credits that arise during the period. The comment deadline on this Exposure Draft is May 31, 2006, with a planned effective date for fiscal years ending after December 31, 2006. The Company is reviewing the Exposure Draft and evaluating the impact on its consolidated financial statements. Management estimates that, based on the provisions of the exposure draft, that, based on the carrying value of its net pension asset at December 31, 2005, the proposed standard would result in a write-down of its pension asset by $155.7 million which would decrease other comprehensive income by $101.2 million in the period that the standard is adopted.

8

Note 3 — Formal Regulatory Supervisory Agreements
     On March 1, 2005, Huntington announced that it had entered into a formal written agreement with the Federal Reserve Bank of Cleveland (FRBC), and the Bank had entered into a formal written agreement with the Office of the Comptroller of the Currency (OCC), providing for a comprehensive action plan designed to enhance corporate governance, internal audit, risk management, accounting policies and procedures, and financial and regulatory reporting. The agreements called for independent third-party reviews, as well as the submission of written plans and progress reports by Management and would remain in effect until terminated by the banking regulators.
     On October 6, 2005, Huntington announced that the OCC had lifted its formal written agreement with the Bank dated February 28, 2005, and that the FRBC written agreement remained in effect. Huntington was verbally advised that it was in full compliance with the financial holding company and financial subsidiary requirements under the Gramm-Leach-Bliley Act (GLB Act). This notification reflected that Huntington and the Bank met both the “well-capitalized” and “well-managed” criteria under the GLB Act. Management believes that the changes it has already made, and is in the process of making, will address the FRBC issues fully and comprehensively.
Note 4 — Business Combination
     On March 1, 2006, Huntington completed its merger with Canton, Ohio-based Unizan Financial Corp. (Unizan). Unizan operated 42 banking offices in five metropolitan markets in Ohio: Canton, Columbus, Dayton, Newark and Zanesville.
     Under the terms of the merger agreement announced January 27, 2004 and amended November 11, 2004, Unizan shareholders of record as of the close of trading on February 28, 2006, received 1.1424 shares of Huntington common stock for each share of Unizan. The assets and liabilities of the acquired entity were recorded on the Company’s balance sheet at their fair values as of the acquisition date. Unizan’s results of operations have been included in the Company’s consolidated statement of income since the acquisition date.
     The following table shows the excess purchase price over carrying value of net assets acquired, preliminary purchase price allocation, and resulting goodwill:
         
(in thousands)   March 1, 2006
 
Purchase price
  $ 575,793  
Carrying value of net assets acquired
    (194,996 )
 
Excess of purchase price over carrying value of net assets acquired
    380,797  
 
       
Purchase accounting adjustments:
       
Loans and leases
    16,870  
Premises and equipment
    322  
Accrued income and other assets
    1,148  
Deposits
    748  
Subordinated notes
    2,845  
Deferred federal income tax liability
    11,838  
Accrued expenses and other liabilities
    8,830  
 
Goodwill and other intangible assets
    423,398  
Less other intangible assets
     
Core deposit intangible
    (45,000 )
Other identifiable intangible assets
    (11,682 )
 
Other intangible assets
    (56,682 )
 
Goodwill
  $ 366,716  
 
     Huntington has not formalized its determination of the fair value of acquired assets and liabilities and will adjust goodwill upon completion of the valuation process.
     Of the $56.7 million of acquired intangible assets, $45.0 million was assigned to core deposit intangible and $11.7 million was assigned to customer relationship intangibles. The core deposit and customer relationship intangibles have a weighted average useful life of 10 years and 15 years, respectively.

9

     Goodwill resulting from the transaction totaled $366.7 million and was assigned to Regional Banking and the Private Financial and Capital Markets Group in the amount of $348.7 million and $18.0 million, respectively.
     The following table summarizes the estimated fair value of the net assets acquired on March 1, 2006 related to the acquisition of Unizan:
         
(in thousands)   March 1, 2006
 
Assets
       
Cash and due from banks
  $ 66,544  
Interest bearing deposits in banks
    3,096  
Investment securities
    300,416  
Loans and leases
    1,665,602  
Allowance for loan and lease losses
    (22,187 )
 
Net loans and leases
    1,643,415  
 
Bank owned life insurance
    48,521  
Premises and equipment
    21,079  
Goodwill
    366,716  
Other intangible assets
    56,682  
Accrued income and other assets
    21,121  
 
Total assets
    2,527,590  
 
       
Liabilities
       
Deposits
    1,696,124  
Short-term borrowings
    79,140  
Federal Home Loan Bank advances
    102,950  
Subordinated notes
    23,464  
Deferred federal income tax liability
    11,838  
Accrued expenses and other liabilities
    38,281  
 
Total liabilities
    1,951,797  
 
Purchase price
  $ 575,793  
 
     Huntington’s consolidated financial statements include the results of operations of Unizan only since March 1, 2006, the date of acquisition. The following unaudited summary information presents the consolidated results of operations of Huntington on a pro forma basis, as if the Unizan acquisition had occurred at the beginning of 2006 and 2005.
                 
    Three Months Ended
    March 31,
(in thousands, except per share amounts)   2006   2005
Net interest income
  $ 255,282     $ 251,971  
Provision for credit losses
    (19,912 )     (21,169 )
         
Net interest income after provision for credit losses
    235,370       230,802  
         
Non-interest income
    163,360       175,054  
Non-interest expense
    (246,879 )     (276,080 )
         
Income before income taxes
    151,851       129,776  
Provision for income taxes
    (42,800 )     (30,380 )
         
Net income
  $ 109,051     $ 99,396  
         
 
               
Net income per common share
               
Basic
  $ 0.44     $ 0.39  
Diluted
    0.43       0.38  
 
               
Average common shares outstanding
               
Basic
    247,869       257,058  
Diluted
    251,264       260,414  
     The pro forma results include amortization of fair value adjustments on loans, deposits, and debt, and amortization of newly created intangibles and post-merger acquisition related charges. The pro forma number of average common shares

10

outstanding includes adjustments for shares issued for the acquisition and the impact of additional dilutive securities but does not assume any incremental share repurchases. The pro forma results presented do not reflect cost savings, or revenue enhancements anticipated from the acquisition, and are not necessarily indicative of what actually would have occurred if the acquisition had been completed as of the beginning of the periods presented, nor are they necessarily indicative of future consolidated results.
Note 5 — Loan Sales and Securitizations
Automobile loans
     Huntington sold $169.8 million of automobile loans in the first quarter of 2006, resulting in pre-tax gains of $0.4 million. There were no automobile loan sales in the first quarter of 2005.
     A servicing asset is established at an initial carrying value based on the relative fair value at the time of the sale. The servicing asset is then amortized against servicing income. Impairment, if any, is recognized when carrying value exceeds the fair value as determined by calculating the present value of expected net future cash flows. The primary risk characteristic for measuring servicing assets is payoff rates of the underlying loan pools. Valuation calculations rely on the predicted payoff assumption, and if actual payoff is quicker than expected, then future value would be impaired.
     Changes in the carrying value of automobile loan servicing rights for the three months ended March 31, 2006 and 2005, and the fair value at the end of each period were as follows:
                 
    Three Months Ended
    March 31,
(in thousands)   2006   2005
 
Carrying value, beginning of period
  $ 10,805     $ 20,286  
New servicing assets
    998        
Amortization
    (2,193 )     (3,240 )
 
Carrying value, end of period
  $ 9,610     $ 17,046  
 
 
               
Fair value, end of period
  $ 11,086     $ 17,844  
 
     Huntington has retained servicing responsibilities and receives annual servicing fees from 0.55% to 1.00% of the outstanding loan balances. Servicing income, net of amortization of capitalized servicing assets, amounted to $3.4 million and $2.4 million for the three months ended March 31, 2006 and 2005, respectively.
Residential Mortgage Loans
     A mortgage servicing right (MSR) is established only when the servicing is contractually separated from the underlying mortgage loans by sale or securitization of the loans with servicing rights retained. Effective January 1, 2006, the Company early adopted Statement No. 156. The same risk management practices are applied to all MSRs and, accordingly, MSRs were identified as a single asset class and were re-measured to fair value as of January 1, 2006 with an adjustment to retained earnings.
     At initial recognition, the MSR asset is established at its fair value using assumptions that are consistent with assumptions used at the time to estimate the fair value of the total MSR portfolio. Subsequent to initial capitalization, MSR assets are carried at fair value and are included in other assets. Any increase or decrease in fair value during the period is recorded as an increase or decrease in servicing income, which is reflected in non-interest income in the consolidated income statement.

11

     A summary of the changes in MSR fair value during the quarter follows:
         
    Three Months Ended
    March 31,
(in thousands)   2006
 
Carrying value at December 31, 2005
  $ 91,259  
Cumulative effect in change in accounting principle
    18,631  
 
Fair value after cumulative effect in change in accounting principle
    109,890  
New servicing assets created
    5,777  
Servicing assets acquired
    1,909  
Change in fair value during the period
    5,681  
 
Fair value at March 31, 2006
  $ 123,257  
 
     MSRs do not trade in an active, open market with readily observable prices. While sales of MSRs occur, the precise terms and conditions are typically not readily available. Therefore, the fair value of MSRs is estimated using a discounted future cash flow model. The model considers portfolio characteristics, contractually specified servicing fees and assumptions related to prepayments, delinquency rates, late charges, other ancillary revenues, costs to service, and other economic factors. Changes in the assumptions used may have a significant impact on the valuation of MSRs.
     A summary of key assumptions and the sensitivity of the MSR value at March 31, 2006 to changes in these assumptions follows:
                         
            Decline in fair value
            due to
            10%   20%
            adverse   adverse
(in thousands)   Actual   change   change
 
Constant pre-payment rate
    11.48 %   $ (5,145 )   $ (9,820 )
Discount rate
    9.37       (4,543 )     (8,764 )
     MSR values are very sensitive to movements in interest rates as expected future net servicing income depends on the projected outstanding principal balances of the underlying loans, which can be greatly impacted by the level of prepayments. The Company hedges against changes in MSR fair value attributable to changes in interest rates through a combination of derivative instruments and trading securities.
     Prior to 2006, servicing rights were evaluated quarterly for impairment based on the fair value of those rights, using a disaggregated approach. The fair value of the servicing rights was determined by estimating the present value of future net cash flows, taking into consideration market loan prepayment speeds, discount rates, servicing costs, and other economic factors. Temporary impairment was recognized in a valuation allowance against the mortgage servicing rights.
     Changes in the impairment allowance of mortgage servicing rights for the three months ended March 31, 2005, were as follows:
         
    Three Months Ended
    March 31,
(in thousands)   2005
 
Balance, beginning of period
  $ (4,775 )
Impairment charges
    (1,180 )
Impairment recovery
    4,940  
 
Balance, end of period
  $ (1,015 )
 
     A summary of servicing fee income earned during the three months ended March 31, 2006 and 2005 was as follows:
                 
    Three Months Ended
    March 31,
(in thousands)   2006   2005
 
Servicing fees
  $ 5,924     $ 5,394  
Late fees
    610       505  
Ancillary fees
    253       126  
 
Total fee income
  $ 6,787     $ 6,025  
 

12

Note 6 — Investment Securities
     Listed below are the contractual maturities (under 1 year, 1-5 years, 6-10 years and over 10 years) of investment securities at March 31, 2006, December 31, 2005, and March 31, 2005:
                                                 
    March 31, 2006   December 31, 2005   March 31, 2005
    Amortized           Amortized           Amortized    
(in thousands)   Cost   Fair Value   Cost   Fair Value   Cost   Fair Value
 
U.S. Treasury
                                               
Under 1 year
  $     $     $     $     $     $  
1-5 years
    21,253       20,466       23,446       22,893       24,739       24,376  
6-10 years
    2,946       3,014       753       782       248       260  
Over 10 years
                                   
 
Total U.S. Treasury
    24,199       23,480       24,199       23,675       24,987       24,636  
 
Federal agencies
                                               
Mortgage backed securities
                                               
Under 1 year
                                   
1-5 years
    29,853       28,698       31,058       30,047       17,649       17,296  
6-10 years
                            20,835       20,442  
Over 10 years
    1,244,278       1,197,187       1,278,540       1,248,975       644,058       625,922  
 
Total mortgage-backed Federal agencies
    1,274,131       1,225,885       1,309,598       1,279,022       682,542       663,660  
 
Other agencies
                                               
Under 1 year
    45,099       44,247                          
1-5 years
    252,770       241,958       296,945       286,754       535,760       522,427  
6-10 years
    51,048       47,467       52,440       49,712       450,231       430,329  
Over 10 years
                                   
 
Total other Federal agencies
    348,917       333,672       349,385       336,466       985,991       952,756  
 
 
                                               
Total Federal agencies
    1,623,048       1,559,557       1,658,983       1,615,488       1,668,533       1,616,416  
 
 
                                               
Municipal securities
                                               
Under 1 year
    65       65       65       65       63       63  
1-5 years
    145       145       145       145       361       362  
6-10 years
    154,741       151,982       144,415       143,597       82,923       81,932  
Over 10 years
    393,470       390,206       400,156       401,043       309,063       309,442  
 
Total municipal securities
    548,421       542,398       544,781       544,850       392,410       391,799  
 
Private label CMO
                                               
Under 1 year
                                   
1-5 years
                                   
6-10 years
                                   
Over 10 years
    663,447       651,017       402,959       393,569       435,931       428,839  
 
Total private label CMO
    663,447       651,017       402,959       393,569       435,931       428,839  
 
Asset backed securities
                                               
Under 1 year
                                   
1-5 years
    30,503       30,445       31,663       31,659       30,000       30,000  
6-10 years
                            6,385       6,419  
Over 10 years
    2,071,020       2,071,735       1,757,031       1,757,121       1,404,743       1,409,855  
 
Total asset backed securities
    2,101,523       2,102,180       1,788,694       1,788,780       1,441,128       1,446,274  
 
Other
                                               
Under 1 year
    2,400       2,400       1,700       1,700       2,100       2,109  
1-5 years
    9,800       9,808       10,997       11,051       11,005       11,219  
6-10 years
    1,252       1,186       2,062       2,063       2,655       2,622  
Over 10 years
    44       43       44       43       35,149       37,922  
Non-marketable equity securities
    136,123       136,123       89,661       89,661       85,568       85,568  
Marketable equity securities
    5,271       6,167       55,058       55,640       5,190       5,471  
 
Total other
    154,890       155,727       159,522       160,158       141,667       144,911  
 
 
                                               
Total investment securities
  $ 5,115,528     $ 5,034,359     $ 4,579,138     $ 4,526,520     $ 4,104,656     $ 4,052,875  
 
Duration in years (1)
            2.8               2.8               2.8  
 
(1)   The average duration assumes a market driven pre-payment rate on securities subject to pre-payment.

13

     Based upon its assessment, Management does not believe any individual unrealized loss at March 31, 2006, represents an other-than-temporary impairment. In addition, Huntington has the ability to hold these securities for a time necessary, including to maturity, to recover the amortized cost. There were no securities classified as held to maturity at March 31, 2006.
     Other securities include Federal Home Loan Bank and Federal Reserve Bank stock, corporate debt and marketable equity securities.
Note 7 — Other Comprehensive Income
The components of Huntington’s other comprehensive income in the three months ended March 31, were as follows:
                 
    Three Months Ended  
    March 31,  
(in thousands)   2006     2005  
 
Unrealized losses on investment securities arising during the period:
               
Unrealized net losses
  $ (28,571 )   $ (31,165 )
Related tax benefit
    9,864       10,998  
 
Net
    (18,707 )     (20,167 )
 
 
               
Reclassification adjustment for net losses (gains) from sales of investment securities realized during the period:
               
Realized net losses (gains)
    20       (957 )
Related tax (benefit) expense
    (7 )     335  
 
Net
    13       (622 )
 
 
               
Total unrealized net losses on investment securities arising during the period, net of reclassification of net realized gains and losses
    (18,694 )     (20,789 )
 
 
               
Unrealized gains on cash flow hedging derivatives arising during the period:
               
Unrealized net gains
    14,389       20,009  
Related tax expense
    (5,036 )     (7,003 )
 
Net
    9,353       13,006  
 
 
               
Total other comprehensive (loss) income
  $ (9,341 )   $ (7,783 )
 
     Activity in accumulated other comprehensive income for the three months ended March 31, 2006 and 2005 was as follows:
                                 
    Unrealized losses     Unrealized gains on     Minimum        
    on investment     cash flow hedging     pension        
(in thousands)   securities     derivatives     liability     Total  
 
Balance, December 31, 2004
  $ (12,683 )   $ 4,252     $ (2,472 )   $ (10,903 )
Period change
    (20,789 )     13,006             (7,783 )
 
Balance, March 31, 2005
  $ (33,472 )   $ 17,258     $ (2,472 )   $ (18,686 )
 
 
                               
Balance, December 31, 2005
  $ (34,016 )   $ 15,206     $ (3,283 )   $ (22,093 )
Period change
    (18,694 )     9,353             (9,341 )
 
Balance, March 31, 2006
  $ (52,710 )   $ 24,559     $ (3,283 )   $ (31,434 )
 

14

Note 8 — Earnings per Share
     Basic earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period. Diluted earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period adjusted for the potential issuance of common shares for dilutive stock options. The calculation of basic and diluted earnings per share for each of the three months ended March 31 is as follows:
                 
    Three Months Ended
    March 31,
(in thousands, except per share amounts)   2006   2005
 
Net income
  $ 104,456     $ 96,519  
 
               
Average common shares outstanding
    230,976       231,824  
Dilutive potential common shares
    3,395       3,229  
 
Diluted average common shares outstanding
  $ 234,371     $ 235,053  
 
 
               
Earnings per share
               
Basic
  $ 0.45     $ 0.42  
Diluted
    0.45       0.41  
     The average market price of Huntington’s common stock for the period was used in determining the dilutive effect of outstanding stock options. Dilutive potential common shares include stock options and options held in deferred compensation plans. Dilutive potential common shares are computed based on the number of shares subject to options that have an exercise price less than the average market price of Huntington’s common stock for the period.
     Options on approximately 5.7 million and 2.6 million shares were outstanding at March 31, 2006 and 2005, respectively, but were not included in the computation of diluted earnings per share because the effect would be antidilutive. The weighted average exercise price for these options was $25.68 per share and $26.96 per share at the end of the same respective periods.
Note 9 — Stock-Based Compensation
     Huntington sponsors nonqualified and incentive stock option plans. These plans provide for the granting of stock options to officers, directors and other employees at the market price on the date of the grant. Huntington’s board of directors has approved all of the plans. Shareholders have approved each of the plans, except for the broad-based Employee Stock Incentive Plan. Of the 26.5 million options to purchase shares of common stock authorized for issuance under the plans at March 31, 2006, 21.0 million were outstanding and 5.5 million were available for future grants. Options vest ratably over three years or when other conditions are met. Options granted prior to May 2004 have a maximum term of ten years. All options granted beginning in May 2004 have a maximum term of seven years.
     On January 1, 2006, Huntington adopted the fair value recognition provisions of Statement No. 123R relating to its stock-based compensation plans. Prior to January 1, 2006, Huntington had accounted for stock-based compensation plans under the intrinsic value method promulgated by APB Opinion 25, Accounting for Stock Issued to Employees , and related interpretations. In accordance with APB 25, compensation expense for employee stock options was generally not recognized for options granted that had an exercise price equal to the market value of the underlying common stock on the date of grant.
     Under the modified prospective method of Statement No. 123R, compensation expense was recognized during the three months ended March 31, 2006, for all unvested stock options, based on the grant date fair value estimated in accordance with the original provisions of Statement No. 123 and for all stock based payments granted after January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of Statement No. 123R. Stock-based compensation expense was recorded in personnel costs in the consolidated statement s of income. Huntington’s financial results for the prior periods have not been restated.

15

     The following table represents the impact of adoption of Statement 123R on Huntington’s income before income taxes, net income and basic and diluted earnings per share for the three months ended March 31, 2006.
         
    Stock-based
    compensation
(in millions, except per share amounts)   expense
Income before income taxes
  $ 4.3  
Net income
    2.8  
Earnings per share
       
Basic
  $ 0.01  
Diluted
    0.01  
     Prior to the adoption of Statement 123R, Huntington presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the consolidated statements of cash flows. Statement 123R requires the cash flows resulting from tax benefits resulting from tax deductions in excess of compensation costs recognized for those options (excess tax benefits) to be classified as financing cash flows. As a result, the benefits of tax deductions in excess of recognized compensation cost included in net financing cash flows was not significant.
     Consistent with the valuation method used for the disclosure only provisions of Statement No. 123, Huntington is using the Black-Scholes option-pricing model to value stock-based compensation expense. This model assumes that the estimated fair value of options is amortized over the options’ vesting periods and the compensation costs would be included in personnel costs on the consolidated statements of income. Forfeitures are estimated at the date of grant based on historical rates and reduce the compensation expense recognized. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant. Expected volatility is based on the historical volatility of Huntington’s stock. The expected term of options granted is derived from historical data on employee exercises. The expected dividend yield is based on the dividend rate and stock price on the date of the grant. The following table illustrates the weighted-average assumptions used in the option-pricing model for options granted in each of the periods presented.
                 
    Three Months Ended
    March 31,
    2006   2005
 
Assumptions
               
Risk-free interest rate
    4.47 %     4.13 %
Expected dividend yield
    4.32       3.47  
Expected volatility of Huntington’s common stock
    22.2       26.3  
Expected option term (years)
    6.0       6.0  
     The weighted-average fair value of each option granted for the three months ended March 31, 2006 and 2005 was $4.33 per share and $4.85 per share, respectively.
     The following pro forma disclosures for net income and earnings per diluted common share for the three months ended March 31, 2005 are presented as if Huntington had applied the fair value method of accounting of Statement No. 123 in measuring compensation costs for stock options.
         
    Three Months Ended
(in millions, except per share amounts)   March 31, 2005
 
Pro forma results
       
Net income, as reported
  $ 96.5  
Pro forma expense, net of tax
    (2.9 )
 
Pro forma net income
  $ 93.6  
 
 
       
Net income per common share:
       
Basic, as reported
  $ 0.42  
Basic, pro forma
    0.40  
Diluted, as reported
    0.41  
Diluted, pro forma
    0.40  

16

     Huntington’s stock option activity and related information for the three months ended March 31, 2006 was as follows:
                                 
                    Weighted-        
            Weighted-     Average        
            Average     Remaining     Aggregate  
            Exercise     Contractual     Intrinsic  
(in thousands, except per share amounts)   Options     Price     Life (Years)     Value  
 
Outstanding at January 1, 2006
    21,004     $ 21.11                  
Granted
    10       23.39                  
Acquired (1)
    655       16.56                  
Exercised
    (613 )     16.74                  
Forfeited/expired
    (111 )     21.95                  
 
 
                               
Outstanding at March 31, 2006
    20,945       21.09       5.4       72,454  
 
 
                               
Exercisable at March 31, 2006
    13,116     $ 20.11       5.0     $ 59,879  
 
(1)   Relates to option plans acquired from the merger with Unizan.
     The aggregate intrinsic value represents the amount by which the fair value of underlying stock exceeds the option exercise price. The total intrinsic value of stock options exercised during the three months ended March 31, 2006 was $4.5 million.
     Huntington issues shares to fulfill stock option exercises from available shares held in treasury. At March 31, 2006, the Company believes there are adequate shares in treasury to satisfy anticipated stock option exercises in 2006.
     The following table summarizes the status of Huntington’s nonvested options for the three months ended March 31, 2006:
                 
            Weighted-  
            Average  
            Grant Date  
(in thousands, except per share amounts)   Options     Fair Value  
 
Nonvested at January 1, 2006
    7,956     $ 5.53  
Granted
    10       4.33  
Acquired (1)
    19       4.61  
Vested
    (51 )     5.19  
Forfeited
    (105 )     5.58  
 
Nonvested at March 31, 2006
    7,829     $ 5.52  
 
(1)   Relates to option plans acquired from the merger with Unizan.
     As of March 31, 2006, the total compensation cost related to nonvested awards not yet recognized was $25.4 million with a weighted-average expense recognition period of 1.8 years. The total fair value of options vested during the three months ended March 31, 2006 was $0.3 million.
     Additional information regarding options outstanding as of March 31, 2006, is as follows:
                                         
(in thousands, except per share amounts)   Options Outstanding     Exercisable Options  
            Weighted-                      
            Average     Weighted-             Weighted-  
            Remaining     Average             Average  
Range of           Contractual     Exercise             Exercise  
Exercise Prices   Shares     Life (Years)     Price     Shares     Price  
 
$11.03 to $15.00
    805       5.0     $ 14.26       805     $ 14.26  
$15.01 to $20.00
    8,109       5.3       18.06       6,680       17.66  
$20.01 to $25.00
    9,749       6.2       22.74       3,367       21.57  
$25.01 to $28.35
    2,282       2.8       27.22       2,264       27.24  
 
 
                                       
Total
    20,945       5.4     $ 21.09       13,116     $ 20.11  
 

17

Note 10 — Benefit Plans
     Huntington sponsors the Huntington Bancshares Retirement Plan (the Plan), a non-contributory defined benefit pension plan covering substantially all employees. The Plan provides benefits based upon length of service and compensation levels. The funding policy of Huntington is to contribute an annual amount that is at least equal to the minimum funding requirements but not more than that deductible under the Internal Revenue Code. In addition, Huntington has an unfunded, defined benefit post-retirement plan (Post-Retirement Benefit Plan) that provides certain healthcare and life insurance benefits to retired employees who have attained the age of 55 and have at least 10 years of vesting service under this plan. For any employee retiring on or after January 1, 1993, post-retirement healthcare benefits are based upon the employee’s number of months of service and are limited to the actual cost of coverage. Life insurance benefits are a percentage of the employee’s base salary at the time of retirement, with a maximum of $50,000 of coverage.
     The following table shows the components of net periodic benefit expense of the Plan and the Post-Retirement Benefit Plan:
                                 
    Pension Benefits   Post Retirement Benefits
    Three Months Ended   Three Months Ended
    March 31,   March 31,
(in thousands)   2006   2005   2006   2005
 
Service cost
  $ 4,309     $ 3,545     $ 337     $ 353  
Interest cost
    5,539       4,753       565       778  
Expected return on plan assets
    (8,220 )     (6,096 )            
Amortization of transition asset
          (1 )     276       276  
Amortization of prior service cost
    1       1       95       94  
Settlements
    1,000       750              
Recognized net actuarial loss
    4,377       2,673       (181 )      
 
 
                               
Benefit expense
  $ 7,006     $ 5,625     $ 1,092     $ 1,501  
 
     There is no expected minimum contribution for 2006 to the Plan.
     Huntington also sponsors other retirement plans, the most significant being the Supplemental Executive Retirement Plan and the Supplemental Retirement Income Plan. These plans are nonqualified plans that provide certain former officers and directors of Huntington and its subsidiaries with defined pension benefits in excess of limits imposed by federal tax law. The cost of providing these plans was $0.7 million and $0.6 million for the three-month periods ended March 31, 2006 and 2005, respectively.
     Huntington has a defined contribution plan that is available to eligible employees. Matching contributions by Huntington equal 100% on the first 3%, then 50% on the next 2%, of participant elective deferrals. The cost of providing this plan was $2.6 million and $2.5 million for the three months ended March 31, 2006 and 2005, respectively.

18

Note 11 — Commitments and Contingent Liabilities
Commitments to extend credit :
     In the ordinary course of business, Huntington makes various commitments to extend credit that are not reflected in the financial statements. The contract amounts of these financial agreements at March 31, 2006, December 31, 2005, and March 31, 2005, were as follows:
                         
    March 31,   December 31,   March 31,
(in millions)   2006   2005   2005
 
Contract amount represents credit risk
                       
Commitments to extend credit
                       
Commercial
  $ 3,295     $ 3,316     $ 4,253  
Consumer
    3,410       3,046       2,942  
Commercial real estate
    1,648       1,567       880  
Standby letters of credit
    1,095       1,079       956  
Commercial letters of credit
    43       47       51  
     Commitments to extend credit generally have fixed expiration dates, are variable-rate, and contain clauses that permit Huntington to terminate or otherwise renegotiate the contracts in the event of a significant deterioration in the customer’s credit quality. These arrangements normally require the payment of a fee by the customer, the pricing of which is based on prevailing market conditions, credit quality, probability of funding, and other relevant factors. Since many of these commitments are expected to expire without being drawn upon, the contract amounts are not necessarily indicative of future cash requirements. The interest rate risk arising from these financial instruments is insignificant as a result of their predominantly short-term, variable-rate nature.
     Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. Most of these arrangements mature within two years. The carrying amount of deferred revenue associated with these guarantees was $5.3 million, $4.0 million, and $3.6 million at March 31, 2006, December 31, 2005, and March 31, 2005, respectively.
     Commercial letters of credit represent short-term, self-liquidating instruments that facilitate customer trade transactions and generally have maturities of no longer than 90 days. The merchandise or cargo being traded normally secures these instruments.
Commitments to sell loans:
     Huntington enters into forward contracts relating to its mortgage banking business. At March 31, 2006, December 31, 2005, and March 31, 2005, Huntington had commitments to sell residential real estate loans of $406.3 million, $348.3 million, and $388.5 million, respectively. These contracts mature in less than one year.
     During the 2005 second quarter, Huntington entered into a two-year agreement to sell about 50% of monthly automobile loan production at the cost of such loans, subject to certain limitations, provided the production meets certain pricing, asset quality, and volume parameters. At March 31, 2006, approximately $67.3 million of automobile loans related to this commitment were classified as held for sale.
Litigation:
     In the ordinary course of business, there are various legal proceedings pending against Huntington and its subsidiaries. In the opinion of Management, the aggregate liabilities, if any, arising from such proceedings are not expected to have a material adverse effect on Huntington’s consolidated financial position.

19

Note 12 — Derivative Financial Instruments
     A variety of derivative financial instruments, principally interest rate swaps, are used in asset and liability management activities to protect against the risk of adverse price or interest rate movements on the value of certain assets and liabilities and on future cash flows. These derivative financial instruments provide flexibility in adjusting the Company’s sensitivity to changes in interest rates without exposure to loss of principal and higher funding requirements. By using derivatives to manage interest rate risk, the effect is a smaller, more efficient balance sheet, with a lower wholesale funding requirement and a higher net interest margin. All derivatives are reflected at fair value in the consolidated balance sheet.
     Market risk, which is the possibility that economic value of net assets or net interest income will be adversely affected by changes in interest rates or other economic factors, is managed through the use of derivatives. Derivatives are sold to meet customers’ financing needs and, like other financial instruments, contain an element of credit risk, which is the possibility that Huntington will incur a loss because a counter-party fails to meet its contractual obligations. Notional values of interest rate swaps and other off-balance sheet financial instruments significantly exceed the credit risk associated with these instruments and represent contractual balances on which calculations of amounts to be exchanged are based. Credit exposure is limited to the sum of the aggregate fair value of positions that have become favorable to Huntington, including any accrued interest receivable due from counterparties. Potential credit losses are minimized through careful evaluation of counterparty credit standing, selection of counterparties from a limited group of high quality institutions, collateral agreements, and other contractual provisions.
Asset and Liability Management
     Derivatives that are used in asset and liability management are classified as fair value hedges or cash flow hedges and are required to meet specific criteria. To qualify as a hedge, the hedge relationship is designated and formally documented at inception, detailing the particular risk management objective and strategy for the hedge. This includes identifying the item and risk being hedged, the derivative being used, and how the effectiveness of the hedge is being assessed. A derivative must be highly effective in accomplishing the objective of offsetting either changes in fair value or cash flows for the risk being hedged. Correlation is evaluated on a retrospective and prospective basis using quantitative measures. If a hedge relationship is found not to be effective, the derivative no longer qualifies as a hedge and any excess gains or losses attributable to ineffectiveness, as well as subsequent changes in its fair value, are recognized in other income.
     For fair value hedges, deposits, short-term borrowings, and long-term debt are effectively converted to variable-rate obligations by entering into interest rate swap contracts whereby fixed-rate interest is received in exchange for variable-rate interest without the exchange of the contract’s underlying notional amount. Forward contracts, used primarily in connection with mortgage banking activities, can be settled in cash at a specified future date based on the differential between agreed interest rates applied to a notional amount. The changes in fair value of the hedged item and the hedging instrument are reflected in current earnings.
     For cash flow hedges, the Company enters into interest rate swap contracts which require the payment of fixed-rate interest in exchange for the receipt of variable-rate interest without the exchange of the contract’s underlying notional amount, which effectively converts a portion of its floating-rate debt to fixed-rate. This reduces the potentially adverse impact of increases in interest rates on future interest expense. In like fashion, certain LIBOR-based commercial and industrial loans are effectively converted to fixed-rate by entering into contracts that swap variable-rate interest for fixed-rate interest over the life of the contracts. To the extent these derivatives are effective in offsetting the variability of the hedged cash flows, changes in the derivatives’ fair value will not be included in current earnings, but are reported as a component of accumulated other comprehensive income in shareholders’ equity. These changes in fair value will be included in earnings of future periods when earnings are also affected by the changes in the hedged cash flows. To the extent these derivatives are not effective, changes in their fair values are immediately included in earnings.

20

          Derivatives used to manage interest rate risk at March 31, 2006, are shown in the table below:
                                         
    Notional   Average
Maturity
  Fair   Weighted-Average
Rate
(in thousands )   Value   (years)   Value   Receive   Pay
 
Liability conversion swaps
                                       
Receive fixed — generic
  $ 925,250       9.1     $ (6,348 )     5.12 %     4.94 %
Receive fixed — callable
    665,000       6.9       (19,856 )     4.44       4.64  
Pay fixed — generic
    490,000       3.6       (1,363 )     4.50       5.04  
 
Total liability conversion swaps
  $ 2,080,250       7.1     $ (27,567 )     4.76 %     4.87 %
 
          During the first quarter, Huntington terminated asset and liability conversion interest rate swaps with a total notional value of $2.5 billion. The terminations generated gross gains of $34.9 million and gross losses of $34.5 million, resulting in a net deferred gain of $0.4 million. The net gain is being amortized into interest income over the remainder of the original terms of the terminated swaps as follows: 2006 ($2.2 million), 2007 $2.2 million, 2008 ($1.4 million), 2009 $0.2 million, and 2010 $1.6 million. The values in the above table must be viewed in the context of the overall financial structure of Huntington, including the aggregate net position of all on- and off-balance sheet financial instruments.
          As is the case with cash securities, the fair value of interest rate swaps is largely a function of financial market expectations regarding the future direction of interest rates. Accordingly, current market values are not necessarily indicative of the future impact of the swaps on net interest income. This will depend, in large part, on the shape of the yield curve as well as interest rate levels. Management made no assumptions regarding future changes in interest rates with respect to the variable-rate information presented in the table above.
          The following table represents the gross notional value of derivatives used to manage interest rate risk at March 31, 2006, identified by the underlying interest rate-sensitive instruments. The notional amounts shown in the tables above and below should be viewed in the context of overall interest rate risk management activities to assess the impact on the net interest margin.
                         
    Fair Value   Cash Flow    
(in thousands )   Hedges   Hedges   Total
 
Instruments associated with:
                       
Deposits
  $ 790,250     $ 165,000     $ 955,250  
Federal Home Loan Bank advances
          325,000       325,000  
Subordinated notes
    750,000             750,000  
Other long-term debt
    50,000             50,000  
 
Total notional value at March 31, 2006
  $ 1,590,250     $ 490,000     $ 2,080,250  
 
          Collateral agreements are regularly entered into as part of the underlying derivative agreements with Huntington’s counterparties to mitigate the credit risk associated with both the derivatives used for asset and liability management and used in trading activities. At March 31, 2006, December 31, 2005, and March 31, 2005, aggregate credit risk associated with these derivatives, net of collateral that has been pledged by the counterparty, was $21.3 million, $26.2 million, and $20.0 million, respectively. The credit risk associated with interest rate swaps is calculated after considering master netting agreements.
          These derivative financial instruments were entered into for the purpose of mitigating the interest rate risk embedded in assets and liabilities. Consequently, net amounts receivable or payable on contracts hedging either interest earning assets or interest bearing liabilities were accrued as an adjustment to either interest income or interest expense. The net amount resulted in an increase to net interest income of $0.6 million and $7.6 million, for the three months ended March 31, 2006 and 2005, respectively.

21

Derivatives Used in Mortgage Banking Activities
          Huntington also uses derivatives, principally loan sale commitments, in the hedging of its mortgage loan commitments and its mortgage loans held for sale. For derivatives that are used in hedging mortgage loans held for sale, ineffective hedge gains and losses are reflected in mortgage banking revenue in the income statement. Mortgage loan commitments and the related hedges are carried at fair value on the consolidated balance sheet with changes in fair value reflected in mortgage banking revenue. The following is a summary of the derivative assets and liabilities that Huntington used in its mortgage banking activities as of March 31, 2006 and 2005:
                 
    At March 31,  
(in thousands)   2006     2005  
 
Derivative assets:
               
Interest rate lock agreements
  $ 250     $ 453  
Forward trades
    3,053       3,994  
 
Total derivative assets
    3,303       4,447  
 
 
               
Derivative liabilities:
               
Interest rate lock agreements
    (1,650 )     (1,695 )
Forward trades
    (32 )     (205 )
 
Total derivative liabilities
    (1,682 )     (1,900 )
 
 
               
Net derivative asset
  $ 1,621     $ 2,547  
 
Derivatives Used in Trading Activities
          Various derivative financial instruments are offered to enable customers to meet their financing and investing objectives and for their risk management purposes. Derivative financial instruments used in trading activities consisted predominantly of interest rate swaps, but also included interest rate caps, floors, and futures, as well as foreign exchange options. Interest rate options grant the option holder the right to buy or sell an underlying financial instrument for a predetermined price before the contract expires. Interest rate futures are commitments to either purchase or sell a financial instrument at a future date for a specified price or yield and may be settled in cash or through delivery of the underlying financial instrument. Interest rate caps and floors are option-based contracts that entitle the buyer to receive cash payments based on the difference between a designated reference rate and a strike price, applied to a notional amount. Written options, primarily caps, expose Huntington to market risk but not credit risk. Purchased options contain both credit and market risk. They are used to manage fluctuating interest rates as exposure to loss from interest rate contracts changes.
          Supplying these derivatives to customers results in fee income. These instruments are carried at fair value in other assets with gains and losses reflected in other non-interest income. Total trading revenue for customer accommodation was $3.0 million and $1.7 million for the three months ended March 31, 2006 and 2005, respectively. The total notional value of derivative financial instruments used by Huntington on behalf of customers, for which the related interest rate risk is offset by third parties, was $4.3 billion, $4.2 billion, and $4.3 billion at March 31, 2006, December 31, 2005, and March 31, 2005. Huntington’s credit risk from interest rate swaps used for trading purposes was $56.2 million, $44.3 million, and $46.1 million at the same dates.
          In connection with its securitization activities, interest rate caps were purchased with a notional value totaling $0.8 billion. These purchased caps were assigned to the securitization trust for the benefit of the security holders. Interest rate caps were also sold totaling $0.8 billion outside the securitization structure. Both the purchased and sold caps are marked to market through income in accordance with accounting principles generally accepted in the United States.

22

Note 13 – Shareholders’ Equity
Share Repurchase Program:
          On October 18, 2005, the Company announced that the board of directors authorized a new program for the repurchase of up to 15 million shares (the 2005 Repurchase Program). The 2004 Repurchase Program, with 3.1 million shares remaining, was cancelled and replaced by the 2005 Repurchase Program.
          Listed below is the share repurchase activity under the 2005 Repurchase Program for the three months ended March 31, 2006:
                                 
                    Total Number of Shares     Maximum Number of  
    Total Number     Average     Purchased as Part of     Shares that May Yet Be  
    of Shares     Price Paid     Publicly Announced Plans     Purchased Under the  
Period   Purchased     Per Share     or Programs (1)     Plans or Programs (1)  
 
January 1, 2006 to January 31, 2006
    831,000     $ 23.27       6,006,000       8,994,000  
February 1, 2006 to February 28, 2006
    1,500,000       22.91       7,506,000       7,494,000  
March 1, 2006 to March 31, 2006
    2,500,000       23.85       10,006,000       4,994,000  
 
Total
    4,831,000     $ 23.46       10,006,000       4,994,000  
 
(1)   Information is as of the end of the period.
          On April 20, 2006, the Company announced that the board of directors authorized a new program for the repurchase of up to 15 million shares (the 2006 Repurchase Program). The 2006 Repurchase Program does not have an expiration date. The 2005 Repurchase Program with 5 million shares remaining, was canceled and replaced by the 2006 Repurchase Program. The Company expects to repurchase the shares from time to time in the open market or through privately negotiated transactions depending on market conditions.

23

Note 14 – Segment Reporting
          Huntington has three distinct lines of business: Regional Banking, Dealer Sales, and the Private Financial and Capital Markets Group (PFCMG). A fourth segment includes the Treasury function and other unallocated assets, liabilities, revenue, and expense. Lines of business results are determined based upon the Company’s management reporting system, which assigns balance sheet and income statement items to each of the business segments. The process is designed around the Company’s organizational and management structure and, accordingly, the results derived are not necessarily comparable with similar information published by other financial institutions. An overview of this system is provided below, along with a description of each segment and discussion of financial results.
          The following provides a brief description of the four operating segments of Huntington:
Regional Banking: This segment provides traditional banking products and services to consumer, small business, and commercial customers located in eight operating regions within the five states of Ohio, Michigan, West Virginia, Indiana, and Kentucky. It provides these services through a banking network of 375 branches, nearly 1,000 ATMs, plus on-line and telephone banking channels. Each region is further divided into Retail and Commercial Banking units. Retail products and services include home equity loans and lines of credit, first mortgage loans, direct installment loans, small business loans, personal and business deposit products, as well as sales of investment and insurance services. Retail Banking accounts for 59% and 78% of total Regional Banking loans and deposits, respectively. Commercial Banking serves middle market commercial banking relationships, which use a variety of banking products and services including, but not limited to, commercial loans, international trade, cash management, leasing, interest rate protection products, capital market alternatives, 401(k) plans, and mezzanine investment capabilities.
Dealer Sales: This segment provides a variety of banking products and services to more than 3,500 automotive dealerships within the Company’s primary banking markets, as well as in Arizona, Florida, Georgia, North Carolina, Pennsylvania, South Carolina, and Tennessee. Dealer Sales finances the purchase of automobiles by customers of the automotive dealerships, purchases automobiles from dealers and simultaneously leases the automobiles to consumers under long-term operating or direct finance leases, finances the dealerships’ floor plan inventories, real estate, or working capital needs, and provides other banking services to the automotive dealerships and their owners. Competition from the financing divisions of automobile manufacturers and from other financial institutions is intense. Dealer Sales’ production opportunities are directly impacted by the general automotive sales business, including programs initiated by manufacturers to enhance and increase sales directly. Huntington has have been in this line of business for over 50 years.
Private Financial and Capital Markets Group (PFCMG): This segment provides products and services designed to meet the needs of the Company’s higher net worth customers. Revenue is derived through the sale of trust, asset management, investment advisory, brokerage, insurance, and private banking products and services. It also focuses on financial solutions for corporate and institutional customers that include investment banking, sales and trading of securities, mezzanine capital financing, and risk management products. To serve high net worth customers, a unique distribution model is used that employs a single, unified sales force to deliver products and services mainly through Regional Banking distribution channels.
Treasury / Other: This segment includes revenue and expense related to assets, liabilities, and equity that are not directly assigned or allocated to one of the other three business segments. Assets in this segment include investment securities and bank owned life insurance.
Use of Operating Earnings to Measure Segment Performance
          Management uses earnings on an operating basis, rather than on a GAAP (reported) basis, to measure underlying performance trends for each business segment. Operating earnings represent reported earnings adjusted to exclude the impact of the significant items listed in the reconciliation table below. Analyzing earnings on an operating basis is very helpful in assessing underlying performance trends, a critical factor used to determine the success of strategies and future earnings capabilities.
          Listed below is certain financial information for the first quarter 2006 and 2005 reported results by line of business. For the three months ended March 31, 2006 and 2005, operating earnings were the same as reported earnings.

24

                                         
    Three Months Ended March 31,
Income Statements   Regional   Dealer           Treasury/   Huntington
(in thousands of dollars)   Banking   Sales   PFCMG   Other   Consolidated
 
2006
                                       
Net interest income
  $ 208,212     $ 34,671     $ 17,607     $ (16,810 )   $ 243,680  
Provision for credit losses
    (10,325 )     (7,762 )     (1,453 )           (19,540 )
Non-interest income
    77,807       26,976       40,895       13,856       159,534  
Non-interest expense
    (151,839 )     (31,901 )     (32,124 )     (22,551 )     (238,415 )
Income taxes
    (43,349 )     (7,694 )     (8,724 )     18,964       (40,803 )
 
Operating / reported net income
  $ 80,506     $ 14,290     $ 16,201     $ (6,541 )   $ 104,456  
 
 
                                       
2005
                                       
Net interest income
  $ 185,030     $ 37,906     $ 16,845     $ (4,583 )   $ 235,198  
Provision for credit losses
    (12,318 )     (6,931 )     (625 )           (19,874 )
Non-interest income
    71,199       53,143       32,051       11,657       168,050  
Non-interest expense
    (150,313 )     (56,588 )     (33,449 )     (17,927 )     (258,277 )
Income taxes
    (32,759 )     (9,636 )     (5,188 )     19,005       (28,578 )
 
Operating / reported net income
  $ 60,839     $ 17,894     $ 9,634     $ 8,152     $ 96,519  
 
                                                 
    Assets at   Deposits at
     
Balance Sheets   March 31,   December 31,   March 31,   March 31,   December 31,   March 31,
(in millions of dollars)   2006   2005   2005   2006   2005   2005
     
Regional Banking
  $ 20,769     $ 18,857     $ 18,157     $ 20,233     $ 17,957     $ 17,540  
Dealer Sales
    5,467       5,612       6,091       64       65       69  
PFCMG
    2,090       2,010       1,944       1,177       1,180       1,155  
Treasury / Other
    7,340       6,286       5,991       3,081       3,208       3,007  
     
Total
  $ 35,666     $ 32,765     $ 32,183     $ 24,555     $ 22,410     $ 21,771  
     

25

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
INTRODUCTION
          Huntington Bancshares Incorporated (we or our) is a multi-state diversified financial holding company organized under Maryland law in 1966 and headquartered in Columbus, Ohio. Through our subsidiaries, we provide full-service commercial and consumer banking services, mortgage banking services, automobile financing, equipment leasing, investment management, trust services, brokerage services, and private mortgage insurance; reinsure credit life and disability insurance; and sell other insurance and financial products and services. Our banking offices are located in Ohio, Michigan, West Virginia, Indiana, and Kentucky. Certain activities are also conducted in Arizona, Florida, Georgia, Maryland, Nevada, New Jersey, North Carolina, Pennsylvania, South Carolina, and Tennessee. We have a foreign office in the Cayman Islands and another in Hong Kong. The Huntington National Bank (the Bank), organized in 1866, is our only bank subsidiary.
          The following discussion and analysis provides you with information we believe necessary for understanding our financial condition, changes in financial condition, results of operations, and cash flows and should be read in conjunction with the financial statements, notes, and other information contained in this report. The Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) appearing in our 2005 Annual Report on Form 10-K (2005 Form 10-K), as updated by the information contained in this report, should be read in conjunction with this interim MD&A.
          You should note the following discussion is divided into key segments:
    Introduction - Provides overview comments on important matters including risk factors and bank regulatory agreements. These are essential for understanding our performance and prospects.
 
    Discussion of Results of Operations - Reviews financial performance from a consolidated company perspective. It also includes a Significant Factors Influencing Financial Performance Comparisons section that summarizes key issues helpful for understanding performance trends. Key consolidated balance sheet and income statement trends are also discussed in this section.
 
    Risk Management and Capital - Discusses credit, market, liquidity, and operational risks, including how these are managed, as well as performance trends. It also includes a discussion of liquidity policies, how we fund ourselves, and related performance. In addition, there is a discussion of guarantees and/or commitments made for items such as standby letters of credit and commitments to sell loans, and a discussion that reviews the adequacy of capital, including regulatory capital requirements.
 
    Lines of Business Discussion - Describes our lines of business, provides an overview of financial performance for each line of business, and provides additional discussion of trends underlying consolidated financial performance.
Forward-Looking Statements
          This report, including MD&A, contains forward-looking statements. These include descriptions of products or services, plans or objectives for future operations, including any pending acquisitions, and forecasts of revenues, earnings, cash flows, or other measures of economic performance. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts.
          By their nature, forward-looking statements are subject to numerous assumptions, risks, and uncertainties. A number of factors could cause actual conditions, events, or results to differ significantly from those described in the forward-looking statements. These factors include, but are not limited to, those set forth under Risk Factors of our 2005 Form 10-K, and other factors described in this report and from time to time in our other filings with the SEC.
          You should understand forward-looking statements to be strategic objectives and not absolute forecasts of future performance. Forward-looking statements speak only as of the date they are made. We assume no obligation to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements were made or to reflect the occurrence of unanticipated events.

26

Risk Factors
          We, like other financial companies, are subject to a number of risks, many of which are outside of our direct control, though efforts are made to manage those risks while optimizing returns. Among the risks assumed are: (1) credit risk, which is the risk that loan and lease customers or other counter parties will be unable to perform their contractual obligations, (2) market risk, which is the risk that changes in market rates and prices will adversely affect our financial condition or results of operation, (3) liquidity risk, which is the risk that we and / or the Bank will have insufficient cash or access to cash to meet operating needs, and (4) operational risk, which is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events . (More information on risk is set forth under the heading “Risk Factors” included in Item 1A of our 2005 Form 10-K.)
Critical Accounting Policies and Use of Significant Estimates
          Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of financial statements in conformity with GAAP requires us to establish critical accounting policies and make accounting estimates, assumptions, and judgments that affect amounts recorded and reported in our financial statements. Note 1 of the Notes to Consolidated Financial Statements included in our 2005 Form 10-K as supplemented by this report lists significant accounting policies we use in the development and presentation of our financial statements. This discussion and analysis, the significant accounting policies, and other financial statement disclosures identify and address key variables and other qualitative and quantitative factors necessary for an understanding and evaluation of our company, financial position, results of operations, and cash flows.
          An accounting estimate requires assumptions about uncertain matters that could have a material effect on the financial statements if a different amount within a range of estimates were used or if estimates changed from period-to-period. Readers of this report should understand that estimates are made under facts and circumstances at a point in time, and changes in those facts and circumstances could produce actual results that differ from when those estimates were made.
Formal Regulatory Supervisory Agreements
          On March 1, 2005, we announced that we had entered into a formal written agreement with the Federal Reserve Bank of Cleveland (FRBC), and the Bank had entered into a formal written agreement with the Office of the Comptroller of the Currency (OCC), providing for a comprehensive action plan designed to enhance our corporate governance, internal audit, risk management, accounting policies and procedures, and financial and regulatory reporting. The agreements called for independent third-party reviews, as well as the submission of written plans and progress reports by Management and would remain in effect until terminated by the banking regulators.
          On October 6, 2005, we announced that the OCC had lifted its formal written agreement with the Bank dated February 28, 2005, and that the FRBC written agreement remained in effect. We were verbally advised that we were in full compliance with the financial holding company and financial subsidiary requirements under the Gramm-Leach-Bliley Act (GLB Act). This notification reflected that we, and the Bank, met both the “well-capitalized” and “well-managed” criteria under the GLB Act. We believe that the changes we have already made, and are in the process of making, will address the FRBC issues fully and comprehensively.

27

DISCUSSION OF RESULTS OF OPERATIONS
          This section provides a review of financial performance from a consolidated perspective. It also includes a Significant Factors Influencing Financial Performance Comparisons section that summarizes key issues important for a complete understanding of performance trends. Key consolidated balance sheet and income statement trends are discussed in this section. All earnings per share data are reported on a diluted basis. For additional insight on financial performance, this section should be read in conjunction with the Lines of Business Discussion.
Summary
          Earnings comparisons of 2006 first quarter performance with that of the 2005 first and fourth quarters were impacted by a number of factors, some related to changes in the economic and competitive environment, while others reflected specific strategies or changes in accounting practices. Understanding the nature and implications of these factors on financial results is important in understanding our income statement, balance sheet, and credit quality trends and the comparison of the current quarter performance with that of previous quarters. The key factors impacting the current reporting period comparisons are more fully described in the Significant Factors Influencing Financial Performance Comparisons section, which follows this summary discussion of results.
2006 First Quarter versus 2005 First Quarter
          Net income for the first quarter of 2006 was $104.5 million, or $0.45 per common share, up 8% and 10%, respectively, from $96.5 million, or $0.41 per common share, in the year-ago quarter. This $7.9 million increase in net income primarily reflected the positive impacts of:
    $18.8 million, or 16%, increase in non-interest income before operating lease income, primarily reflecting broad-based growth in various fee income activities including mortgage banking, other income, trust services, brokerage and insurance revenue, service charges on deposit accounts, and other service charges and fees. (See Non-interest Income discussion for details.)
 
    $8.5 million, or 4%, increase in net interest income reflecting 4% growth in average earning assets (5% in average loans and leases), and a slightly higher net interest margin (3.32% in the 2006 first quarter versus 3.31% in the year-ago quarter). (See Net Interest Income discussion for details.)
 
    $0.3 million, or 2%, decline in provision for credit losses. (See Provision for Credit Losses and the Credit Risk discussions for details.)
     Partially offset by:
    $12.2 million increase in provision for income taxes as the effective tax rate increased to 28.1% from 22.8%, primarily due to an increase in pre-tax earnings and the benefit from the federal tax loss carry back impacting only the 2005 provision for income tax expense. (See Provision for Income Taxes discussion for details.)
 
    $4.0 million decline in the net contribution from operating leases ($27.3 million decline in operating lease income partially offset by a $23.3 million decline in operating lease expense) as that portfolio continued its expected run-off. (See Operating Lease Assets discussion for details.)
 
    $3.5 million, or 2%, increase in non-interest expense before operating lease expense mostly attributable to higher personnel, marketing, and outside data processing costs, partially offset by declines in professional services, other, and net occupancy expenses. Personnel costs also increased, in part, as a result of expensing stock options in the first quarter of 2006. (See Non-interest Expense before operating lease expense discussion for details.)
          The return on average assets (ROA) and return on average equity (ROE) in the 2006 first quarter were 1.26% and 15.5%, respectively. While the ROA increased from 1.20% in the year-ago quarter, the ROE was unchanged (see Table 1).

28

2006 First Quarter versus 2005 Fourth Quarter
          Net income for the first quarter of 2006 was $104.5 million, or $0.45 per common share, up 4% and 2%, respectively, from $100.6 million, or $0.44 per common share, in the 2005 fourth quarter. This $3.9 million increase in net income primarily reflected the positive impacts of:
    $17.2 million, or 14%, increase in non-interest income before operating lease income, primarily reflecting a decline in securities losses and broad-based growth in various fee income activities including mortgage banking, brokerage and insurance revenue, and trust services income. Non-interest income categories that declined from the 2005 fourth quarter included service charges on deposit accounts (influenced by seasonal factors) and other income. (See Non-interest Income discussion for details.)
 
    $11.3 million decline in provision for credit losses as the 2005 fourth quarter provision expense was influenced by the establishment of reserves associated with that quarter’s increase in non-performing loans (NPLs). Net charge-offs in the 2006 first quarter were higher than in the prior quarter, reflecting the resolution of certain of the 2005 fourth quarter’s NPLs, for which reserves had already been established. Non-performing assets at March 31, 2006 were higher than at December 31, 2005, with the majority of the increase reflecting NPAs acquired in the Unizan merger. (See Provision for Credit Losses and the Credit Risk discussions for details.)
     Partially offset by:
    $12.2 million, or 6%, increase in non-interest expense before operating lease expense primarily due to higher personnel costs, reflecting higher benefits expense mostly due to seasonal factors, as well as higher salaries partially influenced by the Unizan merger and stock option expensing. These increases were partially offset by declines in other and professional services expenses. (See Non-interest Expense discussion for details.)
 
    $11.6 million increase in provision for income taxes as the effective tax rate increased to 28.1% from 22.5%, primarily due to an increase in pre-tax earnings and the benefit from the federal tax loss carry back impacting only the 2005 provision for income tax expense. (See Provision for Income Taxes discussion for details.)
 
    $0.8 million decline in the net contribution from operating leases ($5.0 million decline in operating lease income partially offset by a $4.1 million decline in operating lease expense) as that portfolio continued its expected run-off. (See Operating Lease Assets discussion for details.)
          Net interest income was essentially unchanged from the 2005 fourth quarter, reflecting 3% growth in average earning assets (two thirds of which was primarily attributable to the Unizan merger), offset by a decline in the net interest margin (3.32% in the 2006 first quarter versus 3.34% in the 2005 fourth quarter). (See Net Interest Income discussion for details.)
          The ROA and ROE in the 2006 first quarter were 1.26% and 15.5%, respectively. While the ROA increased slightly from 1.22% in the 2005 fourth quarter, the ROE was unchanged (see Table 1) .

29

Table 1 — Selected Quarterly Income Statement Data
                                         
    2006   2005
(in thousands, except per share amounts)   First   Fourth   Third   Second   First
     
Interest income
  $ 464,787     $ 442,476     $ 420,858     $ 402,326     $ 376,105  
Interest expense
    221,107       198,800       179,221       160,426       140,907  
     
Net interest income
    243,680       243,676       241,637       241,900       235,198  
Provision for credit losses
    19,540       30,831       17,699       12,895       19,874  
     
Net interest income after provision for credit losses
    224,140       212,845       223,938       229,005       215,324  
     
Service charges on deposit accounts
    41,222       42,083       44,817       41,516       39,418  
Trust services
    21,278       20,425       19,671       19,113       18,196  
Brokerage and insurance income
    15,193       13,101       13,948       13,544       13,026  
Bank owned life insurance income
    10,242       10,389       10,104       10,139       10,104  
Other service charges and fees
    11,509       11,488       11,449       11,252       10,159  
Mortgage banking income (loss)
    17,832       10,909       21,116       (2,376 )     12,061  
Securities gains (losses)
    (20 )     (8,770 )     101       (343 )     957  
Gains on sales of automobile loans
    448       455       502       254        
Other income
    22,440       22,900       9,770       24,974       17,397  
     
Sub-total before operating lease income
    140,144       122,980       131,478       118,073       121,318  
Operating lease income
    19,390       24,342       29,262       38,097       46,732  
     
Total non-interest income
    159,534       147,322       160,740       156,170       168,050  
     
Personnel costs
    131,557       116,111       117,476       124,090       123,981  
Net occupancy
    17,966       17,940       16,653       17,257       19,242  
Outside data processing and other services
    19,851       19,693       18,062       18,113       18,770  
Equipment
    16,503       16,093       15,531       15,637       15,863  
Professional services
    5,365       7,440       8,323       9,347       9,459  
Marketing
    7,798       7,403       6,779       7,441       6,454  
Telecommunications
    4,825       4,453       4,512       4,801       4,882  
Printing and supplies
    3,074       3,084       3,102       3,293       3,094  
Amortization of intangibles
    1,075       218       203       204       204  
Other expense
    15,794       19,194       19,588       19,074       18,380  
     
Sub-total before operating lease expense
    223,808       211,629       210,229       219,257       220,329  
Operating lease expense
    14,607       18,726       22,823       28,879       37,948  
     
Total non-interest expense
    238,415       230,355       233,052       248,136       258,277  
     
Income before income taxes
    145,259       129,812       151,626       137,039       125,097  
Provision for income taxes
    40,803       29,239       43,052       30,614       28,578  
     
Net income
  $ 104,456     $ 100,573     $ 108,574     $ 106,425     $ 96,519  
     
Average common shares — diluted
    234,363       229,718       233,456       235,671       235,053  
 
                                       
Per common share
                                       
Net income — diluted
  $ 0.45     $ 0.44     $ 0.47     $ 0.45     $ 0.41  
Cash dividends declared
    0.250       0.215       0.215       0.215       0.200  
 
                                       
Return on average total assets
    1.26 %     1.22 %     1.32 %     1.31 %     1.20 %
 
                                       
Return on average total shareholders’ equity
    15.5       15.5       16.5       16.3       15.5  
 
                                       
Net interest margin (1)
    3.32       3.34       3.31       3.36       3.31  
 
                                       
Efficiency ratio (2)
    58.3       57.0       57.4       61.8       63.7  
 
                                       
Effective tax rate
    28.1       22.5       28.4       22.3       22.8  
 
                                       
Revenue — fully taxable equivalent (FTE)
                                       
Net interest income
  $ 243,680     $ 243,676     $ 241,637     $ 241,900     $ 235,198  
FTE adjustment
    3,836       3,837       3,734       2,961       2,861  
     
Net interest income (1)
    247,516       247,513       245,371       244,861       238,059  
Non-interest income
    159,534       147,322       160,740       156,170       168,050  
     
Total revenue (1)
  $ 407,050     $ 394,835     $ 406,111     $ 401,031     $ 406,109  
     
(1)   On a fully taxable equivalent (FTE) basis assuming a 35% tax rate.
 
(2)   Non-interest expense less amortization of intangibles divided by the sum of FTE net interest income and non-interest income excluding securities gains (losses).

Significant Factors Influencing Financial Performance Comparisons
          Earnings comparisons from the beginning of 2005 through the first three months of 2006 were impacted by a number of factors, reflecting specific strategies or changes in accounting practices. Those key factors are summarized below.
  1.   Unizan Acquisition. The merger with Unizan Financial Corp. (Unizan), with assets of $2.5 billion, including $1.6 billion of loans, and core deposits of $1.5 billion, was completed March 1, 2006. This acquisition impacted performance comparisons to prior-period results by:
    Adding approximately one-month’s impact from Unizan to average balance sheet items most notably loans ($554 million for total loans and leases) and deposits ($516 million for total core deposits). (Please note that the conversion of Unizan’s loan and deposit systems to our systems in April 2006, may result in certain loan and deposit sub-category data and metrics as reported for the 2006 first quarter being reclassified.)
 
    Adding approximately one-month’s impact from Unizan to income statement items.
 
    Similarly impacting certain credit quality measures such as net charge-offs and period-end non-performing assets (NPAs).
      In addition, first quarter 2006 non-interest expense included $1.0 million of merger-related expenses in addition to Unizan’s run-rate amounts, which consisted primarily of retention bonuses, outside programming services, and marketing expenses.
 
      In the discussion of results, we refer to growth (amounts and percent) “before/excluding” Unizan, as we believe this is helpful in better discerning underlying growth rates and in analyzing performance trends without the impact of the Unizan merger. (See reconciliation table below.)
 
      Analysis of changes in loans and leases and deposits, adjusted for Unizan:
                                             
              Change          
                              Percent          
(in millions)   1Q06       Amount     Percent     Annualized       4Q05  
Total loans and leases – Reported
  $ 24,931       $ 463       1.9 %     7.6 %     $ 24,468  
Less: Total automobile loans / leases
    (4,215 )                                 (4,355 )
Unizan (net of automobile loans)
    (530 )                                 N.A.  
 
                                       
Total loans and leases – adjusted
  $ 20,186       $ 73       0.4 %     1.5 %     $ 20,113  
 
                                           
Total commercial loans – Reported
  $ 11,130       $ 356       3.3 %     13.2 %     $ 10,774  
Less: Unizan
    (264 )                                 N.A.  
 
                                       
Commercial loans – adjusted
  $ 10,866       $ 92       0.9 %     3.4 %     $ 10,774  
 
                                           
Home equity loans – Reported
  $ 4,694       $ 41       0.9 %     3.5 %     $ 4,653  
Less: Unizan
    (74 )                                 N.A.  
 
                                       
Home equity loans – adjusted
  $ 4,620       $ (33 )     (0.7 )%     (2.8 )%     $ 4,653  
 
                                           
Residential mortgages – Reported
  $ 4,306       $ 141       3.4 %     13.5 %     $ 4,165  
Less: Unizan
    (136 )                                 N.A.  
 
                                       
Residential mortgages – adjusted
  $ 4,170       $ 5       0.1 %     0.5 %     $ 4,165  
 
                                           
Total core deposits – Reported
  $ 17,942       $ 597       3.4 %     13.8 %     $ 17,345  
Less: Unizan
    (516 )                                 N.A.  
 
                                       
Total core deposits – adjusted
  $ 17,426       $ 81       0.5 %     1.9 %     $ 17,345  
                         
 
N.A., not applicable.

31

2.   Mortgage servicing rights (MSRs) and related hedging. Interest rate levels have generally been rising throughout this period, and occasionally, volatile, with increases in one period followed by declines in another and vice versa. This has impacted the valuation of MSRs, which can be volatile when rates change.
    Since the second quarter of 2002, we have generally retained the servicing on mortgage loans we originate and sell. MSR values are very sensitive to movements in interest rates as expected future net servicing income depends on the projected outstanding principal balances of the underlying loans, which can be greatly reduced by prepayments. Prepayments usually increase when mortgage interest rates decline and decrease when mortgage interest rates rise. Thus, as interest rates decline, less future income is expected and the value of MSRs declines. Prior to 2006, we recognized impairment when the valuation was less than the recorded book value. We recognized temporary impairment due to changes in interest rates through a valuation reserve and recorded a direct write-down of the book value of MSRs for other-than-temporary declines in valuation. Changes and fluctuations in interest rate levels between quarters resulted in some quarters reporting an MSR temporary impairment, with others reporting a recovery of previously recognized MSR temporary impairment. Such swings in MSR valuations have significantly impacted quarterly mortgage banking income trends throughout this period.
 
    Prior to 2006, we used trading account assets to offset MSR valuation changes. The valuations of trading securities we used generally reacted to interest rate changes in an opposite direction compared with changes in MSR valuations. As a result, changes in interest rate levels that impacted MSR valuations also resulted in trading gains or losses. As such, in quarters where an MSR impairment was recognized, trading account assets were sold, typically resulting in a gain on sale or trading income, and vice versa. Trading gains or losses are a component of other non-interest income on the income statement.
 
    Beginning in 2006, we adopted Statement No. 156, which records MSRs at fair value. Under the fair value approach, servicing assets and liabilities are recorded at fair value at each reporting date. Changes in fair value between reporting dates are recorded as an increase or decrease in mortgage banking income, which is reflected in non-interest income in the consolidated statements of income. MSR assets included in other assets. (See Tables 2, 5, and 6.)
3.   Automobile leases originated through April 2002 are accounted for as operating leases. Automobile leases originated before May 2002 are accounted for using the operating lease method of accounting because they do not qualify as direct financing leases. Operating leases are carried in other assets with the related rental income, other revenue, and credit recoveries reflected as operating lease income, a component of non-interest income. Under this accounting method, depreciation expenses, as well as other costs and charge-offs, are reflected as operating lease expense, a component of non-interest expense. With no new automobile operating leases originated since April 2002, the operating lease assets have declined rapidly. It is anticipated that the level of operating lease assets and related operating lease income and expense will decline to a point of diminished materiality sometime in 2006. However, until that point is reached, and since operating lease income and expense represented a significant percentage of total non-interest income and expense, respectively, throughout these reporting periods, their downward trend influenced total revenue, total non-interest income and total non-interest expense trends.
 
    In contrast, automobile leases originated since April 2002 are accounted for as direct financing leases, an interest earning asset included in total loans and leases with the related income reflected as interest income and included in the calculation of the net interest margin. Credit charge-offs and recoveries are reflected in the allowance for loan and lease losses (ALLL), with related changes in the ALLL reflected in the provision for credit losses. To better understand overall trends in automobile lease exposure, it is helpful to compare trends in the combined total of direct financing leases plus automobile operating leases.
 
4.   Effective tax rate. In each quarter of 2005, the effective tax rate included the positive impact on net income of a federal tax loss carry back, partially offset by the effect of the repatriation of foreign earnings in the third quarter of 2005.
 
5.   Stock option expensing. Beginning in the 2006 first quarter, we adopted Statement No. 123R, Share-based Payment, which resulted in recognizing the impact of stock-based compensation, primarily in the form of stock

32

    option grants, as personnel expense in our income statement. (See Note 9 to the unaudited condensed consolidated financial statements .)
 
6.   Other significant items influencing earnings performance comparisons. In addition to other items discussed separately in this section, a number of other items impacted financial results. These included:
 
    2006
    First Quarter – $2.4 million pre-tax ($0.01 earnings per share) negative impact, reflecting a cumulative adjustment to defer annual fees related to home equity loans. No impact on prospective earnings is expected.
    2005
    First Quarter – $6.4 million pre-tax ($0.02 earnings per share) negative impact from a single, commercial credit charge-off. This resulted in an increase in net charge-offs and provision expense in that quarter.
 
    First Quarter – $2.0 million pre-tax ($0.01 earnings per share) negative impact from SEC and regulatory related expenses.
Table 2 reflects the earnings impact of certain significant items for periods affected by this Discussion of Results of Operations:
Table 2 — Significant Items Influencing Earnings Performance Comparison (1)
                                                 
    Three Months Ended
    March 31, 2006   December 31, 2005   March 31, 2005
(in millions )   After-tax   EPS   After-tax   EPS   After-tax   EPS
 
Net income — reported earnings
  $ 104.5             $ 100.6             $ 96.5          
Earnings per share, after tax
          $ 0.45             $ 0.44             $ 0.41  
Change from prior quarter — $
            0.01               (0.03 )             0.02  
Change from prior quarter — %
            2.3 %             (6.4 )%             5.1 %
 
Change from a year-ago — $
          $ 0.04               N.A.               N.A.  
Change from a year-ago — %
            9.8 %             N.A.               N.A.  
                                                 
Significant items - favorable (unfavorable) impact:   Earnings (2)   EPS   Earnings (2)   EPS   Earnings (2)   EPS
 
MSR mark-to-market net of hedge-related trading activity
  $ 4.6     $ 0.01     $     $     $     $  
Adjustment to defer home equity annual fees
    (2.4 )     (0.01 )                        
Net impact of federal tax loss carry back (3)
                7.0       0.03       6.4       0.03  
Securities losses plus MSR recovery of temporary impairment net of hedge-related trading activity
                (10.4 )     (0.03 )            
Single C&I charge-off impact, net of allocated reserves
                            (6.4 )     (0.02 )
SEC and regulatory-related expenses
                            (2.0 )     (0.01 )
 
N.A., not applicable.
 
(1)   See Significant Factors Influencing Financial Performance discussion.
 
(2)   Pre-tax unless otherwise noted.
 
(3)   After-tax.

33

Net Interest Income
(This section should be read in conjunction with Significant Factors 1, 3, and 6.)
2006 First Quarter versus 2005 First Quarter
          Fully taxable equivalent net interest income increased $9.5 million, or 4%, from the year-ago quarter, reflecting the favorable impact of a $1.1 billion, or 4%, increase in average earning assets, as well as a one basis point increase in the fully taxable equivalent net interest margin to 3.32%. The cumulative adjustment for annual fees related to home equity loans reduced the current quarter’s net interest margin by 3 basis points.
          Average total loans and leases increased $1.1 billion from the 2005 first quarter including $0.6 billion attributable to Unizan, which accounted for approximately half of the 5% increase.
          Average total commercial loans increased $0.7 billion from the year-ago quarter, including $0.3 billion attributable to Unizan, which accounted for just under half of the 7% increase.
          Average total consumer loans increased $0.4 billion from the year-ago quarter, including $0.3 billion attributable to Unizan, which accounted for approximately two-thirds of the 3% increase. Average residential mortgages increased $0.4 billion, including $0.1 billion attributable to Unizan, which accounted for less than one-third of the 10% increase. Average home equity loans increased $0.1 billion with Unizan contributing approximately two-thirds of the 3% increase.
          Compared with the year-ago quarter, average total automobile loans and leases decreased $0.3 billion, or 6%, with Unizan having no material impact. Average automobile loans declined slightly, reflecting the sale of $170 million of such loans as our program of selling about 50% of current loan production continued. Automobile loan production has generally declined over the last several quarters, though it improved in the current quarter. Average operating lease assets declined $0.3 billion, or 62%, as this portfolio continued to run off. Total automobile loan and lease exposure at quarter end was under 17%, down from 20% a year ago.
          Average total investment securities increased $0.4 billion from the 2005 first quarter, most of which related to purchases to replace securities sold by Unizan prior to the merger.
          Average total core deposits in the 2006 first quarter increased $0.9 billion from the year-ago quarter, including $0.5 billion attributable to Unizan, which accounted for over one-half of the 5% increase. All of the average total core deposits increase reflected growth in certificates of deposit less than $100,000, partially offset by declines in interest bearing demand deposits and savings and other domestic time deposits. This transfer of funds into certificates of deposit less than $100,000 and out of other deposit accounts reflected the continuation of customer preference for higher fixed rate term deposit accounts.
          Average certificates of deposit less than $100,000 increased $1.4 billion, or 54%, including $0.2 billion attributable to Unizan. This was partially offset by a 5%, or $0.4 billion, decline in average interest bearing demand deposits despite a modest increase due to the Unizan merger, as well as a 7%, or $0.2 billion, decline in savings and other domestic time deposits despite a $0.2 billion increase due to the Unizan merger.
2006 First Quarter versus 2005 Fourth Quarter
          Compared with the 2005 fourth quarter, fully taxable equivalent net interest income was essentially unchanged. This reflected the benefit of 3% growth in average earning assets, primarily attributable to the Unizan merger, offset by a two basis point decline in the fully taxable equivalent net interest margin to 3.32% and the negative impact of two fewer days in the current quarter. The cumulative adjustment for annual fees related to home equity loans reduced the current quarter’s net interest margin by 3 basis points.
          Average total loans and leases increased $0.5 billion from the 2005 fourth quarter with an approximately $0.6 billion positive impact from the Unizan merger, more than offset by declines in the remaining loans and leases, primarily reflecting the on-going program of selling about 50% of automobile loan production.

34

          Average total commercial loans increased $0.4 billion from the 2005 fourth quarter, including $0.3 billion attributable to the Unizan merger. Total average commercial loans increased less than 1% from the 2005 fourth quarter.
          Average total consumer loans increased $0.1 billion compared with the 2005 fourth quarter. This reflected an approximate $0.3 billion positive impact of the Unizan merger, partially offset by a $0.1 billion, or 3%, decline in average automobile loans and leases as higher production was more than offset by payments and the effect of the on-going automobile loan sale program. Though automobile loan production has generally declined over recent quarters, it increased 38% from the 2005 fourth quarter and represented the second highest level of quarterly production in the last seven quarters. The decline in average direct financing leases primarily reflected a decline in production due to continued low consumer demand and competitive pricing, as well as payoffs. Average direct financing leases declined $0.1 billion, or 5%. This reflected the continued decline in new automobile lease production, down 22% from the 2005 fourth quarter. This was our lowest quarterly production level in years and reflected the continued decline in consumer demand for automobile leases, as well as aggressive price competition. The slight increase in average home equity loans and residential mortgages primarily reflected the positive impact of the Unizan merger. The lack of underlying growth in home equity loans and residential mortgages reflected the continuation of slower growth experienced over the last several quarters due to a combination of factors, including continued low demand as interest rate levels increased, consumer pay downs, as well as our desire to maintain credit underwriting and pricing discipline.
          Average total investment securities increased $0.4 billion from the 2005 fourth quarter, reflecting the impact of securities purchased to replace securities sold by Unizan prior to the merger.
          Compared with the 2005 fourth quarter, average total core deposits increased $0.6 billion, including $0.5 billion attributable to Unizan, which accounted for most of the 3% increase. This primarily reflected a $0.4 billion increase in certificates of deposits less than $100,000, with Unizan contributing $0.2 billion, or about one-half of the 13% growth from the prior quarter. Savings and other time deposits, as well as interest bearing demand deposits, increased modestly due to the impact of the Unizan merger.
          Tables 3 and 4 reflect quarterly average balance sheets and rates earned and paid on interest-earning assets and interest-bearing liabilities.

35

Table 3 — Consolidated Quarterly Average Balance Sheets
                                                           
Average Balances       Change  
Fully taxable equivalent basis   2006     2005       1Q06 vs 1Q05
(in millions)   First     Fourth     Third     Second     First       Amount     Percent  
           
Assets
                                                         
Interest bearing deposits in banks
  $ 48     $ 51     $ 54     $ 54     $ 53       $ (5 )     (9.4 )%
Trading account securities
    66       119       274       236       200         (134 )     (67.0 )
Federal funds sold and securities purchased under resale agreements
    201       103       142       225       475         (274 )     (57.7 )
Loans held for sale
    274       361       427       276       203         71       35.0  
Investment securities:
                                                         
Taxable
    4,138       3,802       3,523       3,589       3,932         206       5.2  
Tax-exempt
    548       540       537       411       409         139       34.0  
           
Total investment securities
    4,686       4,342       4,060       4,000       4,341         345       7.9  
Loans and leases: (1)
                                                         
Commercial: (2)
                                                         
Middle market commercial and industrial
    5,132       4,946       4,708       4,901       4,710         422       9.0  
Middle market commercial real estate:
                                                         
Construction
    1,454       1,675       1,720       1,678       1,642         (188 )     (11.4 )
Commercial
    2,423       1,923       1,922       1,905       1,883         540       28.7  
           
Middle market commercial real estate
    3,877       3,598       3,642       3,583       3,525         352       10.0  
Small business
    2,121       2,230       2,251       2,230       2,183         (62 )     (2.8 )
           
Total commercial
    11,130       10,774       10,601       10,714       10,418         712       6.8  
           
Consumer:
                                                         
Automobile loans
    1,994       2,018       2,078       2,069       2,008         (14 )     (0.7 )
Automobile leases
    2,221       2,337       2,424       2,468       2,461         (240 )     (9.8 )
           
Automobile loans and leases
    4,215       4,355       4,502       4,537       4,469         (254 )     (5.7 )
Home equity
    4,694       4,653       4,681       4,636       4,570         124       2.7  
Residential mortgage
    4,306       4,165       4,157       4,080       3,919         387       9.9  
Other loans
    586       521       507       491       480         106       22.1  
           
Total consumer
    13,801       13,694       13,847       13,744       13,438         363       2.7  
           
Total loans and leases
    24,931       24,468       24,448       24,458       23,856         1,075       4.5  
Allowance for loan and lease losses
    (283 )     (262 )     (256 )     (270 )     (282 )       (1 )     (0.4 )
           
Net loans and leases
    24,648       24,206       24,192       24,188       23,574         1,074       4.6  
           
Total earning assets
    30,206       29,444       29,405       29,249       29,128         1,078       3.7  
           
Operating lease assets
    200       245       309       409       529         (329 )     (62.2 )
Cash and due from banks
    789       742       867       865       909         (120 )     (13.2 )
Intangible assets
    362       218       217       218       218         144       66.1  
All other assets
    2,215       2,227       2,197       2,149       2,079         136       6.5  
           
Total Assets
  $ 33,489     $ 32,614     $ 32,739     $ 32,620     $ 32,581       $ 908       2.8 %
           
 
                                                         
Liabilities and Shareholders’ Equity
                                                         
Deposits:
                                                         
Demand deposits — non-interest bearing
  $ 3,436     $ 3,444     $ 3,406     $ 3,352     $ 3,314       $ 122       3.7 %
Demand deposits — interest bearing
    7,562       7,496       7,539       7,677       7,925         (363 )     (4.6 )
Savings and other domestic time deposits
    3,095       2,984       3,095       3,230       3,317         (222 )     (6.7 )
Certificates of deposit less than $100,000
    3,849       3,421       3,157       2,720       2,496         1,353       54.2  
           
Total core deposits
    17,942       17,345       17,197       16,979       17,052         890       5.2  
Domestic time deposits of $100,000 or more
    1,478       1,397       1,271       1,248       1,249         229       18.3  
Brokered deposits and negotiable CDs
    3,143       3,210       3,286       3,249       2,720         423       15.6  
Deposits in foreign offices
    465       490       462       434       442         23       5.2  
           
Total deposits
    23,028       22,442       22,216       21,910       21,463         1,565       7.3  
Short-term borrowings
    1,669       1,472       1,559       1,301       1,179         490       41.6  
Federal Home Loan Bank advances
    1,453       1,156       935       1,136       1,196         257       21.5  
Subordinated notes and other long-term debt
    3,346       3,687       3,960       4,100       4,517         (1,171 )     (25.9 )
           
Total interest bearing liabilities
    26,060       25,313       25,264       25,095       25,041         1,019       4.1  
           
All other liabilities
    1,264       1,283       1,458       1,554       1,699         (435 )     (25.6 )
Shareholders’ equity
    2,729       2,574       2,611       2,619       2,527         202       8.0  
           
Total Liabilities and Shareholders’ Equity
  $ 33,489     $ 32,614     $ 32,739     $ 32,620     $ 32,581       $ 908       2.8 %
           
     
(1)   For purposes of this analysis, non-accrual loans are reflected in the average balances of loans.
 
(2)   The middle market C&I and CRE loan balances in the first quarter of 2006 contain Unizan loan balances that are subject to reclassification when these loans are converted to Huntington’s loan systems.

36

Table 4 — Consolidated Quarterly Net Interest Margin Analysis
                                         
    Average Rates (2)
    2006   2005
Fully taxable equivalent basis (1)   First     Fourth     Third     Second     First  
     
Assets
                                       
Interest bearing deposits in banks
    3.78 %     3.20 %     2.13 %     1.47 %     1.88 %
Trading account securities
    2.94       4.53       3.95       3.94       4.14  
Federal funds sold and securities purchased under resale agreements
    4.30       3.78       3.41       2.76       2.36  
Loans held for sale
    5.92       5.68       5.43       6.04       5.55  
Investment securities:
                                       
Taxable
    5.04       4.70       4.37       4.13       3.87  
Tax-exempt
    6.71       6.77       6.62       6.76       6.73  
     
Total investment securities
    5.23       4.96       4.67       4.40       4.14  
Loans and leases: (3)
                                       
Commercial:
                                       
Middle market commercial and industrial
    6.80       6.28       5.87       5.65       5.02  
Middle market commercial real estate:
                                       
Construction
    7.55       7.27       6.58       6.04       5.54  
Commercial
    6.78       6.46       5.96       5.53       5.22  
     
Middle market commercial real estate
    7.07       6.84       6.25       5.77       5.37  
Small business
    6.67       6.43       6.18       6.01       5.82  
     
Total commercial
    6.87       6.50       6.07       5.76       5.31  
     
Consumer:
                                       
Automobile loans
    6.40       6.26       6.44       6.57       6.83  
Automobile leases
    4.97       4.98       4.94       4.91       4.92  
     
Automobile loans and leases
    5.65       5.57       5.63       5.67       5.78  
Home equity
    7.10       7.03       6.60       6.24       5.77  
Residential mortgage
    5.34       5.31       5.23       5.18       5.14  
Other loans
    6.39       5.98       5.92       6.22       6.42  
     
Total consumer
    6.08       6.00       5.85       5.74       5.61  
     
Total loans and leases
    6.43       6.22       5.94       5.75       5.48  
     
Total earning assets
    6.21 %     6.01 %     5.72 %     5.52 %     5.21 %
     
 
                                       
Liabilities and Shareholders’ Equity
                                       
Deposits:
                                       
Demand deposits — non-interest bearing
    %     %     %     %     %
Demand deposits — interest bearing
    2.44       2.12       1.87       1.64       1.45  
Savings and other domestic time deposits
    1.49       1.44       1.39       1.34       1.27  
Certificates of deposit less than $100,000
    3.83       3.70       3.58       3.49       3.43  
     
Total core deposits
    2.61       2.36       2.15       1.94       1.76  
Domestic time deposits of $100,000 or more
    4.33       3.90       3.60       3.27       2.92  
Brokered deposits and negotiable CDs
    4.69       4.20       3.66       3.25       2.80  
Deposits in foreign offices
    2.62       2.66       2.28       1.95       1.41  
     
Total deposits
    3.07       2.79       2.52       2.26       1.99  
Short-term borrowings
    3.57       3.11       2.74       2.16       1.66  
Federal Home Loan Bank advances
    3.99       3.37       3.08       3.02       2.90  
Subordinated notes and other long-term debt
    5.22       4.72       4.20       3.91       3.39  
     
Total interest bearing liabilities
    3.43 %     3.12 %     2.82 %     2.56 %     2.27 %
     
Net interest rate spread
    2.78 %     2.89 %     2.90 %     2.96 %     2.94 %
Impact of non-interest bearing funds on margin
    0.54       0.45       0.41       0.40       0.37  
     
Net interest margin
    3.32 %     3.34 %     3.31 %     3.36 %     3.31 %
     
     
(1)   Fully taxable equivalent (FTE) yields are calculated assuming a 35% tax rate. See Table 1 for the FTE adjustment.
 
(2)   Loan, lease, and deposit average rates include impact of applicable derivatives and non-deferrable fees.
 
(3)   For purposes of this analysis, non-accrual loans are reflected in the average balances of loans.

Provision for Credit Losses
(This section should be read in conjunction with Significant Factors 1, 3, and 6, and the Credit Risk section.)
     The provision for credit losses is the expense necessary to maintain the ALLL and the allowance for unfunded loan commitments and letters of credit (AULC) at a level adequate to absorb our estimate of probable inherent credit losses in the loan and lease portfolio and the portfolio of unfunded loan commitments. The provision for credit losses in the 2006 first quarter was $19.5 million, down $0.3 million from the year-ago quarter and down $11.3 million from the 2005 fourth quarter. The Unizan merger had no material impact on provision expense in the current quarter.
     Net charge-offs in the 2006 first quarter were higher than in the prior quarter, reflecting the resolution of certain of the 2005 fourth quarter’s NPLs, for which reserves had already been established. Non-performing assets at March 31, 2006 were higher than at December 31, 2005, with the majority of the increase reflecting NPAs acquired in the Unizan merger.
Non-Interest Income
(This section should be read in conjunction with Significant Factors 1, 2, 3, and 6.)
     Table 5 reflects non-interest income detail for each of the past five quarters
Table 5 — Non-Interest Income
                                                           
    2006   2005       1Q06 vs 1Q05
(in thousands)   First     Fourth     Third     Second     First       Amount     Percent  
           
Service charges on deposit accounts
  $ 41,222     $ 42,083     $ 44,817     $ 41,516     $ 39,418       $ 1,804       4.6 %
Trust services
    21,278       20,425       19,671       19,113       18,196         3,082       16.9  
Brokerage and insurance income
    15,193       13,101       13,948       13,544       13,026         2,167       16.6  
Bank owned life insurance income
    10,242       10,389       10,104       10,139       10,104         138       1.4  
Other service charges and fees
    11,509       11,488       11,449       11,252       10,159         1,350       13.3  
Mortgage banking income (loss)
    17,832       10,909       21,116       (2,376 )     12,061         5,771       47.8  
Securities gains (losses)
    (20 )     (8,770 )     101       (343 )     957         (977 )     N.M.  
Gains on sales of automobile loans
    448       455       502       254               448        
Other income
    22,440       22,900       9,770       24,974       17,397         5,043       29.0  
           
Sub-total before operating lease income
    140,144       122,980       131,478       118,073       121,318         18,826       15.5  
Operating lease income
    19,390       24,342       29,262       38,097       46,732         (27,342 )     (58.5 )
           
Total non-interest income
  $ 159,534     $ 147,322     $ 160,740     $ 156,170     $ 168,050       $ (8,516 )     (5.1 )%
           
     
N.M., not a meaningful value.
     Table 6 details mortgage banking income and the net impact of MSR hedging activity. We record MSR valuation changes in mortgage banking income, whereas MSR hedge-related trading activity was recorded in other non-interest income, as well as in net interest income. Striking a mortgage banking income sub-total before MSR valuation adjustments provides a clearer understanding of the underlying trends in mortgage banking income associated with the primary business activities of origination, sales, and servicing. The net impact of MSR hedging analysis shows all of the MSR valuation changes and related hedging activity so that the net impact can be more easily seen, especially since the components are recorded in different income statement line items.

38

          Mortgage banking income and the net impact of MSR hedging activities for each of the past five quarters, was as follows:
Table 6 — Quarterly Mortgage Banking Income and Net Impact of MSR Hedging
                                                           
    2006   2005     1Q06 vs 1Q05
(in thousands )   First     Fourth     Third     Second     First       Amount     Percent  
           
Mortgage Banking Income
                                                         
Origination fees
  $ 1,977     $ 1,979     $ 3,037     $ 3,066     $ 2,699       $ (722 )     (26.8 )%
Secondary marketing
    2,022       3,346       3,409       1,749       2,482         (460 )     (18.5 )
Servicing fees
    5,925       5,791       5,532       5,464       5,394         531       9.8  
Amortization of capitalized servicing (4)
    (3,532 )     (3,785 )     (4,626 )     (5,187 )     (4,761 )       1,229       25.8  
Other mortgage banking income
    2,227       3,193       3,307       2,763       2,487         (260 )     (10.5 )
           
Sub-total
    8,619       10,524       10,659       7,855       8,301         318       3.8  
MSR valuation adjustment (3)
    9,213       385       10,457       (10,231 )     3,760         5,453       N.M.  
           
Total mortgage banking income (loss)
  $ 17,832     $ 10,909     $ 21,116     $ (2,376 )   $ 12,061       $ 5,771       47.8 %
           
 
                                                         
Capitalized mortgage servicing rights (1)
  $ 123,257     $ 91,259     $ 85,940     $ 71,150     $ 80,972       $ 42,285       52.2 %
MSR allowance (1) (3)
          (404 )     (789 )     (11,246 )     (1,015 )       1,015       N.M.  
Total mortgages serviced for others (1)
    7,585,000       7,276,000       7,081,000       6,951,000       6,896,000         689,000       10.0  
MSR % of investor servicing portfolio
    1.63 %     1.25 %     1.21 %     1.02 %     1.17 %       0.46 %     39.3  
 
                                                         
Net Impact of MSR Hedging
                                                         
MSR valuation adjustment (3) (4)
  $ 9,213     $ 385     $ 10,457     $ (10,231 )   $ 3,760       $ 5,453       N.M. %
Net trading gains (losses) related to MSR hedging (2)
    (4,638 )     (2,091 )     (12,831 )     5,727       (4,182 )       (456 )     10.9  
Net interest income related to MSR hedging
          109       233       512       834         (834 )     1  
           
Net impact of MSR hedging
  $ 4,575     $ (1,597 )   $ (2,141 )   $ (3,992 )   $ 412       $ 4,163       N.M. %
           
     
N.M., not a meaningful value.
 
(1)   At period end.
 
(2)   Included in other non-interest income.
 
(3)   The first quarter of 2006 reflects the adoption of Statement No. 156, which records MSRs at fair value. Prior periods reflect temporary impairment or recovery, based on accounting for MSRs at the lower of cost or market.
 
(4)   The change in fair value for the period represents the MSR valuation adjustment, net of amortization of capitalized servicing.
2006 First Quarter versus 2005 First Quarter
          Non-interest income declined $8.5 million, or 5%, from the year-ago quarter, reflecting a $27.3 million decline in operating lease income. That portfolio continued to run off since no new automobile operating leases have been originated since April 2002. Non-interest income before operating lease income increased $18.8 million, or 16%, including approximately $1.9 million attributable to Unizan. The drivers of the $18.8 million increase included:
    $5.8 million increase in mortgage banking income, reflecting a $5.5 million higher MSR valuation adjustment, which included $9.2 million related to the implementation of Statement No. 156.
 
    $5.0 million increase in other income, including approximately $0.3 million from the Unizan merger, as well as higher capital markets income and equity investment gains.

39

    $3.1 million, or 17%, increase in trust services income, including approximately $0.5 million attributable to Unizan, as well as (1) higher personal trust income, reflecting organic managed asset growth, including increased managed assets from Florida offices opened during 2005, (2) higher Huntington Fund fees, primarily reflecting 15% managed asset growth, and (3) higher institutional trust income due to higher servicing fee income.
 
    $2.2 million, or 17%, increase in brokerage and insurance income with the increase equally split between higher insurance and brokerage income, due to a 24% increase in annuity sales volume.
 
    $1.8 million, or 5%, increase in service charges on deposit accounts, including approximately $0.5 million from the Unizan merger, as well as higher personal service charges, mostly NSF/OD, which was partially offset by a modest decline in commercial service charge income. As interest rates rise, commercial customers pay a greater proportion of their fees with compensating balances credits rather than directly in cash.
 
    $1.4 million, or 13%, increase in other service charges and fees, including approximately $0.2 million from the Unizan merger, as well as fees generated by increased debit card volume.
Partially offset by:
    $1.0 million decline in securities gains as the year-ago quarter reflected $1.0 million in securities gains compared with modest securities losses in the current quarter.
2006 First Quarter versus 2005 Fourth Quarter
          Non-interest income increased $12.2 million, or 8%, from the 2005 fourth quarter, despite a $5.0 million decline in operating lease income as that portfolio continued to run off. Non-interest income before operating lease income increased $17.2 million, or 14%, including approximately $1.9 million attributable to Unizan. The primary reasons for the $17.2 million increase were:
    $8.8 million of securities losses in the 2005 fourth quarter.
 
    $6.9 million increase in mortgage banking income, as the current quarter reflected an MSR valuation adjustment that was $8.8 million higher, which included $9.2 million related to the implementation of SFAS 156, mark-to-market accounting for MSRs. This positive MSR valuation impact was partially offset by a $1.3 million decline in secondary marketing income.
 
    $2.1 million, or 16%, increase in brokerage and insurance income due primarily to higher brokerage income resulting from a 23% increase in annuity sales volumes.
 
    $0.9 million, or 4%, increase in trust services income, including approximately $0.5 million from the Unizan merger. This represented the 10 th consecutive quarterly increase in trust income.
Partially offset by:
    $0.9 million, or 2%, decline in service charges on deposit accounts despite the benefit of approximately $0.5 million from the Unizan merger. The non-Unizan related decrease of $1.4 million primarily reflected lower personal NSF/OD service charges.

40

Non-Interest Expense
(This section should be read in conjunction with Significant Factors 1, 3, 5, and 6.)
          Table 7 reflects non-interest expense detail for each of the last five quarters.
Table 7 — Non-Interest Expense
                                                           
    2006   2005       1Q06 vs 1Q05
(in thousands)   First     Fourth     Third     Second     First       Amount     Percent  
           
Personnel costs
  $ 131,557     $ 116,111     $ 117,476     $ 124,090     $ 123,981       $ 7,576       6.1 %
Net occupancy
    17,966       17,940       16,653       17,257       19,242         (1,276 )     (6.6 )
Outside data processing and other services
    19,851       19,693       18,062       18,113       18,770         1,081       5.8  
Equipment
    16,503       16,093       15,531       15,637       15,863         640       4.0  
Professional services
    5,365       7,440       8,323       9,347       9,459         (4,094 )     (43.3 )
Marketing
    7,798       7,403       6,779       7,441       6,454         1,344       20.8  
Telecommunications
    4,825       4,453       4,512       4,801       4,882         (57 )     (1.2 )
Printing and supplies
    3,074       3,084       3,102       3,293       3,094         (20 )     (0.6 )
Amortization of intangibles
    1,075       218       203       204       204         871       N.M.  
Other expense
    15,794       19,194       19,588       19,074       18,380         (2,586 )     (14.1 )
           
Sub-total before operating lease expense
    223,808       211,629       210,229       219,257       220,329         3,479       1.6  
Operating lease expense
    14,607       18,726       22,823       28,879       37,948         (23,341 )     (61.5 )
           
Total non-interest expense
  $ 238,415     $ 230,355     $ 233,052     $ 248,136     $ 258,277       $ (19,862 )     (7.7 )%
           
     
N.M., not a meaningful value.
2006 First Quarter versus 2005 First Quarter
          Non-interest expense declined $19.9 million, or 8%, from the year-ago quarter, including a $23.3 million decline in operating lease expense as that portfolio continued to run off. Non-interest expense before operating lease expense increased $3.5 million from the year-ago quarter, reflecting approximately $5.2 million attributable to Unizan, including $1.0 million of merger-related expenses. The primary drivers of the $3.5 million increase were:
    $7.6 million, or 6%, increase in personnel expense, including approximately $2.7 million attributable to Unizan, as well as $4.3 million related to the expensing of stock options.
 
    $1.3 million, or 21%, increase in marketing expense.
 
    $1.1 million, or 6%, increase in outside data processing and other services, reflecting $0.6 million of merger-related expenses, as well as higher debit card processing expense.
 
    $0.9 million increase in the amortization of intangibles related to the addition of $56 million of core deposit and other intangibles resulting from the Unizan merger.
Partially offset by:
    $4.1 million decline in professional services, reflecting $2.0 million of SEC and regulatory related expense in the year-ago quarter, as well as declines in collection and consulting expenses in the current quarter.
    $2.6 million, or 14%, decline in other expense, reflecting declines in operational losses, other real estate owned losses, and sales incentives.
 
    $1.3 million, or 7%, decline in net occupancy expense, despite an approximate $0.2 million increase from the Unizan merger, reflecting declines in building service, building repair, and other occupancy expenses, as well as higher rental income.

41

          Discerning underlying non-interest expense performance requires adjustment of reported amounts so expenses in different periods can be analyzed on a comparable basis. Excluding operating lease expense is helpful because its decline may overstate the impact of expense control efforts. Conversely, the merger with Unizan, as well as the expensing of stock options that appear for the first time in current quarter results adds expenses that previously did not exist and may leave the opposite impression.
          The Non-interest Expense Analysis table below shows that when first quarter reported total non-interest expense is adjusted to excluding operating lease expense, stock option expense, Unizan run-rate expenses, as well as merger-related expenses and the increase in intangible amortization resulting from the merger, underlying non-interest expense was down 3% from the year-ago quarter.
                         
Non-interest Expense Analysis
(in millions)   1Q06     % Change     1Q05  
 
Total non-interest expense — reported
  $ 238.4       (8 )%   $ 258.3  
Less: Operating lease expense
    (14.6 )             (37.9 )
Stock option expense
    (4.3 )             N.A.  
Unizan merger (1)
    (4.2 )             N.A.  
Unizan merger—related expenses
    (1.0 )             N.A.  
 
Total non-interest expense — adjusted
  $ 214.3       (3 )%   $ 220.4  
 
     
N.A., not applicable
 
(1)   Includes run rate plus increased intangible amortization
2006 First Quarter versus 2005 Fourth Quarter
          Non-interest expense increased $8.1 million, or 3%, from the 2005 fourth quarter, despite a $4.1 million decline in operating lease expense as that portfolio continued to run off. Non-interest expense before operating lease expense increased $12.2 million, including approximately $5.2 million attributable to Unizan. The primary drivers of the $12.2 million increase included:
    $15.4 million, or 13%, increase in personnel costs, including approximately $2.7 million from the Unizan merger, as well as $4.3 million related to the adoption of expensing stock options, and a $6.2 million increase in benefits expense, primarily attributable to the annual reset of payroll taxes, higher pension costs, and increases to other benefit expenses.
Partially offset by:
    $3.4 million decline in other expense, reflecting a $2.1 million decrease in automobile lease residual value losses, as well as reductions in donations, insurance, and other miscellaneous expenses.
 
    $2.1 million decline in professional services, reflecting a more normal level of legal costs.

42

Operating Leverage
          One of our corporate objectives is to generate positive operating leverage by growing revenue faster than expenses. For example, 4% positive operating leverage is generated if revenues grow 6% and expenses 2%.
          On a reported basis, revenues in the 2006 first quarter increased less than 1% from the year-ago quarter while expenses decreased 8%, resulting in a reported operating leverage of 8%. However, we believe this overstates operating leverage performance between these two periods because of the impact of operating lease accounting and other large items that affect comparability.
          Operating lease accounting negatively impacts reported revenue and expense trends as the automobile operating lease portfolio continues to run off since no such leases have been originated since April 2002. As a result, this negatively impacts both reported revenue and expense growth rate trends, thus distorting underlying revenue and expense growth rates and resulting operating leverage calculations.
          The following Operating Leverage Analysis is designed to show operating leverage performance after adjusting for the effects of operating lease accounting on revenue and expenses, as well as for other certain large items that affect comparability. On this adjusted basis, revenue grew 6% and expenses increased 2%, resulting in 4% positive operating leverage, lower than the reported operating leverage of 8%.
          This analysis also calculates adjusted efficiency ratios on this same basis. While on a reported basis, our efficiency ratio in the 2006 first quarter was 58.3%, it was 56.9% on an adjusted basis, which compares with 54.9% in the fourth quarter and 59.4% in the year-ago quarter on a similarly adjusted basis. We believe our efficiency ratio on this adjusted basis is more comparable to efficiency ratios of competitors who do not have significant automobile operating lease portfolios.
                                 
Operating Leverage Analysis
                    Better /(Worse)
(in millions)   1Q06     1Q05     Amount     Percent  
 
Revenue FTE — Reported (1)
  $ 407.1     $ 406.1     $ 1.0       0.2 %
 
   Operating lease expense
    (14.6 )     (37.9 )                
   Securities losses (gains)
          (1.0 )                
   MSR mark-to-market (2)
    (5.1 )                      
   Adj. to defer home equity annual fees
    2.4                        
                     
Revenue FTE — Adjusted
  $ 389.8     $ 367.2     $ 22.6       6.2 %
 
                               
 
Non-interest expense — Reported
  $ 238.4     $ 258.3     $ 19.9       7.7 %
 
   Operating lease expense
    (14.6 )     (37.9 )                
   SEC/regulatory — related expenses
          (2.0 )                
   Unizan merger-related expenses
    (1.0 )                      
                     
Non-interest expense — Adjusted
  $ 222.8     $ 218.4     $ (4.4 )     (2.0 )%
 
                               
 
Operating leverage — Reported
                            7.9 %
 
Operating leverage — Adjusted
                            4.1 %
 
                               
 
Efficiency ratio — Reported (3)
    58.3 %     63.7 %             (8.5 )%
 
Efficiency ratio — Adjusted (3)
    56.9 %     59.4 %             (4.2 )%
 
(1)   Fully taxable equivalent net interest income plus non-interest income.
 
(2)   Represents the mark-to-market prior to implementation of fair value hedging strategy
 
(3)   Non-interest expense less amortization of intangibles, divided by net interest income (FTE) and non-interest income excluding securities gains (losses)

43

Operating Lease Assets
(This section should be read in conjunction with Significant Factor 3 and Lease Residual Risk section.)
          Operating lease assets primarily represent automobile leases originated before May 2002. This operating lease portfolio is running off over time since all automobile lease originations after April 2002 have been recorded as direct financing leases and are reported in the automobile loan and lease category in earning assets. As a result, the non-interest income and non-interest expense associated with the operating lease portfolio has declined.
          Operating lease assets performance for each of the last five quarters was as follows:
Table 8 — Quarterly Operating Lease Performance
                                                           
    2006   2005     1Q06 vs 1Q05
(in thousands)   First     Fourth     Third     Second     First       Amount     Percent  
           
Balance Sheet:
                                                         
Average operating lease assets outstanding
  $ 199,998     $ 245,346     $ 308,952     $ 408,798     $ 529,245       $ (329,247 )     (62.2 )%
           
 
                                                         
Income Statement:
                                                         
Net rental income
  $ 17,515     $ 21,674     $ 26,729     $ 34,562     $ 43,554       $ (26,039 )     (59.8 )%
Fees
    732       1,482       1,419       1,773       1,857         (1,125 )     (60.6 )
Recoveries — early terminations
    1,143       1,186       1,114       1,762       1,321         (178 )     (13.5 )
           
Total operating lease income
    19,390       24,342       29,262       38,097       46,732         (27,342 )     (58.5 )
           
 
                                                         
Depreciation and residual losses at termination
    13,437       17,223       20,856       26,560       34,703         (21,266 )     (61.3 )
Losses — early terminations
    1,170       1,503       1,967       2,319       3,245         (2,075 )     (63.9 )
           
Total operating lease expense
    14,607       18,726       22,823       28,879       37,948         (23,341 )     (61.5 )
           
Net earnings contribution
  $ 4,783     $ 5,616     $ 6,439     $ 9,218     $ 8,784       $ (4,001 )     (45.5 )%
           
Earnings ratios (1)
                                                         
Net rental income
    35.0 %     35.3 %     34.6 %     33.8 %     32.9 %       2.1 %     6.4 %
Depreciation and residual losses at termination
    26.9       28.1       27.0       26.0       26.2         0.7       2.7  
 
(1)   As a percent of average operating lease assets, annualized.
2006 First Quarter versus 2005 First Quarter and 2005 Fourth Quarter
          Average operating lease assets in the 2006 first quarter were $0.2 billion, down $0.3 billion, or 62%, from the year-ago quarter and 18% from the 2005 fourth quarter. (For a discussion of operating lease accounting, residual value loss determination, and related residual value insurance, see Note 1, Significant Accounting Policies and the Lease Residual Risk section of the Company’s 2005 Form 10-K.)
          Operating lease income, which totaled $19.4 million in the 2006 first quarter, represented 12% of total non-interest income in the quarter. Operating lease income was down $27.3 million, or 59%, from the year-ago quarter and $5.0 million, or 20%, from the 2005 fourth quarter, reflecting the declines in average operating lease assets. As no new automobile operating leases have been originated since April 2002, the operating lease asset balances will continue to decline through both depreciation and lease terminations. Net rental income was down 60% and 19%, respectively, from the year-ago and 2005 fourth quarters. Fees declined 61% from the year-ago quarter and 51% from the prior quarter. Recoveries from early terminations decreased 13% from the year-ago quarter and 4% from the 2005 fourth quarter.

44

          Operating lease expense totaled $14.6 million and represented 6% of total non-interest expense in the current quarter. Operating lease expense was down $23.3 million, or 62%, from the year-ago quarter and down $4.1 million, or 22%, from the 2005 fourth quarter. These declines also reflected the fact that this portfolio is decreasing over time. Losses on early terminations, which are included in total operating lease expense, declined 64% from the year-ago quarter and 22% from the prior quarter.
Provision for Income Taxes
(This section should be read in conjunction with Significant Factor 4.)
          The provision for income taxes in the first quarter of 2006 was $40.8 million and represented an effective tax rate on income before taxes of 28.1%. The provision for income taxes increased $12.2 million from the year-ago quarter, primarily due to an increase in pre-tax earnings and the recognition of the effect of federal tax refunds on income tax expense in the first quarter of 2005. The effective tax rates in the year-ago quarter and fourth quarter of 2005 were 22.8% and 22.5%, respectively, and included the after-tax positive impact on net income due to a federal tax loss carry back.
          The cost of investments in low-income housing partnerships, along with the related tax credit, is recognized in the financial statements as a component of income taxes under the effective yield method, if it mets certain criteria, or as a reduction in non-interest income under the equity method. The cost of the investment in historic property partnerships is reported in non-interest expense and the related tax credit is recognized in the financial statements as a component of income taxes.
          In the ordinary course of business, we operate in various taxing jurisdictions and are subject to income and non-income taxes. The effective tax rate is based in part on our interpretation of the relevant current tax laws. We believe the aggregate liabilities related to taxes are appropriately reflected in the consolidated financial statements. We review the appropriate tax treatment of all transactions taking into consideration statutory, judicial, and regulatory guidance in the context of our tax positions. In addition, we rely on various tax opinions, recent tax audits, and historical experience.
          The Internal Revenue Service is currently examining our federal tax returns for the years 2002 and 2003 and the federal income tax return for Unizan for the tax year 2003. In addition, we are subject to ongoing tax examinations in various jurisdictions. We believe that the resolution of both examinations will not have a significant adverse impact on our consolidated financial position or results of operations.
RISK MANAGEMENT AND CAPITAL
          Risk identification and monitoring are key elements in overall risk management. We believe the primary risk exposures are credit, market, liquidity, and operational risk. Credit risk is the risk of loss due to adverse changes in the borrower’s ability to meet their financial obligations under agreed upon terms. Market risk represents the risk of loss due to changes in the market value of assets and liabilities due to changes in interest rates, exchange rates, residual values and equity prices. Liquidity risk arises from the possibility that funds may not be available to satisfy current or future commitments based on external macro market issues, investor perception of financial strength, and events unrelated to the company such as war, terrorism, or financial institution market specific issues. Operational risk arises from the inherent day-to-day operations of the company that could result in losses due to human error, inadequate or failed internal systems and controls, and external events.
          We follow a formal policy to identify, measure, and document the key risks facing the company, how those risks can be controlled or mitigated, and how we monitor the controls to ensure that they are effective. Our chief risk officer is responsible for ensuring that appropriate systems of controls are in place for managing and monitoring operational risk across the company. Potential risk concerns are shared with the board of directors, as appropriate. Our internal audit department performs ongoing independent reviews of the risk management process and ensures the adequacy of documentation. The results of these reviews are reported regularly to the audit committee of the board of directors.
          Some of the more significant processes used to manage and control credit, market, liquidity, and operational risks are described in the following paragraphs.

45

Credit Risk
          Credit risk is the risk of loss due to adverse changes in a borrower’s ability to meet its financial obligations under agreed upon terms. We are subject to credit risk in lending, trading, and investment activities. The nature and degree of credit risk is a function of the types of transactions, the structure of those transactions, and the parties involved. The majority of our credit risk is associated with lending activities, as the acceptance and management of credit risk is central to profitable lending. Credit risk is incidental to trading activities and represents a limited portion of the total risks associated with the investment portfolio. Credit risk is mitigated through a combination of credit policies and processes and portfolio diversification.
          The maximum level of credit exposure to individual commercial borrowers is limited by policy guidelines based on the risk of default associated with the credit facilities extended to each borrower or related group of borrowers. All authority to grant commitments is delegated through the independent credit administration function and is monitored and regularly updated in a centralized database.
          Concentration risk is managed via limits on loan type, geography, industry, loan quality factors, and country limits. We have focused on extending credit to commercial customers with existing or expandable relationships within our primary markets. As a result, shared national credit exposure has declined significantly. The on-going sale of automobile loans is an example of the proactive management of concentration risk.
          The checks and balances in the credit process and the independence of the credit administration and risk management functions are designed to accurately assess the level of credit risk being accepted, facilitate the early recognition of credit problems when they do occur, and to provide for effective problem asset management and resolution.
Credit Exposure Mix
(This section should be read in conjunction with Significant Factors 3 and 6.)
          An overall corporate objective is to avoid undue portfolio concentrations. As shown in Table 9, at March 31, 2006, total credit exposure was $26.3 billion. Of this amount, $14.3 billion, or 54%, represented total consumer loans and leases, $11.8 billion, or 45%, represented total commercial loans and leases, and $0.2 billion, or less than 1%, represented operating lease assets.
          A specific portfolio concentration objective has been to reduce the relative level of total automobile exposure (the sum of automobile loans, automobile leases, operating leases and securitized loans) from its 33% level at the end of 2002. As shown in Table 9, such exposure was less than 17% at March 31, 2006.
          In contrast, another specific portfolio concentration objective has been to increase the relative level of lower-risk residential mortgages and home equity loans. At March 31, 2006, such loans represented 36% of total credit exposure, up from 35% in the year-ago quarter, and unchanged from December 31, 2005.

46

Table 9 — Credit Exposure Composition
                                                                                 
    2006   2005
(in thousands)   March 31,   December 31,   September 30,   June 30,   March 31,
    (Unaudited)                   (Unaudited)   (Unaudited)   (Unaudited)
By Type
                                                                               
Commercial:
                                                                               
Middle market commercial and industrial
  $ 5,288,710       20.1 %   $ 5,084,244       20.6 %   $ 4,856,608       19.6 %   $ 4,947,640       19.9 %   $ 4,824,403       19.6 %
Middle market commercial real estate:
                                                                               
Construction
    1,366,890       5.2       1,521,897       6.2       1,770,543       7.1       1,692,748       6.8       1,647,999       6.7  
Commercial
    3,046,368       11.6       2,015,498       8.2       1,933,610       7.8       1,948,195       7.8       1,913,849       7.8  
     
Middle market commercial real estate
    4,413,258       16.8       3,537,395       14.4       3,704,153       14.9       3,640,943       14.6       3,561,848       14.5  
Small business
    2,116,063       8.1       2,223,740       9.1       2,112,171       8.5       2,136,685       8.7       2,204,278       8.9  
     
Total commercial
    11,818,031       45.0       10,845,379       44.1       10,672,932       43.0       10,725,268       43.2       10,590,529       43.0  
     
Consumer:
                                                                               
Automobile loans
    2,053,777       7.8       1,985,304       8.0       2,063,285       8.3       2,045,771       8.2       2,066,264       8.4  
Automobile leases
    2,154,883       8.2       2,289,015       9.3       2,381,004       9.6       2,458,432       9.9       2,476,098       10.0  
Home equity
    4,816,196       18.3       4,638,841       18.8       4,684,904       18.9       4,683,577       18.8       4,594,586       18.6  
Residential mortgage
    4,604,705       17.5       4,193,139       17.0       4,180,350       16.9       4,152,203       16.7       3,995,769       16.2  
Other loans
    697,997       2.5       520,488       1.9       513,812       2.2       501,897       1.8       483,219       1.9  
     
Total consumer
    14,327,558       54.3       13,626,787       55.0       13,823,355       55.9       13,841,880       55.4       13,615,936       55.1  
     
 
                                                                               
Total loans and direct financing leases
  $ 26,145,589       99.3     $ 24,472,166       99.1     $ 24,496,287       98.9     $ 24,567,148       98.6     $ 24,206,465       98.1  
     
 
                                                                               
Operating lease assets
    174,839       0.7       229,077       0.9       274,190       1.1       353,678       1.4       466,550       1.9  
     
Total credit exposure
  $ 26,320,428       100.0 %   $ 24,701,243       100.0 %   $ 24,770,477       100.0 %   $ 24,920,826       100.0 %   $ 24,673,015       100.0 %
     
 
                                                                               
Total automobile exposure (1)
  $ 4,383,499       16.7 %   $ 4,503,396       18.2 %   $ 4,718,479       19.0 %   $ 4,857,881       19.5 %   $ 5,008,912       20.3 %
     
 
                                                                               
By Business Segment (2)
                                                                               
Regional Banking:
                                                                               
Central Ohio
  $ 3,295,373       12.5 %   $ 3,150,395       12.8 %   $ 3,233,382       13.1 %   $ 3,154,443       12.7 %   $ 3,119,776       12.6 %
Northern Ohio
    2,915,530       11.1       2,892,723       11.7       2,953,049       11.9       2,917,036       11.7       2,910,631       11.8  
Southern Ohio / Kentucky
    2,078,181       7.9       2,037,190       8.2       2,059,649       8.3       2,100,446       8.4       2,018,617       8.2  
West Michigan
    2,372,563       9.0       2,363,162       9.6       2,369,800       9.6       2,386,311       9.6       2,335,441       9.5  
East Michigan
    1,536,284       5.8       1,573,413       6.4       1,530,081       6.2       1,495,277       6.0       1,475,508       6.0  
West Virginia
    968,333       3.7       970,953       3.9       948,847       3.8       918,612       3.7       887,230       3.6  
Indiana
    977,589       3.7       1,025,807       4.2       958,119       3.9       1,037,983       4.2       990,747       4.0  
Unizan (4)
    1,641,972       6.2                                                  
Mortgage and equipment leasing groups
    3,525,564       13.5       3,533,535       14.2       3,504,796       14.1       3,447,249       13.8       3,330,970       13.5  
     
Regional Banking
    19,311,389       73.4       17,547,178       71.0       17,557,723       70.9       17,457,357       70.1       17,068,920       69.2  
Dealer Sales (3)
    5,276,621       20.0       5,429,997       22.0       5,492,235       22.2       5,761,321       23.1       5,955,611       24.1  
Private Financial and Capital Markets Group (4)
    1,732,418       6.6       1,724,068       7.0       1,720,519       6.9       1,702,148       6.8       1,648,484       6.7  
Treasury / Other
                                                           
     
Total credit exposure
  $ 26,320,428       100.0 %   $ 24,701,243       100.0 %   $ 24,770,477       100.0 %   $ 24,920,826       100.0 %   $ 24,673,015       100.0 %
     
 
(1)   Sum of automobile loans and leases and automobile operating lease assets.
 
(2)   Prior period amounts have been reclassified to conform to the current period business segment structure.
 
(3)   Includes operating lease inventory.
 
(4)   In the first quarter of 2006, loans acquired from Unizan were reflected in the Regional Banking and PFCMG lines of business.

Commercial Credit
     Commercial credit approvals are based on the financial strength of the borrower, assessment of the borrower’s management capabilities, industry sector trends, type of exposure, transaction structure, and the general economic outlook. While these are the primary factors considered, there are a number of other factors that may be considered in the decision process. There are two processes for approving credit risk exposures. The first involves a centralized loan approval process for the standard products and structures utilized in small business lending. In this centralized decision environment, individual credit authority is granted to certain individuals on a regional basis to preserve our local decision-making focus. The second, and more prevalent approach, involves individual approval of exposures. These approvals are consistent with the authority delegated to officers located in the geographic regions who are experienced in the industries and loan structures over which they have responsibility.
     All C&I and CRE credit extensions are assigned internal risk ratings reflecting the borrower’s probability-of-default and loss-in-event-of-default. This two-dimensional rating methodology, which has 192 individual loan grades, provides granularity in the portfolio management process. The probability-of-default is rated on a scale of 1-12 and is applied at the borrower level. The loss-in-event-of-default is rated on a 1-16 scale and is associated with each individual credit exposure based on the type of credit extension and the underlying collateral.
     In commercial lending, ongoing credit management is dependent on the type and nature of the loan. In general, quarterly monitoring is normal for all significant exposures. The internal risk ratings are revised and updated with each periodic monitoring event. There is also extensive macro portfolio management analysis on an ongoing basis to continually update default probabilities and to estimate future losses.
     In addition to the initial credit analysis initiated by the portfolio manager during the underwriting process, the loan review group performs independent credit reviews. The loan review group reviews individual loans and credit processes and conducts a portfolio review at each of the regions on a 15-month cycle, and the loan review group validates the risk grades on a minimum of 50% of the portfolio exposure. During the previous 15 months, 61% of the total commercial portfolio was reviewed by our independent loan review function.
     Borrower exposures may be designated as “watch list” accounts when warranted by individual company performance, or by industry and environmental factors. Such accounts are subjected to additional quarterly reviews by the business line Management, the loan review group, and credit administration in order to adequately assess the borrower’s credit status and to take appropriate action.
     A specialized credit workout group manages problem credits and handles commercial recoveries, workouts, and problem loan sales, as well as the day-to-day management of relationships rated substandard or lower. The group is responsible for developing an action plan, assessing the risk rating, and determining the adequacy of the reserve, the accrual status, and the ultimate collectibility of the credits managed.
Consumer Credit
     Consumer credit approvals are based on, among other factors, the financial strength of the borrower, type of exposure, and the transaction structure. Consumer credit decisions are generally made in a centralized environment utilizing decision models. There is also individual credit authority granted to certain individuals on a regional basis to preserve our local decision-making focus. Each credit extension is assigned a specific probability-of-default and loss-in-event-of-default. The probability-of-default is generally a function of the borrower’s credit bureau score, while the loss-in-event-of-default is related to the type of collateral and the loan-to-value ratio associated with the credit extension.
     In consumer lending, credit risk is managed from a loan type and vintage performance analysis. All portfolio segments are continuously monitored for changes in delinquency trends and other asset quality indicators. We make extensive use of portfolio assessment models to continuously monitor the quality of the portfolio and identify under-performing segments. This information is then incorporated into future origination strategies. The independent risk management group has a consumer process review component to ensure the effectiveness and efficiency of the consumer credit processes.

48

     Home equity loans and lines consist of both first and second position collateral with underwriting criteria based on minimum FICO credit scores, debt/income ratios, and loan-to-value ratios. We offer a closed-end, home equity loans with a fixed rate and level monthly payments and a variable-rate, interest only home equity line of credit. At March 31, 2006, we had $1.1 billion of home equity loans and $3.5 billion of home equity lines of credit. The average loan-to-value ratio of our home equity portfolio (both loans and lines) was 80% at March 31, 2006. We do not originate home equity loans or lines that (a) allow negative amortization, (b) have a loan-to-value ratio at origination greater than 100%, or (c) are “options ARMs,”; i.e., which can be adjustable rate at the option of the customer. Home equity loans are generally fixed rate with periodic principal and interest payments. We originated $148 million of home equity loans in the first quarter 2006 with a weighted average loan-to-value ratio of 58% and a weighted average FICO score of 726. Home equity lines of credit generally have variable rates of interest and do not require payment of principal during the 10-year revolving period of the line. During the first quarter of 2006, we originated $320 million of home equity lines. The lines of credit originated during the quarter had a weighted average loan-to-value ratio of 75% and a weighted average FICO score of 736.
     At March 31, 2006, we had $4.6 billion of residential real estate loans. Adjustable rate mortgages, primarily mortgages that have a fixed rate for the first 3 to 5 years and then adjust annually, comprised 65% of this portfolio. We do not originate residential mortgage loans that (a) allow negative amortization, (b) have a loan-to-value ratio at origination greater than 100%, or (c) are “options ARMs,”; i.e., which can be adjustable rate at the option of the customer. Interest only loans comprised $0.9 billion of residential real estate loans at March 31, 2006. Interest only loans are underwritten to specific standards including minimum FICO credit scores, stressed debt-to-income ratios, and extensive collateral evaluation. (See the Non-performing Assets section of Credit Risk, for further information regarding when consumer loans are placed on non-accrual status and when the balances are charged-off to the allowance for loan and lease losses.)
     Collection action is initiated on an “as needed” basis through a centrally managed collection and recovery function. The collection group employs a series of collection methodologies designed to maintain a high level of effectiveness while maximizing efficiency. In addition to the retained consumer loan portfolio, the collection group is responsible for collection activity on all sold and securitized consumer loans and leases.
Non-Performing Assets (NPAs)
(This section should be read in conjunction with Significant Factor 1.)
     NPAs consist of loans and leases that are no longer accruing interest, loans and leases that have been renegotiated to below market rates based upon financial difficulties of the borrower, and real estate acquired through foreclosure. C&I, CRE, and small business loans are generally placed on non-accrual status when collection of principal or interest is in doubt or when the loan is 90 days past due. When interest accruals are suspended, accrued interest income is reversed with current year accruals charged to earnings and prior-year amounts generally charged-off as a credit loss. Consumer loans and leases, excluding residential mortgages and home equity lines and leases, are not placed on non-accrual status but are charged-off in accordance with regulatory statutes, which is generally no more than 120 days past due. Residential mortgages and home equity loans and lines, while highly secured, are placed on non-accrual status within 180 days past due as to principal and 210 days past due as to interest, regardless of collateral. When we believe the borrower’s ability and intent to make periodic interest and principal payments resume and collectibility is no longer in doubt, the loan is returned to accrual status. A charge-off on a residential mortgage loan is recorded when the loan has been foreclosed and the loan balance exceeds the fair value of the real estate. The fair value of the collateral, less the cost to sell, is then recorded as real estate owned.

49

     Table 10 reflects period-end NPAs and past due loans and leases detail for each of the last five quarters.
Table 10 — Non-Performing Assets and Past Due Loans and Leases
                                         
    2006   2005
(in thousands )   March 31,   December 31,   September 30,   June 30,   March 31,
     
Non-accrual loans and leases:
                                       
Middle market commercial and industrial
  $ 45,723     $ 28,888     $ 25,431     $ 26,856     $ 16,993  
Middle market commercial real estate
    18,243       15,763       13,073       15,331       6,682  
Small business
    28,389       28,931       26,098       19,788       16,387  
Residential mortgage
    29,376       17,613       16,402       14,137       12,498  
Home equity
    13,778       10,720       8,705       7,748       7,333  
     
Total non-performing loans and leases
    135,509       101,915       89,709       83,860       59,893  
 
                                       
Other real estate, net:
                                       
Residential
    17,481       14,214       11,182       10,758       10,571  
Commercial
    1,903       1,026       909       2,800       2,839  
     
Total other real estate, net
    19,384       15,240       12,091       13,558       13,410  
     
Total non-performing assets
  $ 154,893     $ 117,155     $ 101,800     $ 97,418     $ 73,303  
     
 
                                       
Non-performing loans and leases guaranteed by the U.S. government
  $ 18,256     $ 7,324     $ 6,812     $ 5,892     $ 4,264  
 
                                       
Non-performing loans and leases as a % of total loans and leases
    0.52 %     0.42 %     0.37 %     0.34 %     0.25 %
 
                                       
Non-performing assets as a % of total loans and leases and other real estate
    0.59       0.48       0.42       0.40       0.30  
 
                                       
Accruing loans and leases past due 90 days or more
  $ 52,297     $ 56,138     $ 50,780     $ 53,371     $ 50,086  
 
                                       
Accruing loans and leases past due 90 days or more as a percent of total loans and leases
    0.20 %     0.23 %     0.21 %     0.22 %     0.21 %
     NPAs were $154.9 million at March 31, 2006, and represented 0.59% of related assets, up $81.6 million from $73.3 million, or 0.30%, at the end of the year-ago quarter, and up $37.7 million from $117.2 million, or 0.48%, at December 31, 2005. The Unizan merger added $33.8 million to NPAs in the current quarter, of which one-third represented the government guaranteed portion of Small Business Loan Administration (SBA) loans. NPLs, which exclude other real estate owned (OREO), were $135.5 million at March 31, 2006, up $75.6 million from the year-earlier period and $33.6 million from the end of the 2005 fourth quarter, of which $32.8 million represented NPLs acquired from Unizan. NPLs expressed as a percent of total loans and leases were 0.52% at March 31, 2006, up from 0.25% a year earlier and from 0.42% at December 31, 2005.
     The over 90-day delinquent, but still accruing, ratio was 0.20% at March 31, 2006, down slightly from 0.21% at the end of the year-ago quarter, and down from 0.23% at December 31, 2006. This represented the lowest 90-day delinquency ratio in over five years.

50

     Non-performing asset activity for each of the past five quarters ended March 31, 2006, was as follows:
Table 11 — Quarterly Non-Performing Assets Activity
                                         
    2006   2005
(in thousands)   First   Fourth   Third   Second   First
     
Non-performing assets, beginning of period
  $ 117,155     $ 101,800     $ 97,418     $ 73,303     $ 108,568  
New non-performing assets
    53,768       52,553       37,570       47,420       33,607  
Acquired non-performing assets
    33,843                          
Returns to accruing status
    (14,310 )     (3,228 )     (231 )     (250 )     (3,838 )
Loan and lease losses
    (13,314 )     (9,063 )     (5,897 )     (6,578 )     (17,281 )
Payments
    (13,195 )     (21,329 )     (21,203 )     (11,925 )     (10,404 )
Sales
    (9,054 )     (3,578 )     (5,857 )     (4,552 )     (37,349 )
     
Non-performing assets, end of period
  $ 154,893     $ 117,155     $ 101,800     $ 97,418     $ 73,303  
     
Allowances for Credit Losses (ACL)
(This section should be read in conjunction with Significant Factors 1 and 6.)
     We maintain two reserves, both of which are available to absorb probable credit losses: the allowance for loan and lease losses (ALLL) and the allowance for unfunded loan commitments and letters of credit (AULC). When summed together, these reserves constitute the total ACL. Our credit administration group is responsible for developing the methodology and determining the adequacy of the ACL.
     The ALLL represents the estimate of probable losses inherent in the loan portfolio at the balance sheet date. Additions to the ALLL result from recording provision expense for loan losses or recoveries, while reductions reflect charge-offs, net of recoveries, or the sale of loans. The AULC is determined by applying the transaction reserve process to the unfunded portion of the portfolio adjusted by an applicable funding percentage.
     We have an established process to determine the adequacy of the ACL that relies on a number of analytical tools and benchmarks. No single statistic or measurement, in itself, determines the adequacy of the allowance. For determination purposes, the allowance is comprised of two components: the transaction reserve and the economic reserve.
      Transaction Reserve
     The transaction reserve component of the ACL includes both (a) an estimate of loss based on characteristics of each commercial and consumer loan or lease in the portfolio and (b) an estimate of loss based on an impairment review of each loan greater than $500,000 that is considered to be impaired.
     For middle market commercial and industrial, middle market commercial real estate, and small business loans, the estimate of loss based on characteristics of each loan made through the use of a standardized loan grading system that is applied on an individual loan level and updated on a continuous basis. The reserve factors applied to these portfolios were developed based on internal credit migration models that track historical movements of loans between loan ratings over time and a combination of long-term average loss experience of our own portfolio and external industry data.
     In the case of more homogeneous portfolios, such as consumer loans and leases, and residential mortgage loans, the determination of the transaction component is conducted at an aggregate, or pooled, level. For such portfolios, the development of the reserve factors includes the use of forecasting models to measure inherent loss in these portfolios.
     We analyze each middle market commercial and industrial, middle market commercial real estate, or small business loan over $500,000 for impairment when the loan is non-performing or has a grade of

51

substandard or lower. The impairment tests are done in accordance with applicable accounting standards and regulations. For loans that are determined to be impaired, an estimate of loss is made for the amount of the impairment.
     Models and analyses are updated frequently to capture the recent behavioral characteristics of the subject portfolios, as well as any changes in the loss mitigation or credit origination strategies. Adjustments to the reserve factors are made as needed based on observed results of the portfolio analytics.
      Economic Reserve
     Changes in the economic environment are a significant judgmental factor Management considers in determining the appropriate level of the ACL. The economic reserve incorporates our determination of the impact of risks associated with the general economic environment on the portfolio. The economic reserve is designed to address economic uncertainties and is determined based on a variety of economic factors that are correlated to the historical performance of the loan portfolio. Because of this more quantitative approach to recognizing risks in the general economy, the economic reserve may fluctuate from period-to-period.
     The methodology to determine the economic reserve is specifically tied to economic indices that have a high correlation to our historic charge-off variability. The indices currently in the model consist of the Real Consumer Spending, Consumer Confidence, ISM Manufacturing Index, and Non-Agriculture Job Creation in our core states of Ohio, Michigan, West Virginia, and Indiana. The indices and time frame may be adjusted as actual portfolio performance changes over time. Management has the capability to judgmentally adjust the calculated economic reserve amount by a maximum of +/– 20% to reflect, among other factors, differences in local versus national economic conditions. This adjustment capability is deemed necessary given the newness of the model and the continuing uncertainty of forecasting economic environment changes.
     This methodology allows for a more meaningful discussion of our view of the current economic conditions and the potential impact on credit losses. The continued use of quantitative methodologies for the transaction reserve and the introduction of the quantitative methodology for the economic component may have the impact of more period-to-period fluctuation in the absolute and relative level of the reserve than exhibited in prior-period results.
     The March 31, 2006, ALLL was $283.8 million, $19.4 million higher than $264.4 million a year earlier, and $15.5 million higher than $268.3 million at December 31, 2005. The Unizan merger added $22.2 million to the ALLL. Expressed as a percent of period-end loans and leases, the ALLL ratio at March 31, 2006, was 1.09%, unchanged from a year ago, and down slightly from 1.10% at December 31, 2005. Although the ALLL was unchanged from the year-ago quarter, the component mix changed with a 6 basis point increase in the transaction reserve, offset by a 6 basis point decline in the economic reserve.
     The ALLL as a percent of NPAs was 183% at March 31, 2006, down from 361% a year ago, and 229% at December 31, 2005. At March 31, 2006, the AULC was $39.3 million, up from $31.6 million at the end of the year-ago quarter and $37.0 million at December 31, 2005.
     On a combined basis, the ACL as a percent of total loans and leases at March 31, 2006, was 1.24%, up from 1.22% a year ago, though down slightly from 1.25% at December 31, 2005. The ACL as a percent of NPAs was 209% at March 31, 2006, down from 404% a year earlier and 261% at December 31, 2005.
     Table 12 reflects activity in the ALLL and AULC for each of the last five quarters.

52

Table 12 — Quarterly Credit Reserves Analysis
                                         
    2006   2005
(in thousands)   First   Fourth   Third   Second   First
     
Allowance for loan and lease losses, beginning of period
  $ 268,347     $ 253,943     $ 254,784     $ 264,390     $ 271,211  
Acquired allowance for loan and lease losses
    22,187                          
Loan and lease losses
    (33,405 )     (27,072 )     (25,830 )     (25,733 )     (37,213 )
Recoveries of loans previously charged off
    9,189       9,504       7,877       9,469       8,941  
     
Net loan and lease losses
    (24,216 )     (17,568 )     (17,953 )     (16,264 )     (28,272 )
     
Provision for loan and lease losses
    17,521       31,972       17,112       13,247       21,451  
Economic reserve transfer
                      (6,253 )      
Allowance of assets sold and securitized
                      (336 )      
     
Allowance for loan and lease losses, end of period
  $ 283,839     $ 268,347     $ 253,943     $ 254,784     $ 264,390  
     
 
                                       
Allowance for unfunded loan commitments and letters of credit, beginning of period
  $ 36,957     $ 38,098     $ 37,511     $ 31,610     $ 33,187  
 
                                       
Acquired AULC
    325                          
Provision for unfunded loan commitments and letters of credit losses
    2,019       (1,141 )     587       (352 )     (1,577 )
Economic reserve transfer
                      6,253        
     
Allowance for unfunded loan commitments and letters of credit, end of period
  $ 39,301     $ 36,957     $ 38,098     $ 37,511     $ 31,610  
     
Total allowances for credit losses
  $ 323,140     $ 305,304     $ 292,041     $ 292,295     $ 296,000  
     
 
                                       
Allowance for loan and lease losses (ALLL) as % of:
                                   
Transaction reserve
    0.88 %     0.89 %     0.84 %     0.82 %     0.82 %
Economic reserve
    0.21       0.21       0.20       0.22       0.27  
     
Total loans and leases
    1.09 %     1.10 %     1.04 %     1.04 %     1.09 %
     
Non-performing loans and leases (NPLs)
    209       263       283       304       441  
Non-performing assets (NPAs)
    183       229       249       262       361  
 
                                       
Total allowances for credit losses (ACL) as % of:
                                       
Total loans and leases
    1.24 %     1.25 %     1.19 %     1.19 %     1.22 %
Non-performing loans and leases
    238       300       326       349       494  
Non-performing assets
    209       261       287       300       404  
     

53

Net Charge-offs
(This section should be read in conjunction with Significant Factors 1 and 6.)
Table 13 reflects net loan and lease charge-off detail for each of the last five quarters.
Table 13 — Quarterly Net Charge-Off Analysis
                                         
    2006   2005
(in thousands)   First   Fourth   Third   Second   First
     
Net charge-offs by loan and lease type:
                                       
Commercial:
                                       
Middle market commercial and industrial
  $ 6,887     $ (744 )   $ (1,082 )   $ 1,312     $ 14,092  
Middle market commercial real estate:
                                       
Construction
    (241 )     (175 )     495       (134 )     (51 )
Commercial
    210       14       1,779       2,269       (152 )
     
Middle market commercial real estate
    (31 )     (161 )     2,274       2,135       (203 )
Small business
    3,709       4,465       3,062       2,141       2,283  
     
Total commercial
    10,565       3,560       4,254       5,588       16,172  
     
Consumer:
                                       
Automobile loans
    2,977       3,213       3,895       1,664       3,216  
Automobile leases
    3,515       3,422       3,105       2,123       3,014  
     
Automobile loans and leases
    6,492       6,635       7,000       3,787       6,230  
Home equity
    4,515       4,498       4,093       5,065       3,963  
Residential mortgage
    715       941       522       430       439  
Other loans
    1,929       1,934       2,084       1,394       1,468  
     
Total consumer
    13,651       14,008       13,699       10,676       12,100  
     
Total net charge-offs
  $ 24,216     $ 17,568     $ 17,953     $ 16,264     $ 28,272  
     
 
                                       
Net charge-offs — annualized percentages:
                                       
Commercial:
                                       
Middle market commercial and industrial
    0.54 %     (0.06 )     (0.09 )%     0.11 %     1.20 %
Middle market commercial real estate:
                                       
Construction
    (0.07 )     (0.04 )     0.12       (0.03 )     (0.01 )
Commercial
    0.03             0.37       0.48       (0.03 )
     
Middle market commercial real estate
          (0.02 )     0.25       0.24       (0.02 )
Small business
    0.70       0.80       0.54       0.38       0.42  
     
Total commercial
    0.38       0.13       0.16       0.21       0.62  
     
Consumer:
                                       
Automobile loans
    0.60       0.64       0.75       0.32       0.64  
Automobile leases
    0.63       0.59       0.51       0.34       0.49  
     
Automobile loans and leases
    0.62       0.61       0.62       0.33       0.56  
Home equity
    0.38       0.39       0.35       0.44       0.35  
Residential mortgage
    0.07       0.09       0.05       0.04       0.04  
Other loans
    1.32       1.48       1.64       1.14       1.22  
     
Total consumer
    0.40       0.41       0.40       0.31       0.36  
     
Net charge-offs as a % of average loans
    0.39 %     0.29 %     0.29 %     0.27 %     0.47 %
     

54

2006 First Quarter versus 2005 First Quarter and 2005 Fourth Quarter
     Total net charge-offs for the 2006 first quarter were $24.2 million, or an annualized 0.39% of average total loans and leases with the Unizan merger having no material impact. This was down from $28.3 million, or an annualized 0.47%, in the year-ago quarter. However, this was up from $17.6 million, or an annualized 0.29%, of average total loans and leases in the 2005 fourth quarter with 11 basis points of the increase in the net charge-off ratio, or $6.5 million in net charge-offs, related to the resolution of certain commercial loans that were classified as NPLs, and for which reserves were established in the 2005 fourth quarter.
     Total commercial net charge-offs in the first quarter were $10.6 million, or an annualized 0.38%, down $5.6 million from $16.2 million, or an annualized 0.62%, in the year-ago quarter. Compared with the 2005 fourth quarter, however, current period total commercial net charge-offs increased $7.0 million, with $6.5 million representing the resolution of certain loans that were classified as NPLs in the 2005 fourth quarter noted above.
     Total consumer net charge-offs in the current quarter were $13.7 million, or an annualized 0.40% of related loans, up from $12.1 million, or 0.36%, in the year-ago quarter. The increase reflected generally higher net charge-offs in all consumer loan categories due mostly to the impact of both slower growth, as well as the seasoning of these portfolios. Compared with the 2005 fourth quarter, total consumer net charge-offs decreased slightly from $14.0 million, or 0.41%.
Market Risk
     Market risk represents the risk of loss due to changes in market values of assets and liabilities. We incur market risk in the normal course of business through exposures to market interest rates, foreign exchange rates, equity prices, credit spreads, and expected lease residual values. We have identified three primary sources of market risk: interest rate risk, lease residual risk, and price risk. Interest rate risk is our primary market risk.
Interest Rate Risk
     Interest rate risk results from timing differences in the repricings and maturities of assets and liabilities, and changes in relationships between market interest rates and the yields on assets and rates on liabilities, as well as from the impact of embedded options, such as borrowers’ ability to prepay residential mortgage loans at any time and depositors’ ability to terminate CDs before maturity.
     Our board of directors establishes broad policy limits with respect to interest rate risk. Our Market Risk Committee (MRC) establishes specific operating guidelines within the parameters of the board of directors’ policies. In general, we seek to minimize the impact of changing interest rates on net interest income and the economic values of assets and liabilities. Our MRC regularly monitors the level of interest rate risk sensitivity to ensure compliance with board of directors approved risk limits.
     Interest rate risk management is a dynamic process that encompasses monitoring loan and deposit flows, investment and funding activities, and assessing the impact of the changing market and business environments. Effective management of interest rate risk begins with understanding the interest rate characteristics of assets and liabilities and determining the appropriate interest rate risk posture given market expectations and policy objectives and constraints.
     Interest rate risk modeling is performed monthly. Two broad approaches to modeling interest rate risk are employed: income simulation and economic value analysis. An income simulation analysis is used to measure the sensitivity of forecasted net interest income to changes in market rates over a one-year time horizon. Although bank owned life insurance and automobile operating lease assets are classified as non-interest earning assets, and the income from these assets is in non-interest income, these portfolios are included in the interest sensitivity analysis because both have attributes similar to fixed-rate interest earning assets. The economic value of equity (EVE) is calculated by subjecting the period-end balance sheet to changes in interest rates, and measuring the impact of the changes on the values of the assets and liabilities. EVE serves as a complement to income simulation modeling as it provides risk exposure estimates for time periods beyond the one-year simulation horizon. Similar to income simulation modeling, EVE analysis also includes the risks of bank owned life insurance and the mortgage servicing asset.

55

     The models used for these measurements take into account prepayment speeds on mortgage loans, mortgage-backed securities, and consumer installment loans, as well as cash flows of other loans and deposits. Balance sheet growth assumptions are also considered in the income simulation model. The models include the effects of derivatives, such as interest rate swaps, interest rate caps, floors, and other types of interest rate options, and account for changes in relationships among interest rates (basis risk).
     The baseline scenario for income simulation analysis, with which all other scenarios are compared, is based on market interest rates implied by the prevailing yield curve as of the period end. Alternative interest rate scenarios are then compared with the baseline scenario. These alternative market rate scenarios include parallel rate shifts on both a gradual and immediate basis, movements in rates that alter the shape of the yield curve (e.g., flatter or steeper yield curve), and spot rates remaining unchanged for the entire measurement period. Scenarios are also developed to measure basis risk, such as the impact of LIBOR-based rates rising or falling faster than the prime rate.
     The simulations for evaluating short-term interest rate risk exposure are scenarios that model gradual 100 and 200 basis point increasing and decreasing parallel shifts in interest rates over the next 12-month period beyond the interest rate change implied by the current yield curve. The table below shows the results of the scenarios as of March 31, 2006, and December 31, 2005. All of the positions were well within the board of directors’ policy limits.
Table 14 — Net Interest Income at Risk
                                 
    Net Interest Income at Risk (%)
 
Basis point change scenario
    -200       -100       +100       +200  
 
Board policy limits
    -4.0 %     -2.0 %     -2.0 %     -4.0 %
 
March 31, 2006
    -1.5 %     -0.5 %     +0.2 %     +0.3 %
December 31, 2005
    -1.3 %     -0.5 %     +0.1 %     +0.3 %
     The primary simulations for EVE risk assume an immediate and parallel increase in rates of +/- 100 and +/- 200 basis points beyond any interest rate change implied by the current yield curve. The table below outlines the results compared to the previous quarter and policy limits.
Table 15 — Economic Value of Equity at Risk
                                 
    Economic Value of Equity at Risk (%)
 
Basis point change scenario
    -200       -100       +100       +200  
 
Board policy limits
    -12.0 %     -5.0 %     -5.0 %     -12.0 %
 
March 31, 2006
    +0.6 %     +1.3 %     -3.2 %     -7.4 %
December 31, 2005
    -0.8 %     +0.5 %     -2.5 %     -6.2 %
Price Risk
     Price risk represents the risk of loss arising from adverse movements in the prices of financial instruments that are carried at fair value and are subject to mark-to-market accounting. We have price risk from trading securities, which includes instruments to hedge MSRs. We also have price risk from securities owned by our broker-dealer subsidiaries, the foreign exchange positions, investments in private equity limited partnerships and marketable equity securities held by our insurance subsidiaries. We have established loss limits on the trading portfolio and on the amount of foreign exchange exposure that can be maintained and the amount of marketable equity securities that can be held by the insurance subsidiaries.

56

Liquidity Risk
     The objective of effective liquidity management is to ensure that cash flow needs can be met on a timely basis at a reasonable cost under both normal operating conditions and unforeseen circumstances. The liquidity of the Bank is used to originate loans and leases and to repay deposit and other liabilities as they become due or are demanded by customers. Liquidity risk arises from the possibility that funds may not be available to satisfy current or future commitments based on external macro market issues, asset and liability activities, investor perception of financial strength, and events unrelated to the company such as war, terrorism, or financial institution market specific issues.
     Liquidity policies and limits are established by our board of directors, with operating limits set by our Market Risk Committee (MRC), based upon analyses of the ratio of loans to deposits, the percentage of assets funded with non-core or wholesale funding and the amount of liquid assets available to cover non-core funds maturities. In addition, guidelines are established to ensure diversification of wholesale funding by type, source, and maturity and provide sufficient balance sheet liquidity to cover 100% of wholesale funds maturing within a six-month time period. A contingency funding plan is in place, which includes forecasted sources and uses of funds under various scenarios in order to prepare for unexpected liquidity shortages, including the implications of any rating changes. Our MRC meets monthly to identify and monitor liquidity issues, provide policy guidance, and oversee adherence to, and the maintenance of, an evolving contingency funding plan. We believe that sufficient liquidity exists to meet the funding needs of the Bank and the parent company.
     Cash taxes paid for 2005 and projected for 2006 are in excess of the provision for income taxes as a result of lower lease volume, which negatively impacts the benefits of the like-kind exchange program in deferring taxable gains.

57

Table 16 — Deposit Composition
                                                                                 
    2006   2005
  (in thousands)   March 31,   December 31,   September 30,   June 30,   March 31,
  (Unaudited)                   (Unaudited)   (Unaudited)   (Unaudited)
     
By Type
                                                                               
Demand deposits — non-interest bearing
  $ 3,776,790       15.4 %   $ 3,390,044       15.1 %   $ 3,361,749       15.0 %   $ 3,221,352       14.4 %   $ 3,186,187       14.6 %
Demand deposits — interest bearing
    7,676,818       31.3       7,380,044       32.9       7,481,019       33.5       7,674,807       34.4       7,848,458       36.1  
Savings and other domestic time deposits
    3,585,840       14.6       3,094,136       13.8       3,186,354       14.3       3,340,406       15.0       3,468,004       15.9  
Certificates of deposit less than $100,000
    4,311,870       17.6       3,526,039       15.7       3,281,457       14.7       3,032,957       13.6       2,555,241       11.7  
     
Total core deposits
    19,351,318       78.9       17,390,263       77.5       17,310,579       77.5       17,269,522       77.4       17,057,890       78.3  
Domestic time deposits of $100,000 or more
    1,670,836       6.8       1,348,928       6.0       1,356,875       6.1       1,177,271       5.3       1,311,495       6.0  
Brokered deposits and negotiable CDs
    3,081,211       12.5       3,199,796       14.3       3,228,083       14.4       3,451,967       15.5       2,999,753       13.8  
Deposits in foreign offices
    451,798       1.8       470,688       2.2       453,585       2.0       431,816       1.8       401,835       1.9  
     
Total deposits
  $ 24,555,163       100.0 %   $ 22,409,675       100.0 %   $ 22,349,122       100.0 %   $ 22,330,576       100.0 %   $ 21,770,973       100.0 %
     
 
                                                                               
Total core deposits:
                                                                               
Commercial
  $ 5,994,233       31.0 %   $ 5,352,053       30.8 %   $ 5,424,728       31.3 %   $ 5,399,412       31.3 %   $ 5,218,482       30.6 %
Personal
    13,357,085       69.0       12,038,210       69.2       11,885,851       68.7       11,870,110       68.7       11,839,408       69.4  
     
Total core deposits
  $ 19,351,318       100.0 %   $ 17,390,263       100.0 %   $ 17,310,579       100.0 %   $ 17,269,522       100.0 %   $ 17,057,890       100.0 %
     
 
                                                                               
By Business Segment (1)
                                                                               
Regional Banking:
                                                                               
Central Ohio
  $ 4,939,053       20.1 %   $ 4,520,595       20.2 %   $ 4,424,544       19.8 %   $ 4,629,281       20.7 %   $ 4,607,924       21.2 %
Northern Ohio
    4,171,435       17.0       4,076,374       18.2       4,044,455       18.1       3,978,933       17.8       3,932,463       18.1  
Southern Ohio / Kentucky
    2,025,401       8.2       1,951,322       8.7       1,914,856       8.6       1,823,359       8.2       1,774,064       8.1  
West Michigan
    2,830,635       11.5       2,790,787       12.5       2,779,510       12.4       2,592,896       11.6       2,675,525       12.3  
East Michigan
    2,259,497       9.2       2,263,898       10.1       2,301,627       10.3       2,231,589       10.0       2,291,132       10.5  
West Virginia
    1,533,274       6.2       1,463,592       6.5       1,428,090       6.4       1,412,285       6.3       1,368,740       6.3  
Indiana
    809,176       3.3       728,193       3.2       772,183       3.5       773,773       3.5       718,875       3.3  
Unizan (3)
    1,510,995       6.2                                                  
Mortgage and equipment leasing groups
    153,444       0.6       161,866       0.7       177,026       0.8       183,744       0.8       170,758       0.8  
     
Regional Banking
    20,232,910       82.4       17,956,627       80.1       17,842,291       79.8       17,625,860       78.9       17,539,481       80.6  
Dealer Sales
    63,573       0.3       65,237       0.3       72,393       0.3       68,436       0.3       68,996       0.3  
Private Financial and Capital Markets Group
    1,177,469       4.8       1,179,915       5.3       1,199,855       5.4       1,176,313       5.3       1,155,493       5.3  
Treasury / Other (2)
    3,081,211       12.5       3,207,896       14.3       3,234,583       14.5       3,459,967       15.5       3,007,003       13.8  
     
Total deposits
  $ 24,555,163       100.0 %   $ 22,409,675       100.0 %   $ 22,349,122       100.0 %   $ 22,330,576       100.0 %   $ 21,770,973       100.0 %
     
 
(1)   Prior period amounts have been reclassified to conform to the current period business segment structure.
 
(2)   Comprised largely of brokered deposits and negotiable CDs.
 
(3)   In the first quarter of 2006, deposits acquired from Unizan were reflected in the Regional Banking line of business.

58

Credit Ratings
     Credit ratings by the three major credit rating agencies are an important component of our liquidity profile. Among other factors, the credit ratings are based on financial strength, credit quality and concentrations in the loan portfolio, the level and volatility of earnings, capital adequacy, the quality of management, the liquidity of the balance sheet, the availability of a significant base of core retail and commercial deposits, and our ability to access a broad array of wholesale funding sources. Adverse changes in these factors could result in a negative change in credit ratings and impact not only the ability to raise funds in the capital markets, but also the cost of these funds. In addition, certain financial on- and off-balance sheet arrangements contain credit rating triggers that could increase funding needs if a negative rating change occurs. Letter of credit commitments for marketable securities, interest rate swap collateral agreements, and certain asset securitization transactions contain credit rating provisions. (See the Liquidity Risks section in Part 1 of the 2005 Form 10-K for additional discussion.)
     Credit ratings as of March 31, 2006, for the parent company and the Bank were:
Table 17 — Credit Ratings
                                 
    March 31, 2006
    Senior Unsecured   Subordinated          
    Notes   Notes   Short-Term     Outlook
 
Huntington Bancshares Incorporated
                               
Moody’s Investor Service
    A3   Baal       P-2       Stable
Standard and Poor’s
    BBB+   BBB       A-2       Stable
Fitch Ratings
    A     A-       F1       Stable
 
                               
The Huntington National Bank
                               
Moody’s Investor Service
    A2     A3       P-1       Stable
Standard and Poor’s
    A-   BBB+       A-2       Stable
Fitch Ratings
    A     A-       F1       Stable
 
Off-Balance Sheet Arrangements
     In the normal course of business, we enter into various off-balance sheet arrangements. These arrangements include financial guarantees contained in standby letters of credit issued by the Bank and commitments by the Bank to sell mortgage loans.
     Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. Most of these arrangements mature within two years, and are expected to expire without being drawn upon. Standby letters of credit are included in the determination of the amount of risk-based capital that we, and the Bank are required to hold.
     The table below provides certain information about our standby letters of credit:
Standby Letters of Credit
                                         
    2006   2005
(in millions)   First   Fourth   Third   Second   First
     
Total outstanding
  $ 1,095     $ 1,079     $ 959     $ 947     $ 956  
Percent collateralized
    49 %     48 %     47 %     46 %     46 %
Income recognized from issuance (1)
  $ 3.0     $ 3.0     $ 2.6     $ 2.7     $ 2.8  
Carrying amount of deferred revenue
    5.3       4.0       3.7       3.1       3.6  
 
(1)   Revenue is in other non-interest income on the consolidated statement of income.

59

     We enter into forward contracts relating to the mortgage banking business. At March 31, 2006, December 31, 2005, and March 31, 2005, we had commitments to sell residential real estate loans of $406.3 million, $348.3 million, and $388.5 million, respectively. These contracts mature in less than one year.
     Through our credit process, we monitor the credit risks of outstanding standby letters of credit. When it is probable that a standby letter of credit will be drawn and not repaid in full, losses are recognized in provision for credit losses. We do not believe that off-balance sheet arrangements will have a material impact on our liquidity or capital resources.
Operational Risk
     As with all companies, there is risk inherent in the day-to-day operations that could result in losses due to human error, inadequate or failed internal systems and controls, and external events. Our Risk Management Group through a combination of business units and centralized processes, has the responsibility to manage the risk for the company through a process that assesses the overall level of risk on a regular basis and identifies specific risks and the steps being taken to control them. Furthermore, a system of committees is established to provide guidance over the process and escalate potential concerns to senior Management on the Operational Risk Committee, executive Management on the Risk Management Committee and the Risk Committee of the Board of Directors, as appropriate.
     We continue to develop and enhance policies and procedures to control the elements of risk found in our processes. While we are not able to eliminate risk completely, our goal is to minimize the impact of a risk event and to be prepared to cover the result of it through insurance, earnings, and capital.
     Certain overarching operational risk activities are performed by an enterprise risk group. These include monitoring adherence to corporate policies governing risk, business continuity programs to assure that operations to serve our customers continue during emergency situations, and information security to monitor and address electronic and sensitive information threats for the company.
Capital
     Capital is managed both at the Bank and on a consolidated basis. Capital levels are maintained based on regulatory capital requirements and the economic capital required to support credit, market, liquidity, and operational risks inherent in our business, and to provide the flexibility needed for future growth and new business opportunities. We place significant emphasis on the maintenance of a strong capital position, which promotes investor confidence, provides access to the national markets under favorable terms, and enhances business growth and acquisition opportunities. The importance of managing capital is also recognized and we continually strive to maintain an appropriate balance between capital adequacy and providing attractive returns to shareholders.
     Shareholders’ equity totaled $3.1 billion at March 31, 2006. This balance represented a $522.7 million increase from December 31, 2005. The growth in shareholders’ equity resulted from the shares issued pursuant to the acquisition of Unizan of $575.8 million; retention of net income after dividends declared to shareholders, netting to $42.6 million; $12.1 million for the cumulative effect of change in accounting principle for servicing financial assets; and $10.9 million as a result of stock options exercised, partially offset by the impact of shares repurchased of $113.3 million, and by a decrease in accumulated other comprehensive income of $9.3 million. The decline in accumulated other comprehensive income resulted from a decrease in the market value of securities available for sale at March 31, 2006, compared with December 31, 2005.
     We evaluate several measures of capital, along with the customary three primary regulatory ratios: Tier 1 Risk-based Capital, Total Risk-based Capital, and Tier 1 Leverage.
     The Federal Reserve Board sets minimum capital ratio requirements for bank holding companies. In the calculation of the risk-based capital ratios, risk weightings are assigned to certain asset and off-balance sheet items such as interest rate swaps, loan commitments, and securitizations. Our Tier 1 Risk-based Capital, Total Risk-based Capital, Tier 1 Leverage ratios and risk-adjusted assets for the past five quarters are shown in Table 18 and were well in excess of minimum levels established for “well capitalized” institutions of 6.00%, 10.00%, and 5.00%, respectively.

60

     The Bank is primarily supervised and regulated by the OCC, which establishes regulatory capital guidelines for banks similar to those established for bank holding companies by the Federal Reserve Board. At March 31, 2006, the Bank had regulatory capital ratios in excess of “well capitalized” regulatory minimums.
     At March 31, 2006, the tangible equity to assets ratio was 6.97%, down from 7.42% a year ago and from 7.19% at December 31, 2005. At March 31, 2006, the tangible equity to risk-weighted assets ratio was 7.80%, down from 7.84% at the end of the year-ago quarter and from 7.91% at December 31, 2005. The decrease in the tangible equity to assets ratio reflected approximately 2 basis points related to the issuance of capital for the Unizan merger, as well as 35 basis points, due to the impact of share repurchases.
Table 18 — Capital Adequacy
                                         
    2006   2005
(in millions)   March 31,   December 31,   September 30,   June 30,   March 31,
     
Total risk-weighted assets
  $ 31,289     $ 29,599     $ 29,352     $ 29,973     $ 30,267  
 
                                       
Tier 1 leverage ratio
    8.52 %     8.34 %     8.50 %     8.50 %     8.45 %
Tier 1 risk-based capital ratio
    8.94       9.13       9.42       9.18       9.04  
Total risk-based capital ratio
    12.11       12.42       12.70       12.39       12.33  
 
                                       
Tangible equity / asset ratio
    6.97       7.19       7.39       7.36       7.42  
Tangible equity / risk-weighted assets ratio
    7.80       7.91       8.19       8.05       7.84  
Average equity / average assets
    8.15       7.89       7.97       8.03       7.76  
     During the quarter, 4.8 million shares of common stock were repurchased in the open market leaving 5.0 million shares remaining at March 31, 2006 under the 15 million share repurchase authorization announced October 18, 2005. On April 20, 2006, the board of directors announced a new 15 million share repurchase authorization and canceled the 5.0 million shares remaining from the previous authorization. This new authorization may be used to help mitigate the diluted earnings impact resulting from the issuance of incentive plan shares and/or shares issued in the Unizan merger. All purchases under the current authorization will be made from time-to-time in the open market or through privately negotiated transactions depending on market conditions.
     On January 18, 2006, the board of directors declared a quarterly cash dividend on our common stock of $0.25 per common share payable April 3, 2006, to shareholders of record on March 17, 2006. Subsequent to the end of the 2006 first quarter, the board of directors on April 20, 2006, declared a quarterly cash dividend on our common stock of $0.25 per common share, payable July 3, 2006, to shareholders of record on June 16, 2006.

61

Table 19 — Quarterly Common Stock Summary
                                         
    2006   2005
(in thousands, except per share amounts)   First   Fourth   Third   Second   First
     
Common stock price, per share
                                       
High (1)
  $ 24.750     $ 24.640     $ 25.410     $ 24.750     $ 24.780  
Low (1)
    22.560       20.970       22.310       22.570       22.150  
Close
    24.130       23.750       22.470       24.140       23.900  
Average closing price
    23.649       23.369       24.227       23.771       23.216  
 
                                       
Dividends, per share
                                       
Cash dividends declared on common stock
  $ 0.250     $ 0.215     $ 0.215     $ 0.215     $ 0.200  
 
                                       
Common shares outstanding
                                       
Average — basic
    230,968       226,699       229,830       232,217       231,824  
Average — diluted
    234,363       229,718       233,456       235,671       235,053  
Ending
    245,183       224,106       229,006       230,842       232,192  
Book value per share
  $ 12.56     $ 11.41     $ 11.45     $ 11.40     $ 11.15  
Tangible book value per share
    9.95       10.44       10.50       10.45       10.22  
 
                                       
Common share repurchases
                                       
Number of shares repurchased
    4,831       5,175       2,598       1,818        
 
(1)   High and low stock prices are intra-day quotes obtained from NASDAQ.

62

LINES OF BUSINESS DISCUSSION
     This section reviews financial performance from a line of business perspective and should be read in conjunction with the Discussion of Results of Operations and other sections for a full understanding of consolidated financial performance.
     We have three distinct lines of business: Regional Banking, Dealer Sales, and the Private Financial and Capital Markets Group (PFCMG). A fourth segment includes our Treasury function and other unallocated assets, liabilities, revenue, and expense. Lines of business results are determined based upon our management reporting system, which assigns balance sheet and income statement items to each of the business segments. The process is designed around our organizational and management structure and, accordingly, the results derived are not necessarily comparable with similar information published by other financial institutions. An overview of this system is provided below, along with a description of each segment and discussion of financial results.
Use of Operating Earnings to Measure Segment Performance
     We use earnings on an operating basis, rather than on a GAAP basis, to measure underlying performance trends for each business segment. Operating earnings represent GAAP earnings adjusted to exclude the impact of the significant items. Analyzing earnings on an operating basis is very helpful in assessing underlying performance trends, a critical factor used to determine the success of strategies and future earnings capabilities. For the three months ended March 31, 2006 and 2005, operating earnings were the same as reported GAAP.
Funds Transfer Pricing
     We use a centralized funds transfer pricing (FTP) methodology to attribute appropriate net interest income to the business segments. The Treasury/Other business segment charges (credits) an internal cost of funds for assets held in (or pays for funding provided by) each line of business. The FTP rate is based on prevailing market interest rates for comparable duration assets (or liabilities). Deposits of an indeterminate maturity receive an FTP credit based on vintage-based pool rate. Other assets, liabilities, and capital are charged (credited) with a four-year moving average FTP rate. The intent of the FTP methodology is to eliminate all interest rate risk from the lines of business by providing matched duration funding of assets and liabilities. The result is to centralize the financial impact and management of interest rate and liquidity risk in Treasury/Other where it can be monitored and managed.
Treatment of Unizan Financial Corp. Merger
     On March 1, 2006, the merger with Unizan was completed (See Significant Factor 1) . For line of business reporting, the impact of the merger is reflected in all balance sheet, income statement, and credit quality results. However, certain supplemental data excludes the impact of Unizan, as such information on a comparable basis would not be available until the conversion of Unizan’s systems to our systems and subsequent analysis and reconciliation to our management reporting systems. Data where Unizan is excluded has been footnoted.

63

Regional Banking
(This section should be read in conjunction with Significant Factors 1, 2, and 6.)
Objectives, Strategies, and Priorities
     Our Regional Banking line of business provides traditional banking products and services to consumer, small business, and commercial customers located in its eight operating regions within the five states of Ohio, Michigan, West Virginia, Indiana, and Kentucky. It provides these services through a banking network of 375 branches, nearly 1,000 ATMs, plus online and telephone banking channels. Each region is further divided into Retail and Commercial Banking units. Retail products and services include home equity loans and lines of credit, first mortgage loans, direct installment loans, small business loans, personal and business deposit products, as well as sales of investment and insurance services. Retail Banking accounts for 59% and 78% of total Regional Banking average loans and deposits, respectively. Commercial Banking serves middle market commercial banking relationships, which use a variety of banking products and services including, but not limited to, commercial loans, international trade, cash management, leasing, interest rate protection products, capital market alternatives, 401(k) plans, and mezzanine investment capabilities.
     We have a business model that emphasizes the delivery of a complete set of banking products and services offered by larger banks, but distinguished by local decision-making with regard to price and terms of these products. Our strategy has been to focus on building a deeper relationship with our customers by providing “Simply the Best” service experience. This focus on service requires state-of-the-art platform technology in our branches, award-winning retail and business websites for our customers, extensive development of our associates, and internal processes that empower our local bankers to serve our customers better. We expect the combination of loan decision-making and “Simply the Best” service will continue to improve our competitive position and drive revenue and earnings growth.
2006 First Quarter versus 2005 First Quarter
     Regional Banking contributed $80.5 million of our net operating earnings for the first quarter of 2006, up $19.7 million from the year-ago quarter. This improved performance primarily reflected a $29.8 million, or 12%, increase in fully taxable equivalent revenue. Non-interest income increased $6.6 million, or 9%, from the year-ago period. Non-interest expense increased $1.5 million, or 1%, from the year-ago quarter. Regional Banking’s ROA was 1.68%, up from 1.37% in first quarter of 2005, with a ROE of 31.2%, up from 24.7% in the year-ago quarter.
     Fully taxable equivalent revenue grew $29.8 million, or 12%, from the year-ago quarter, primarily reflecting a 13% increase in net interest income. This reflected a higher net interest margin and growth in loans and deposits. The net interest margin in the 2006 first quarter was 4.63%, up 20 basis points, from 4.43% in the year-ago quarter, primarily reflecting the benefit of the credit for deposits generated as interest rates increased, partially offset by lower loan spreads resulting from a more competitive lending environment and the negative impact of a flatter yield curve. Average total loans and leases increased across all regions:
Regional Banking Average Loans & Leases
                 
            Increase from
    First Quarter   First Quarter
(in millions)   2006   2005
 
Region
               
Central Ohio
  $ 3,166       2 %
Northern Ohio
    2,886       1  
Southern Ohio/Kentucky
    2,077       6  
West Michigan
    2,362       3  
East Michigan
    1,551       8  
West Virginia
    966       10  
Indiana
    1,018       4  
Unizan
    568        
Mortgage and equipment leasing groups
    3,458       6  
 
Total loans and leases
  $ 18,052       7 %
 

64

     Average commercial loans increased 8%. Residential mortgages increased 10%, as interest rates remained low and despite a 22% decline in closed loan origination volume from the year-ago period. Home equity loans and lines of credit increased 3% compared to the year-ago period.
     Growth in average deposits was also broad-based:
Regional Banking Average Deposits
                 
            Increase from
    First Quarter   First Quarter
(in millions of dollars)   2006   2005
 
Region
               
Central Ohio
  $ 4,559       2 %
Northern Ohio
    4,184       2  
Southern Ohio/Kentucky
    1,986       13  
West Michigan
    2,791       4  
East Michigan
    2,255       (2 )
West Virginia
    1,471       8  
Indiana
    746       7  
Unizan
    523        
Mortgage and equipment leasing groups
    162       (10 )
 
Total deposits
  $ 18,677       6 %
 
     The 6% increase in average deposits reflected 37% growth in domestic time deposits, partially offset by a 5% decrease in average interest bearing demand deposits, which includes money market demand accounts, and an 8% decrease in savings deposits. Non-interest bearing deposits grew 5% from the year-ago period.
     Many of the key operating performance drivers improved compared with 2005, even though the impact of Unizan is not reflected in the measurement of these drivers for the first quarter of 2006. Unizan will impact the measurement of these performance drivers in the second quarter, once Unizan’s systems have been converted. Since we focus on developing relationships, we monitor the “cross-sell” ratio as an indicator of our sales performance. This ratio measures success in selling multiple products to households. In Retail Banking, the 90-day cross-sell ratio improved 4% over the prior year period, but the small business cross-sell ratio decreased 6%. In addition, customer bases continued to expand. Period-end Retail Banking non-interest bearing checking account (DDA) households totaled 517,277, and increased 11,068, or 2%, from the year-ago quarter, with the number of small business DDA relationships up 2,882, or 6%. The DDA is viewed as the primary banking relationship account as most additional services are cross-sold to customers after first establishing a DDA account. In addition, the number of online consumer banking customers at March 31, 2006, grew 16% to 260,890 customers, which represented a relatively high 48% penetration of Retail Banking households and indicated a deepening relationship with those customers.
     The growth in revenue was accomplished without significant increases in Regional Banking’s expense base. Regional Banking’s efficiency ratio declined to 53% from 59% in the year-ago period, reflecting strong revenue growth and a continued focus on expense management, while still making investments in distribution and technology.

65

Table 20 — Regional Banking (1)
                                                         
      2006   2005   1Q06 vs. 1Q05
    First   Fourth   Third   Second   First   Amount   Percent
           
INCOME STATEMENT (in thousands)
                                                       
 
                                                       
Net interest income
  $ 208,212     $ 203,332     $ 197,257     $ 193,744     $ 185,030     $ 23,182       12.5 %
Provision for credit losses
    10,325       19,323       10,888       8,717       12,318       (1,993 )     (16.2 )
           
Net interest income after provision for credit losses
    197,887       184,009       186,369       185,027       172,712       25,175       14.6  
           
Operating lease income
    2,342       1,807       1,441       1,206       964       1,378       N.M.  
Service charges on deposit accounts
    40,187       41,999       43,780       41,256       38,408       1,779       4.6  
Brokerage and insurance income
    3,864       3,904       3,963       4,545       3,527       337       9.6  
Trust services
    214       376       197       169       172       42       24.4  
Mortgage banking
    8,899       10,785       10,797       8,091       8,578       321       3.7  
Other service charges and fees
    11,390       11,357       11,325       11,127       10,045       1,345       13.4  
Other income
    10,911       11,880       9,451       9,909       9,505       1,406       14.8  
           
Total non-interest income before securities gains
    77,807       82,108       80,954       76,303       71,199       6,608       9.3  
Securities gains
                      18                   N.M.  
           
Total non-interest income
    77,807       82,108       80,954       76,321       71,199       6,608       9.3  
           
Operating lease expense
    1,937       1,544       1,186       997       799       1,138       N.M.  
Personnel costs
    64,902       59,813       60,919       61,715       60,951       3,951       6.5  
Other expense
    85,000       85,876       83,699       84,867       88,563       (3,563 )     (4.0 )
           
Total non-interest expense
    151,839       147,233       145,804       147,579       150,313       1,526       1.0  
           
Income before income taxes
    123,855       118,884       121,519       113,769       93,598       30,257       32.3  
Provision for income taxes (2)
    43,349       41,609       42,532       39,819       32,759       10,590       32.3  
           
Net income — operating (1)
  $ 80,506     $ 77,275     $ 78,987     $ 73,950     $ 60,839     $ 19,667       32.3 %
         
 
                                                       
Revenue — fully taxable equivalent (FTE)
                                                       
Net interest income
  $ 208,212     $ 203,332     $ 197,257     $ 193,744     $ 185,030     $ 23,182       12.5 %
Tax equivalent adjustment (2)
    247       251       261       277       267       (20 )     (7.5 )
           
Net interest income (FTE)
    208,459       203,583       197,518       194,021       185,297       23,162       12.5  
Non-interest income
    77,807       82,108       80,954       76,321       71,199       6,608       9.3  
           
Total revenue (FTE)
  $ 286,266     $ 285,691     $ 278,472     $ 270,342     $ 256,496     $ 29,770       11.6 %
         
Total revenue excluding securities gains (FTE)
  $ 286,266     $ 285,691     $ 278,472     $ 270,324     $ 256,496     $ 29,770       11.6 %
         
 
                                                       
SELECTED AVERAGE BALANCES (in millions)
                                                       
Loans:
                                                       
Commercial
                                                       
Middle market commercial and industrial
  $ 3,746     $ 3,673     $ 3,567     $ 3,630     $ 3,429     $ 317       9.2 %
Middle market commercial real estate
                                                       
Construction
    1,432       1,631       1,648       1,615       1,598       (166 )     (10.4 )
Commercial
    2,200       1,687       1,643       1,613       1,586       614       38.7  
Small business loans
    2,121       2,230       2,251       2,230       2,183       (62 )     (2.8 )
           
Total commercial
    9,499       9,221       9,109       9,088       8,796       703       8.0  
           
Consumer
                                                       
Auto loans — indirect
    26       2       3       3       3       23       N.M.  
Home equity loans & lines of credit
    4,367       4,327       4,354       4,314       4,252       115       2.7  
Residential mortgage
    3,708       3,581       3,574       3,509       3,372       336       10.0  
Other loans
    452       393       386       381       379       73       19.3  
           
Total consumer
    8,553       8,303       8,317       8,207       8,006       547       6.8  
           
Total loans & leases
  $ 18,052     $ 17,524     $ 17,426     $ 17,295     $ 16,802     $ 1,250       7.4 %
         
Operating lease assets
  $ 41     $ 29     $ 22     $ 18     $ 15     $ 26       N.M. %
 
                                                       
Deposits:
                                                       
Non-interest bearing deposits
  $ 3,221     $ 3,196     $ 3,165     $ 3,089     $ 3,061     $ 160       5.2 %
Interest bearing demand deposits
    6,806       6,754       6,796       6,925       7,183       (377 )     (5.2 )
Savings deposits
    2,535       2,423       2,534       2,667       2,754       (219 )     (8.0 )
Domestic time deposits
    5,673       5,169       4,789       4,349       4,147       1,526       36.8  
Foreign time deposits
    442       459       432       404       401       41       10.2  
           
Total deposits
  $ 18,677     $ 18,001     $ 17,716     $ 17,434     $ 17,546     $ 1,131       6.4 %
         
N.M., not a meaningful value.
(1)   Operating basis, see Lines of Business section for definition.
 
(2)   Calculated assuming a 35% tax rate

Table 20 — Regional Banking (1)
                                                         
      2006   2005   1Q06 vs. 1Q05
    First   Fourth   Third   Second   First   Amount   Percent
         
PERFORMANCE METRICS
                                                       
 
                                                       
Return on average assets
    1.68 %     1.62 %     1.66 %     1.61 %     1.37 %     0.31 %        
Return on average equity
    31.2       29.8       30.5       29.9       24.7       6.5          
Net interest margin
    4.63       4.53       4.41       4.45       4.43       0.20          
Efficiency ratio
    53.0       51.5       52.4       54.6       58.6       (5.6 )        
 
                                                       
CREDIT QUALITY (in thousands)
                                                       
 
                                                       
Net charge-offs by loan type
                                                       
Commercial
                                                       
Middle market commercial and industrial
  $ 5,368     $ (2,623 )   $ (1,432 )   $ (619 )   $ 14,173     $ (8,805 )     (62.1 )%
Middle market commercial real estate
    175       14       2,280       2,216       (35 )     210       N.M.  
Small business loans
    3,709       4,465       3,062       2,141       2,283       1,426       62.5