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, 2007
Commission File Number 0-2525
Huntington Bancshares Incorporated
     
Maryland
(State or other jurisdiction of
incorporation or organization)
  31-0724920
(I.R.S. Employer
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 235,906,606 shares of Registrant’s without par value common stock outstanding on April 30, 2007.
 
 

 


 

Huntington Bancshares Incorporated
INDEX
             
Part I. Financial Information        
 
           
  Financial Statements (Unaudited)        
 
           
 
  Condensed Consolidated Balance Sheets at March 31, 2007, December 31, 2006, and March 31, 2006     3  
 
           
 
  Condensed Consolidated Statements of Income for the three months ended March 31, 2007 and 2006     4  
 
           
 
  Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2007 and 2006     5  
 
           
 
  Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2007 and 2006     6  
 
           
 
  Notes to Unaudited Condensed Consolidated Financial Statements     7  
 
           
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     20  
 
           
  Quantitative and Qualitative Disclosures about Market Risk     63  
 
           
  Controls and Procedures     63  
 
           
  Controls and Procedures     63  
 
           
Part II. Other Information        
 
           
  Exhibits     64  
 
           
        65  
  EX-12.1
  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
(Unaudited)
                         
    2007   2006
(in thousands, except number of shares)   March 31,   December 31,   March 31,
     
Assets
                       
Cash and due from banks
  $ 867,256     $ 1,080,163     $ 797,258  
Federal funds sold and securities purchased under resale agreements
    701,951       440,584       349,098  
Interest bearing deposits in banks
    100,416       74,168       23,204  
Trading account securities
    76,631       36,056       111,208  
Loans held for sale
    277,538       270,422       311,138  
Investment securities
    3,724,676       4,362,924       5,034,359  
Loans and leases
    26,266,747       26,153,425       26,145,589  
Allowance for loan and lease losses
    (282,976 )     (272,068 )     (283,839 )
     
Net loans and leases
    25,983,771       25,881,357       25,861,750  
     
Bank owned life insurance
    1,097,986       1,089,028       1,060,305  
Premises and equipment
    377,687       372,772       375,740  
Goodwill
    569,779       570,876       579,246  
Other intangible assets
    57,165       59,487       60,563  
Accrued income and other assets
    1,144,443       1,091,182       1,102,040  
     
Total Assets
  $ 34,979,299     $ 35,329,019     $ 35,665,909  
     
 
                       
Liabilities and Shareholders’ Equity Liabilities
                       
Deposits
  $ 24,585,893     $ 25,047,770     $ 24,555,163  
Short-term borrowings
    1,577,732       1,676,189       1,687,536  
Federal Home Loan Bank advances
    1,197,411       996,821       1,658,486  
Other long-term debt
    2,173,818       2,229,140       2,035,576  
Subordinated notes
    1,280,870       1,286,657       1,283,359  
Deferred federal income tax liability
    396,005       443,921       685,559  
Accrued expenses and other liabilities
    716,210       634,195       680,050  
     
Total Liabilities
    31,927,939       32,314,693       32,585,729  
     
 
                       
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 235,713,500; 235,474,366 and 245,183,441 shares, respectively
    2,563,426       2,560,569       2,548,185  
Less 22,152,755; 22,391,889 and 12,682,814 treasury shares at cost, respectively
    (501,578 )     (506,946 )     (273,120 )
Accumulated other comprehensive income (loss):
                       
Unrealized gains (losses) on investment securities
    11,562       14,254       (52,710 )
Unrealized gains on cash flow hedging derivatives
    12,901       17,008       24,559  
Pension and other postretirement benefit adjustments
    (83,972 )     (86,328 )     (3,283 )
Retained earnings
    1,049,021       1,015,769       836,549  
     
Total Shareholders’ Equity
    3,051,360       3,014,326       3,080,180  
     
Total Liabilities and Shareholders’ Equity
  $ 34,979,299     $ 35,329,019     $ 35,665,909  
     
      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)   2007   2006
 
Interest and fee income
               
Loans and leases
               
Taxable
  $ 461,141     $ 399,346  
Tax-exempt
    471       509  
Investment securities
               
Taxable
    55,115       52,108  
Tax-exempt
    6,093       5,712  
Other
    12,129       7,112  
 
Total interest income
    534,949       464,787  
 
Interest expenses
               
Deposits
    196,723       148,314  
Short-term borrowings
    19,837       14,665  
Federal Home Loan Bank advances
    12,510       14,488  
Subordinated notes and other long-term debt
    50,324       43,640  
 
Total interest expense
    279,394       221,107  
 
Net interest income
    255,555       243,680  
Provision for credit losses
    29,406       19,540  
 
Net interest income after provision for credit losses
    226,149       224,140  
 
Service charges on deposit accounts
    44,793       41,222  
Trust services
    25,894       21,278  
Brokerage and insurance income
    16,082       15,193  
Other service charges and fees
    13,208       11,509  
Bank owned life insurance income
    10,851       10,242  
Mortgage banking income
    9,351       13,194  
Gains on sales of automobile loans
    1,144       448  
Securities gains (losses)
    104       (20 )
Other income
    23,750       46,468  
 
Total non-interest income
    145,177       159,534  
 
Personnel costs
    134,639       131,557  
Outside data processing and other services
    21,814       19,851  
Net occupancy
    19,908       17,966  
Equipment
    18,219       16,503  
Marketing
    7,696       7,301  
Professional services
    6,482       5,365  
Telecommunications
    4,126       4,825  
Printing and supplies
    3,242       3,074  
Amortization of intangibles
    2,520       1,075  
Other expense
    23,426       30,898  
 
Total non-interest expense
    242,072       238,415  
 
Income before income taxes
    129,254       145,259  
Provision for income taxes
    33,528       40,803  
 
Net income
  $ 95,726     $ 104,456  
 
 
               
Average common shares — basic
    235,586       230,968  
Average common shares — diluted
    238,754       234,363  
 
               
Per common share
               
Net income — basic
  $ 0.41     $ 0.45  
Net income — diluted
    0.40       0.45  
Cash dividends declared
    0.265       0.250  
      See notes to unaudited condensed consolidated financial statements

4


Huntington Bancshares Incorporated
Condensed Consolidated Statements of Changes in Shareholders’ Equity
(Unaudited)
                                                                         
                                                    Accumulated              
                                                    Other              
    Preferred Stock     Common Stock     Treasury Stock     Comprehensive     Retained        
(in thousands)   Shares     Amount     Shares     Amount     Shares     Amount     Income (Loss)     Earnings     Total  
 
Three Months Ended March 31, 2006:
                                                                       
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  
Unrealized net losses on investment securities arising during the period, net of reclassification (1) for net realized losses, net of tax of ($9,857).
                                                    (18,694 )             (18,694 )
Unrealized gains on cash flow hedging derivatives, net of tax of $5,036.
                                                    9,353               9,353  
 
                                                                     
Total comprehensive income
                                                                    95,115  
 
                                                                     
Cumulative effect of change in accounting principle for servicing financial assets, net of tax of $6,521
                                                            12,110       12,110  
Cash dividends declared ($0.25 per share)
                                                            (61,861 )     (61,861 )
Shares issued pursuant to acquisition
                            53,366       25,350       522,390                       575,756  
Recognition of the fair value of share-based compensation
                            4,273                                       4,273  
Treasury shares purchased
                                    (4,831 )     (113,326 )                     (113,326 )
Stock options exercised
                            (782 )     569       11,671                       10,889  
Other
                            2       (11 )     (279 )                     (277 )
 
 
                                                                       
Balance, end of period
                257,866       2,548,185       (12,683 )     (273,120 )     (31,434 )     836,549       3,080,180  
 
 
                                                                       
Three Months Ended March 31, 2007:
                                                                       
Balance, beginning of period
                257,866       2,560,569       (22,392 )     (506,946 )     (55,066 )     1,015,769       3,014,326  
Comprehensive Income:
                                                                       
Net income
                                                            95,726       95,726  
Unrealized net losses on investment securities arising during the period, net of reclassification (1) for net realized gains, net of tax of ($1,255)
                                                    (2,692 )             (2,692 )
Unrealized losses on cash flow hedging derivatives, net of tax of ($2,211)
                                                    (4,107 )             (4,107 )
Pension and other postretirement benefit adjustments:
                                                                       
Net actuarial loss, net of tax of ($1,101)
                                                    2,045               2,045  
Prior service costs, net of tax of ($70)
                                                    131               131  
Transition obligation, net of tax of ($97)
                                                    180               180  
 
                                                                     
Total comprehensive income
                                                                    91,283  
 
                                                                     
Cash dividends declared ($0.265 per share)
                                                            (62,474 )     (62,474 )
Recognition of the fair value of share-based compensation
                            3,940                                       3,940  
Stock options exercised
                            (1,008 )     238       5,355                       4,347  
Other
                            (75 )     1       13                       (62 )
 
 
                                                                       
Balance, end of period
        $       257,866     $ 2,563,426       (22,153 )   $ (501,578 )   $ (59,509 )   $ 1,049,021     $ 3,051,360  
 
(1)   Reclassification adjustments represent net unrealized gains or losses as of December 31 of the prior year on investment securities that were sold during the current year. For the three months ended March 31, 2007 and 2006, the reclassification adjustments were $104, net of tax of ($36), and ($20), net of tax of $7, respectively.
      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)   2007   2006
 
Operating activities
               
Net income
  $ 95,726     $ 104,456  
Adjustments to reconcile net income to net cash provided by operating activites:
               
Provision for credit losses
    29,406       19,540  
Depreciation and amortization
    21,226       31,614  
Increase in accrued income taxes
    134,384       49,020  
Deferred income tax benefit
    (46,708 )     (59,449 )
Increase in trading account securities
    (40,575 )     (23,845 )
Originations of loans held for sale
    (600,113 )     (616,943 )
Principal payments on and proceeds from loans held for sale
    584,561       600,149  
Other, net
    3,024       (79,288 )
 
Net cash provided by operating activities
    180,931       25,254  
 
 
               
Investing activities
               
(Increase) decrease in interest bearing deposits in banks
    (26,248 )     2,283  
Net cash received in acquisitions
          66,507  
Proceeds from:
               
Maturities and calls of investment securities
    118,718       110,777  
Sales of investment securities
    426,156       61,687  
Purchases of investment securities
    (21,620 )     (462,392 )
Proceeds from sales of loans
    108,698        
Net loan and lease originations, excluding sales
    (240,481 )     (28,721 )
Proceeds from sale of operating lease assets
    12,323       47,952  
Purchases of premises and equipment
    (18,563 )     (7,476 )
Other, net
    2,857       (4,589 )
 
Net cash provided by (used for) investing activities
    361,840       (213,972 )
 
 
               
Financing activities
               
(Decrease) increase in deposits
    (464,425 )     449,778  
Decrease in short-term borrowings
    (98,457 )     (280,864 )
Proceeds from issuance of subordinated notes
          250,000  
Proceeds from Federal Home Loan Bank advances
    200,600       1,407,050  
Maturity of Federal Home Loan Bank advances
    (10 )     (1,007,161 )
Maturity of long-term debt
    (70,023 )     (380,390 )
Dividends paid on common stock
    (61,540 )     (41,678 )
Repurchases of common stock
          (113,326 )
Other, net
    (456 )     10,889  
 
Net cash (used for) provided by financing activities
    (494,311 )     294,298  
 
Increase in cash and cash equivalents
    48,460       105,580  
Cash and cash equivalents at beginning of period
    1,520,747       1,040,776  
 
Cash and cash equivalents at end of period
  $ 1,569,207     $ 1,146,356  
 
 
               
Supplemental disclosures:
               
Income taxes paid
  $ 238     $ 45,874  
Interest paid
    294,617       212,279  
Non-cash activities
               
Common stock dividends accrued, paid in subsequent quarter
    48,205       49,060  
Common stock and stock options 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) 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 Consolidated Financial Statements appearing in Huntington’s 2006 Annual Report on Form 10-K, (2006 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 2007 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. 158, Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and 132R (Statement No. 158) – In September 2006, the FASB issued Statement No. 158, as an amendment to FASB Statements No. 87, 88, 106, and 132R. Statement No. 158 requires an employer to recognize in its statement of financial position the funded status of its defined benefit plans and to recognize as a component of other comprehensive income, net of tax, any unrecognized transition obligations and assets, the actuarial gains and losses, and prior service costs and credits that arise during the period. The recognition provisions of Statement No. 158 are to be applied prospectively and were effective for fiscal years ending after December 15, 2006. In addition, Statement No. 158 requires a fiscal year end measurement of plan assets and benefit obligations, eliminating the use of earlier measurement dates currently permissible. However, the new measurement date requirement will not be effective until fiscal years ended after December 15, 2008. Currently, Huntington utilizes a measurement date of September 30th. The adoption of Statement No. 158 as of December 31, 2006 resulted in a write-down of its pension asset by $125.1 million, and decreased accumulated other comprehensive income by $83.0 million, net of taxes.
FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes – In July 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes . This Interpretation of FASB Statement No. 109, Accounting for Income Taxes , contains guidance on the recognition and measurement of uncertain tax positions. Huntington adopted FIN 48 on January 1, 2007. Huntington recognizes the impact of a tax position if it is more likely than not that it will be sustained upon examination, based upon the technical merits of the position. The impact of this new pronouncement was not material to Huntington’s financial statements (See Note 9).
FASB Statement No. 157, Fair Value Measurements (Statement No. 157) – In September 2006, the FASB issued Statement No. 157. This Statement establishes a common definition for fair value to be applied to GAAP guidance requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. Statement No. 157 is effective for fiscal years beginning after November 15, 2007. Management is currently assessing the impact this Statement will have on its consolidated financial statements.
FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (Statement No. 159) – In February 2007, the FASB issued Statement No. 159. This Statement permits entities to choose to measure financial instruments and certain other financial assets and financial liabilities at fair value. This Statement is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact this Statement will have on its financial statements.

7


Note 3 – Pending Acquisition of Sky Financial Group, Inc.
     On December 20, 2006, Huntington announced the signing of a definitive agreement to acquire Sky Financial Group, Inc. (Sky Financial) in a stock and cash transaction expected to be valued at approximately $3.5 billion. Sky Financial is a $17.6 billion diversified financial holding company with over 330 banking offices and over 400 ATMs. Sky Financial serves communities in Ohio, Pennsylvania, Indiana, Michigan, and West Virginia. Sky Financial’s affiliates include: Sky Bank, commercial and retail banking; Sky Trust, asset management services; and Sky Insurance, retail and commercial insurance agency services.
     Under the terms of the agreement, Sky Financial shareholders will receive 1.098 shares of Huntington common stock, on a tax-free basis, and a taxable cash payment of $3.023 for each share of Sky Financial common stock. The merger was unanimously approved by both boards and is expected to close in the third quarter of 2007, pending customary regulatory approvals, as well as approval by both companies’ shareholders.
Note 4 – Goodwill and Other Intangible Assets
     Goodwill by line of business as of March 31, 2007, was as follows:
                                         
    Regional   Dealer           Treasury/   Huntington
(in thousands)   Banking   Sales   PFCMG   Other   Consolidated
 
Balance, January 1, 2007
  $ 535,855     $     $ 35,021     $     $ 570,876  
Adjustments
    209             (1,306 )           (1,097 )
 
Balance, March 31, 2007
  $ 536,064     $     $ 33,715     $     $ 569,779  
 
     The change in goodwill for the three months ended March 31, 2007, primarily relates to purchase accounting adjustments from the December 31, 2006 acquisition of Unified Fund Services, Inc. and Unified Financial Securities, Inc. In accordance with FASB Statement No. 142, Goodwill and Other Intangible Assets, goodwill is not amortized, but is evaluated for impairment on an annual basis at September 30 th of each year or whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
     At March 31, 2007, December 31, 2006 and March 31, 2006, Huntington’s other intangible assets consisted of the following:
                         
    Gross   Accumulated   Net
(in thousands)   Carrying Amount   Amortization   Carrying Value
March 31, 2007
                       
Leasehold purchased
  $ 23,655     $ (19,835 )   $ 3,820  
Core deposit intangible
    45,000       (9,378 )     35,622  
Borrower relationship
    6,570       (593 )     5,977  
Trust customers
    11,430       (1,056 )     10,374  
Other
    1,819       (447 )     1,372  
     
Total other intangible assets
  $ 88,474     $ (31,309 )   $ 57,165  
     
 
                       
December 31, 2006
                       
Leasehold purchased
  $ 23,655     $ (19,631 )   $ 4,024  
Core deposit intangible
    45,000       (7,525 )     37,475  
Borrower relationship
    6,570       (456 )     6,114  
Trust customers
    11,430       (796 )     10,634  
Other
    1,622       (382 )     1,240  
     
Total other intangible assets
  $ 88,277     $ (28,790 )   $ 59,487  
     
 
                       
March 31, 2006
                       
Leasehold purchased
  $ 23,655     $ (19,019 )   $ 4,636  
Core deposit intangible
    45,000       (753 )     44,247  
Trust customers
    11,430       (94 )     11,336  
Other
    382       (38 )     344  
     
Total other intangible assets
  $ 80,467     $ (19,904 )   $ 60,563  
     

8


     Amortization expense of other intangible assets for the three months ended March 31, 2007, and 2006, was $2.5 million and $1.1 million, respectively.
     The estimated amortization expense of other intangible assets for the remainder of 2007 and the next five annual years are as follows:
           
    Amortization  
(in thousands)   Expense  
 
Fiscal year:
         
2007
  $ 7,557    
2008
    8,888    
2009
    7,957  
2010
    7,132    
2011
    6,333    
2012
    4,966    
Note 5 – Loan Sales and Securitizations
Automobile loans
     Huntington sold $141.3 million and $169.8 million of automobile loans in the first quarter of 2007 and 2006, resulting in pre-tax gains of $1.1 million and $0.4 million, respectively.
     Automobile loan servicing rights are acccounted for under the amortization provision of FASB Statement No. 156, Accounting for Servicing of Financial Assets – an amendment of FASB Statement No. 140 . A servicing asset is established at 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, 2007 and 2006, and the fair value at the end of each period were as follows:
                 
    Three Months Ended  
    March 31,  
(in thousands)   2007     2006  
     
Carrying value, beginning of period
  $ 7,916     $ 10,805  
New servicing assets
    1,026       998  
Amortization
    (1,756 )     (2,193 )
Impairment charges
           
     
Carrying value, end of period
  $ 7,186     $ 9,610  
     
 
Fair value, end of period
  $ 8,153     $ 11,086  
     
     Huntington has retained servicing responsibilities on sold automobile loans and receives annual servicing fees from 0.55% to 1.00% and other ancillary fees of approximately 0.40% to 0.45% of the outstanding loan balances. Servicing income, net of amortization of capitalized servicing assets, amounted to $3.0 million and $3.4 million for the three months ended March 31, 2007 and 2006, respectively.
Residential Mortgage Loans
     During the first quarter of 2007, Huntington sold $108.7 million of residential mortgage loans held for investment, resulting in a net pre-tax gain of $0.6 million. There were no sales of residential mortgage loans held for investment in the first quarter of 2006.

9


     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.
     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. The same risk management practices are applied to all MSRs and, accordingly, all MSRs are identified as a single asset class. 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 mortgage banking income, which is reflected in non-interest income in the consolidated income statement.
     The following table is a summary of the changes in MSR fair value during the three months ended March 31, 2007 and 2006:
                 
    Three Months Ended
    March 31,
(in thousands)   2007   2006
     
Fair value, beginning of period
  $ 131,104       109,890  
New servicing assets created
    8,436       5,777  
Servicing assets acquired
          1,909  
Change in fair value during the period due to:
               
Time decay (1)
    (1,076 )     (923 )
Payoffs (2)
    (2,562 )     (2,609 )
Changes in valuation inputs or assumptions (3)
    (1,057 )     9,213  
     
Fair value, end of period
  $ 134,845     $ 123,257  
     
(1)   Represents decrease in value due to passage of time, including the impact from both regularly scheduled loan principal payments and partial loan paydowns.
 
(2)   Represents decrease in value associated with loans that paid off during the period.
 
(3)   Represents change in value resulting primarily from market-driven changes in interest rates.
     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, 2007 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
    13.19 %   $ (6,329 )   $ (12,088 )
Discount rate
    9.40       (4,890 )     (9,440 )
     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.
     Below is a summary of servicing fee income, a component of mortgage banking income, earned during the three months ended March 31, 2007 and 2006.
                 
    Three Months Ended
    March 31,
(in thousands)   2007   2006
     
Servicing fees
  $ 6,820     $ 5,925  
Late fees
    708       610  
Ancillary fees
    255       252  
     
Total fee income
  $ 7,783     $ 6,787  
     

10


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, 2007, December 31, 2006, and March 31, 2006:
                                                 
    March 31, 2007   December 31, 2006   March 31, 2006
    Amortized           Amortized           Amortized    
(in thousands)   Cost   Fair Value   Cost   Fair Value   Cost   Fair Value
 
U.S. Treasury
                                               
Under 1 year
  $ 130     $ 129     $ 800     $ 800     $     $  
1-5 years
    648       650       1,046       1,056       21,253       20,466  
6-10 years
                            2,946       3,014  
Over 10 years
                                   
 
Total U.S. Treasury
    778       779       1,846       1,856       24,199       23,480  
 
Federal agencies
                                               
Mortgage backed securities
                                               
Under 1 year
    2,249       2,248       1,848       1,847              
1-5 years
    11,361       11,432       9,560       9,608       29,853       28,698  
6-10 years
    3,455       3,460       4,353       4,355              
Over 10 years
    1,222,972       1,230,560       1,261,423       1,265,651       1,244,278       1,197,187  
 
Total mortgage-backed Federal agencies
    1,240,037       1,247,700       1,277,184       1,281,461       1,274,131       1,225,885  
 
Other agencies
                                               
Under 1 year
                            45,099       44,247  
1-5 years
    149,324       149,628       149,819       149,853       252,770       241,958  
6-10 years
                98       96       51,048       47,467  
Over 10 years
                                   
 
Total other Federal agencies
    149,324       149,628       149,917       149,949       348,917       333,672  
 
Total Federal agencies
    1,389,361       1,397,328       1,427,101       1,431,410       1,623,048       1,559,557  
 
Municipal securities
                                               
Under 1 year
    42       42       42       42       65       65  
1-5 years
    9,726       9,734       10,553       10,588       145       145  
6-10 years
    164,760       164,160       165,624       165,229       154,741       151,982  
Over 10 years
    407,244       411,275       410,248       415,564       393,470       390,206  
 
Total municipal securities
    581,772       585,211       586,467       591,423       548,421       542,398  
 
Private label CMO
                                               
Under 1 year
                                   
1-5 years
                                   
6-10 years
                                   
Over 10 years
    551,070       556,342       586,088       590,062       663,447       651,017  
 
Total private label CMO
    551,070       556,342       586,088       590,062       663,447       651,017  
 
Asset backed securities
                                               
Under 1 year
                                   
1-5 years
    30,000       30,019       30,000       30,056       30,503       30,445  
6-10 years
                                   
Over 10 years
    987,045       987,849       1,544,572       1,552,748       2,071,020       2,071,735  
 
Total asset backed securities
    1,017,045       1,017,868       1,574,572       1,582,804       2,101,523       2,102,180  
 
Other
                                               
Under 1 year
    6,500       6,487       4,800       4,784       2,400       2,400  
1-5 years
    4,146       4,133       2,750       2,706       9,800       9,808  
6-10 years
    642       644                   1,252       1,186  
Over 10 years
    44       86       44       86       44       43  
Non-marketable equity securities
    150,754       150,754       150,754       150,754       136,123       136,123  
Marketable equity securities
    4,698       5,044       6,481       7,039       5,271       6,167  
 
Total other
    166,784       167,148       164,829       165,369       154,890       155,727  
 
Total investment securities
  $ 3,706,810     $ 3,724,676     $ 4,340,903     $ 4,362,924     $ 5,115,528     $ 5,034,359  
 
Duration in years (1)
            3.2               3.2               2.8  
 
(1)   The average duration assumes a market driven pre-payment rate on securities subject to pre-payment.

11


     At March 31, 2007, non marketable equity securities includes $123.0 million of stock of the Federal Home Loan Bank of Cincinnati and $27.8 million of stock of the Federal Reserve Bank.
     For the three months ended March 31, 2007, gross gains from sales of securities totaled $5.0 million and gross losses totaled $4.9 million. Gross losses for the three months ended March 31, 2007 included $3.3 million of impairment losses on certain securities backed by mortgage loans to borrowers with low FICO scores. Including impairment recognized in the forth quarter of 2006, at March 31, 2007, these securities had a carrying value of $14.8 million. Gross gains and losses from the sales of securities were not material for the three months ended March 31, 2006.
     As of March 31, 2007, Management has evaluated all other investment securities with unrealized losses and all non-marketable securities for impairment. The unrealized losses were caused by interest rate increases. The contractual terms and/or cash flows of the investments do not permit the issuer to settle the securities at a price less than the amortized cost. Huntington has the intent and ability to hold these investment securities until the fair value is recovered, which may be maturity, and therefore, does not consider them to be other-than-temporarily impaired at March 31, 2007.
Note 7 – 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 to include the effect of potentially dilutive common shares. Potentially dilutive common shares include incremental shares issued upon exercise of outstanding stock options, the vesting of restricted stock units, and the distribution of shares from deferred compensation plans. The calculation of basic and diluted earnings per share for the three months ended March 31, 2007 and 2006, was as follows:
                 
    Three Months Ended
    March 31,
(in thousands, except per share amounts)   2007   2006
 
Net income
  $ 95,726     $ 104,456  
Average common shares outstanding
    235,586       230,968  
Dilutive potential common shares
    3,168       3,395  
 
Diluted average common shares outstanding
    238,754       234,363  
 
 
               
Earnings per share
               
Basic
  $ 0.41     $ 0.45  
Diluted
    0.40       0.45  
     Options to purchase 6.9 million and 5.7 million shares during the three months ended March 31, 2007 and 2006, respectively, were outstanding 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 $25.21 per share and $25.68 per share for the three months ended March 31, 2007 and 2006, respectively.
Note 8 – Share-based Compensation
     Huntington sponsors nonqualified and incentive share-based compensation plans. These plans provide for the granting of stock options and other awards to officers, directors, and other employees. Stock options are granted at the market price on the date of the grant. 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.
     Beginning in 2006, Huntington began granting restricted stock units under the 2004 Stock and Long-Term Incentive Plan. Restricted stock units are issued at no cost to the recipient, and can be settled only in shares at the end of the vesting period, subject to certain service restrictions. The fair value of the restricted stock unit awards was based on the closing market price of the Company’s common stock on the date of award.
     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 24.8 million shares of common stock authorized for issuance under the plans at March 31, 2007, 20.9 million were outstanding and 3.9 million were available for future grants.

12


     Huntington uses the Black-Scholes option-pricing model to value share-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,
    2007   2006
     
Assumptions
               
Risk-free interest rate
    4.57 %     4.47 %
Expected dividend yield
    4.45       4.32  
Expected volatility of Huntington’s common stock
    21.1       22.2  
Expected option term (years)
    6.0       6.0  
 
               
Weighted-average grant date fair value per share
  $ 3.75     $ 4.33  
     Huntington’s stock option activity and related information for the three months ended March 31, 2007, 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, 2007
    20,573     $ 21.36                  
Granted
    18       23.71                  
Exercised
    (316 )     17.38                  
Forfeited/expired
    (179 )     22.33                  
 
Outstanding at March 31, 2007
    20,096     $ 21.41       4.6     $ 35,071  
 
Exercisable at March 31, 2007
    14,308     $ 20.79       4.3     $ 32,608  
 
     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, 2007 and 2006, was $1.9 million and $4.5 million, respectively.
     Cash received from the exercise of options for the three months ended March 31, 2007 and 2006 was $3.9 million and $9.4 million, respectively. The tax benefit realized for the tax deductions from option exercises totaled $0.9 million for both the three months ended March 31, 2007 and 2006.
     Huntington issues shares to fulfill stock option exercises and restricted stock units from available shares held in treasury. At March 31, 2007, the Company believes there are adequate shares in treasury to satisfy anticipated stock option exercises in 2007.
     The following table summarizes the status of Huntington’s restricted stock units as of March 31, 2007 and activity for the three months ended March 31, 2007:
                 
            Weighted-  
            Average  
    Restricted     Grant Date  
    Stock     Fair Value  
(in thousands, except per share amounts)   Units     Per Share  
 
Nonvested at January 1, 2007
    468     $ 23.37  
Granted
    4       23.70  
Vested
    (5 )     23.34  
Forfeited
    (7 )     23.34  
 
Nonvested at March 31, 2007
    460     $ 23.38  
 

13


     As of March 31, 2007, the total compensation cost related to restricted stock units not yet recognized was $7.9 million with a weighted-average expense recognition period of 2.3 years. The total fair value of restricted stock units vested during the three months ended March 31, 2007, was $0.1 million.
Note 9 – Income Taxes
     The company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state, city, and foreign jurisdictions. Federal income tax audits have been resolved through 2003. Various state and city jurisdictions remain open to examination for tax years 2000 and forward.
     The Company adopted the provisions of FIN 48 on January 1, 2007. The implementation of FIN 48 did not impact the Company’s financial statements. As of January 1, 2007, there were no unrecognized tax benefits.
     The Company recognizes interest and penalties on income tax assessments or income tax refunds in the financial statements as a component of its provision for income taxes.
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)   2007     2006     2007     2006  
Service cost
  $ 4,445     $ 4,309     $ 374     $ 337  
Interest cost
    5,967       5,539       667       565  
Expected return on plan assets
    (9,120 )     (8,220 )            
Amortization of transition asset
    1             276       276  
Amortization of prior service cost
    1       1       142       95  
Settlements
    1,000       1,000              
Recognized net actuarial loss (gain)
    3,115       4,377       (81 )     (181 )
                  -  
Benefit expense
  $ 5,409     $ 7,006     $ 1,378     $ 1,092  
           
     There is no required minimum contribution for 2007 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 $0.8 million and $0.7 million for the three-month periods ended March 31, 2007 and 2006, respectively.
     Huntington has a defined contribution plan that is available to eligible employees. Huntington matches participant contributions dollar for dollar, up to the first 3% of base pay contributed to the plan. The match is 50 cents for each dollar on the 4th and 5th percent of base pay contributed to the plan. The cost of providing this plan was $2.8 million and $2.6 million for the three months ended March 31, 2007 and 2006, respectively.

14


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, 2007, December 31, 2006, and March 31, 2006, were as follows:
                         
    March 31,   December 31,   March 31,
(in millions)   2007   2006   2006
 
Contract amount represents credit risk
                       
Commitments to extend credit
                       
Commercial
  $ 4,385     $ 4,416     $ 3,295  
Consumer
    3,482       3,374       3,410  
Commercial real estate
    1,664       1,645       1,648  
Standby letters of credit
    1,197       1,156       1,095  
Commercial letters of credit
    38       54       43  
     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 $4.3 million, $4.3 million, and $5.3 million at March 31, 2007, December 31, 2006, and March 31, 2006, 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, 2007, December 31, 2006, and March 31, 2006, Huntington had commitments to sell residential real estate loans of $373.7 million, $319.9 million, and $406.3 million, respectively. These contracts mature in less than one year.
     During the 2005 second quarter, Huntington entered into a two-year agreement to sell a portion of its 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, 2007, approximately $61.8 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.

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Note 12 – Derivative Financial Instruments
Derivatives used in Asset and Liability Management Activities
     The following table presents the gross notional values of derivatives used in Huntington’s Asset and Liability Management activities at March 31, 2007, identified by the underlying interest rate-sensitive instruments:
                         
    Fair Value   Cash Flow    
(in thousands)   Hedges   Hedges   Total
 
Instruments associated with:
                       
Deposits
  $ 625,000     $ 315,000     $ 940,000  
Federal Home Loan Bank advances
          525,000       525,000  
Subordinated notes
    750,000             750,000  
Other long-term debt
    50,000             50,000  
 
Total notional value at March 31, 2007
  $ 1,425,000     $ 840,000     $ 2,265,000  
 
     The following table presents additional information about the interest rate swaps used in Huntington’s Asset and Liability Management activities at March 31, 2007:
                                         
            Average           Weighted-Average
    Notional   Maturity   Fair   Rate
(in thousands )   Value   (years)   Value   Receive   Pay
 
Liability conversion swaps
                                       
Receive fixed — generic
  $ 810,000       9.4     $ 3,685       5.29 %     5.57 %
Receive fixed — callable
    615,000       6.3       (10,912 )     4.64       5.26  
Pay fixed — generic
    840,000       2.2       (2,057 )     5.33       4.98  
 
Total liability conversion swaps
  $ 2,265,000       5.9     $ (9,284 )     5.13 %     5.27 %
 
     Interest rate caps used in Huntington’s Asset and Liability Management activities at March 31, 2007, are shown in the table below:
                                 
            Average        
    Notional   Maturity   Fair   Weighted-Average
(in thousands )   Value   (years)   Value   Strike Rate
 
Interest rate caps - purchased
  $ 500,000       1.8     $ 1,205       5.50 %
 
     These derivative financial instruments were entered into for the purpose of altering the interest rate risk of 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 $0.4 million and $0.6 million for the three months ended March 31, 2007 and 2006, respectively.
     Collateral agreements are regularly entered into as part of the underlying derivative agreements with Huntington’s counterparties to mitigate the credit risk associated with derivatives. At March 31, 2007, December 31, 2006 and March 31, 2006, aggregate credit risk associated with these derivatives, net of collateral that has been pledged by the counterparty, was $23.6 million, $42.6 million and $21.3 million, respectively. The credit risk associated with interest rate swaps is calculated after considering master netting agreements.

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Derivatives Used in Mortgage Banking Activities
     The following is a summary of the derivative assets and liabilities that Huntington used in its mortgage banking activities:
                         
    March 31,   December 31,   March 31,
(in thousands)   2007   2006   2006
 
Derivative assets:
                       
Interest rate lock agreements
  $ 383     $ 236     $ 250  
Forward trades and options
    854       1176       3,053  
 
Total derivative assets
    1,237       1,412       3,303  
 
Derivative liabilities:
                       
Interest rate lock agreements
    (808 )     (838 )     (1,650 )
Forward trades and options
    (417 )     (699 )     (32 )
 
Total derivative liabilities
    (1,225 )     (1,537 )     (1,682 )
 
Net derivative (liability) asset
  $ 12     $ (125 )   $ 1,621  
 
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. The interest rate risk of these customer derivatives is mitigated by entering into similar derivatives having offsetting terms with other counterparties.
     Supplying these derivatives to customers results in non-interest 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 $3.4 million and $3.0 million for the three months ended March 31, 2007 and 2006, respectively. The total notional value of derivative financial instruments used by Huntington on behalf of customers, including offsetting derivatives was $4.9 billion, $4.6 billion, and $4.3 billion at March 31, 2007, December 31, 2006, and March 31, 2006, respectively. Huntington’s credit risk from interest rate swaps used for trading purposes was $57.9 million, $40.0 million, and $56.2 million at the same dates.
     Huntington also uses certain derivative financial instruments to offset changes in value of its residential mortgage servicing assets. These derivatives consist primarily of forward interest rate agreements, and forward mortgage securities. The derivative instruments used are not designated as hedges under Statement No. 133. Accordingly, such derivatives are recorded at fair value with changes in fair value reflected in mortgage banking income . The total notional value of these derivative financial instruments at March 31, 2007, was $2.1 billion. The total notional amount corresponds to trading assets with a fair value of $1.7 million and trading liabilities with a fair value of $1.4 million. Total losses for the three months ended March 31, 2007 and 2006 were $0.5 million and $4.3 million, respectively.
     In connection with securitization activities, Huntington purchased interest rate caps with a notional value totaling $1.6 billion. These purchased caps were assigned to the securitization trust for the benefit of the security holders. Interest rate caps were also sold totaling $1.6 billion outside the securitization structure. Both the purchased and sold caps are marked to market through income.

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Note 13 – Shareholders’ Equity
Share Repurchase Program:
     On April 20, 2006, the Company announced that its 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 2006 Repurchase Program cancelled and replaced the prior share repurchase program, authorized by the board of directors in 2005. The Company announced its expectation to repurchase the shares from time to time in the open market or through privately negotiated transactions depending on market conditions.
     Huntington did not repurchase any shares under the 2006 Repurchase Program for the three months ended March 31, 2007. At the end of the period, 3,850,000 shares may be purchased under the 2006 Repurchase Program.
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, over 1,000 ATMs, along with Internet and telephone banking channels. It also provides certain services outside of these five states, including mortgage banking and equipment leasing. 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 57% and 77% 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, New Jersey, North Carolina, Pennsylvania, South Carolina, and Tennessee. Dealer Sales finances the purchase of automobiles by customers at the automotive dealerships, purchases automobiles from dealers and simultaneously leases the automobiles to consumers under long-term leases, finances the dealerships’ new and used vehicle inventories, dealership real estate, or dealer 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 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 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.

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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. The net interest income/(expense) of this segment includes the net impact of administering our investment securities portfolios as part of overall liquidity management. A match-funded transfer pricing system is used to attribute appropriate funding interest income and interest expense to other business segments. As such, net interest income includes the net impact of any over or under allocations arising from centralized management of interest rate risk. Furthermore, net interest income includes the net impact of derivatives used to hedge interest rate sensitivity. Non-interest income includes miscellaneous fee income not allocated to other business segments, including bank owned life insurance income. Fee income also includes asset revaluations not allocated to other business segments, as well as any investment securities and trading assets gains or losses. The non-interest expense includes certain corporate administrative and other miscellaneous expenses not allocated to other business segments. This segment also includes any difference between the actual effective tax rate of Huntington and the statutory tax rate used to allocate income taxes to the other segments.
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. 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, 2007 and 2006, operating earnings were the same as reported GAAP.
     Listed below are certain financial results by line of business. For the three months ended March 31, 2007 and 2006, operating earnings were the same as reported earnings.
                                         
    Three Months Ended March 31,
Income Statements   Regional   Dealer           Treasury/   Huntington
(in thousands)   Banking   Sales   PFCMG   Other   Consolidated
 
2007
                                       
Net interest income
  $ 215,060     $ 31,641     $ 19,177     $ (10,323 )   $ 255,555  
Provision for credit losses
    (22,456 )     (7,745 )     795             (29,406 )
Non-interest income
    86,482       13,181       36,713       8,801       145,177  
Non-interest expense
    (162,902 )     (19,587 )     (40,232 )     (19,351 )     (242,072 )
Income taxes
    (33,171 )     (4,993 )     (4,697 )     9,333       (33,528 )
 
Operating / reported net income
  $ 83,013     $ 12,497     $ 11,756     $ (11,540 )   $ 95,726  
 
2006
                                       
Net interest income
  $ 208,080     $ 34,831     $ 17,569     $ (16,800 )   $ 243,680  
Provision for credit losses
    (10,390 )     (7,762 )     (1,388 )           (19,540 )
Non-interest income
    77,792       26,992       40,894       13,856       159,534  
Non-interest expense
    (142,148 )     (31,780 )     (30,711 )     (33,776 )     (238,415 )
Income taxes
    (46,667 )     (7,798 )     (9,227 )     22,889       (40,803 )
 
Operating / reported net income
  $ 86,667     $ 14,483     $ 17,137     $ (13,831 )   $ 104,456  
 
                                                 
    Assets at   Deposits at
    March 31,   December 31,   March 31,   March 31,   December 31,   March 31,
(in millions)   2007   2006   2006   2007   2006   2006
         
Regional Banking
  $ 21,154     $ 20,933     $ 20,769     $ 20,637     $ 20,231     $ 20,233  
Dealer Sales
    5,173       5,003       5,467       55       59       64  
PFCMG
    2,236       2,153       2,090       1,172       1,162       1,177  
Treasury / Other
    6,416       7,240       7,340       2,722       3,596       3,081  
         
Total
  $ 34,979     $ 35,329     $ 35,666     $ 24,586     $ 25,048     $ 24,555  
         

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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, reinsure private mortgage insurance; reinsure credit life and disability insurance; and 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, Tennessee, and Vermont. 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 2006 Annual Report on Form 10-K (2006 Form 10-K), as updated by the information contained in this report, should be read in conjunction with these 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 Items 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 – Provides an overview of financial performance for each of our major lines of business and provides additional discussion of trends underlying consolidated financial performance.
Forward-Looking Statements
     This report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements. These include descriptions of products or services, plans or objectives for future operations, including statements about the benefits of any proposed or approved 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, the businesses of Huntington and that of any pending or approved acquisition may not be integrated successfully or such integration may take longer to accomplish than expected; the expected cost savings and any revenue synergies from the acquisition may not be fully realized within the expected timeframes; disruption from the acquisition may make it more difficult to maintain relationships with clients, associates, or suppliers; the required governmental approvals of the acquisition may not be obtained on the proposed terms and schedule; if required by the acquisition, Huntington and/or the stockholders of the company of any pending or approved acquisition may not approve the merger; changes in economic conditions; movements in interest rates; competitive pressures on product pricing and services; success and timing of other business strategies; the nature, extent, and timing of governmental actions

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and reforms; and extended disruption of vital infrastructure; and other factors described in Item 1A of Huntington’s 2006 Annual Report on Form 10-K, the corresponding annual report on Form 10-K of any pending or approved acquisition, and other factors described from time to time in Huntington’s, or any pending or approved acquisition’s, other filings with the Securities and Exchange Commission.
     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.
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 Annual Report on Form 10-K for the year ended December 31, 2006.)
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 2006 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.
Pending Acquisition of Sky Financial
     On December 20, 2006, we announced the signing of a definitive agreement to acquire Sky Financial Group, Inc. (Sky Financial) in a stock and cash transaction expected to be valued at approximately $3.5 billion. As of March 31, 2007, Sky Financial was a $17.6 billion diversified financial holding company with over 330 financial centers and over 400 ATMs. Sky Financial serves communities in Ohio, Pennsylvania, Indiana, Michigan and West Virginia. Sky Financial’s financial service affiliates include: Sky Bank, commercial and retail banking; Sky Trust, asset management services; and Sky Insurance, retail and commercial insurance agency services.
      Under the terms of the agreement, Sky Financial shareholders will receive 1.098 shares of Huntington common stock, on a tax-free basis, and a taxable cash payment of $3.023 for each share of Sky Financial common stock. The merger was unanimously approved by both boards and is expected to close in the third quarter of 2007, pending customary regulatory approvals, as well as approval by both companies’ shareholders.

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DISCUSSION OF RESULTS OF OPERATIONS
          This section provides a review of financial performance from a consolidated perspective. It also includes a Significant Items 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.
          Certain components of the Income Statement are naturally subject to more volatility than others. As a result, such items may be viewed differently in comparing actual performance to expectations and/or any implications resulting from an assessment of future performance trends. Therefore, we believe the disclosure of certain “Significant Items” in current and prior period results aids in better understanding corporate performance. The decision of whether to include or exclude these items from an analysis of performance is subjective.
          To this end, we have adopted a practice of listing as “Significant Items” in our external disclosure documents (e.g., earnings press releases, investor presentations, Forms 10-Q and 10-K) individual and/or particularly volatile items that impact the current period results by $0.01 per share or more. (The one exception is the provision for credit losses discussed below). Such “Significant Items” generally fall within one of two categories: timing differences and other items.
Timing Differences
          Some of our regular business activities are volatile by nature; e.g., capital markets income, gains and losses on the sale of loans, etc. While such items may generally be expected to occur within a full-year reporting period, they may vary significantly from period to period. Such items are also typically a component of an Income Statement line item and not, therefore, readily discernable.
Other Items
          From time to time, an event or transaction might significantly impact revenues, expenses or taxes in a particular reporting period that are judged to be one-time, short-term in nature, and/or materially outside typically expected performance. Examples would be (1) merger-related integration costs as they typically impact expenses for only a few quarters during the period of transition; e.g., restructuring charges, asset valuation adjustments, etc.; (2) changes in an accounting principle; (3) one-time tax assessments/refunds; (4) a large gain/loss on the sale of an asset; (5) outsized commercial loan net charge-off related to fraud; etc.
Provision for Credit Losses
          While the provision for credit losses may vary significantly between periods, we exclude it from the list of “Significant Items.”
          The provision for credit losses is always an assumption in expectations of earnings and there is apparent agreement among analysts that provision expense is included in the definition of “underlying” or “core” earnings unlike “timing differences” or “other items.” In addition, provision for credit losses is an individual Income Statement line item so its value is easily known and, except in very rare situations, the amount in any reporting period always exceeds $0.01 per share. In addition, the factors influencing the level of provision for credit losses receive detailed additional disclosure and analysis so that information is readily available to understand the underlying factors that result in the reported provision for credit losses amount.
          In addition, provision for credit losses trends usually increase/decrease in a somewhat orderly pattern in conjunction with credit quality cycle changes; i.e., as credit quality improves provision expense generally declines and vice versa. While they may have differing views regarding magnitude and/or trends in provision expense, every analyst and most investors incorporate a provision expense estimate in their financial performance estimates.
Other Exclusions
          “Significant Items” for any particular period are not intended to be a complete list of items that may significantly impact future periods. A number of factors, including those described in Huntington’s 2006 Annual Report on Form 10-K and

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other factors described from time to time in Huntington’s other filings with the Securities and Exchange Commission, could significantly impact future periods.
Summary
     Earnings comparisons of 2007 first quarter performance with that of the 2006 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 Items Influencing Financial Performance Comparisons section, which follows this summary discussion of results.
2007 First Quarter versus 2006 First Quarter
     Net income for the first quarter of 2007 was $95.7 million, or $0.40 per common share, compared with $104.5 million, or $0.45 per common share, in the year-ago quarter. This $8.7 million decrease in net income primarily reflected the negative impacts of:
    $14.4 million, or 9% decline in total non-interest income. Items contributing to the decline included (1) a $14.2 million decline in automobile operating lease income as that portfolio continued to run off, (2) an $8.5 million loss on equity investments in the current period, and (3) a decline in mortgage banking income primarily related to the negative impact of a mortgage servicing rights (MSR) valuation adjustment. These negative impacts were partially offset by higher trust services income, service charges on deposit accounts, and other service charges and fees. The Unizan merger contributed $4.8 million of growth to non-interest income. (See Non-interest Income discussion for details.)
 
    $9.9 million, or 51%, increase in provision for credit losses, reflecting a higher allowance for credit losses for both an absolute and relative basis. This was due to softness in the residential and commercial real estate markets as reflected in higher levels of “watch list” credits. (See Provision for Credit Losses and the Credit Risk discussions for details.)
 
    $3.7 million, or 2%, increase in total non-interest expense. This reflected higher personnel, outside data processing and other service expenses, net occupancy, equipment, amortization of intangibles, and professional services expense, partially offset by a $7.5 million decline in other expense, including a $10.6 million decline in automobile operating lease expense. The Unizan merger contributed $11.5 million to the increase in total non-interest expense. (See Non-interest Expense discussion for details.)
Partially offset by:
    $11.9 million, or 5%, increase in net interest income. This reflected the benefit of $1.1 billion, or 4%, growth in average earning assets ($1.3 billion, or 5%, in average total loans and leases), and a 4 basis point increase in the net interest margin to 3.36% from 3.32% in the year-ago quarter. The Unizan merger added an estimated $11.8 million to net interest income with the addition of $1.1 billion in loans and leases. (See Net Interest Income discussion for details.)
 
    $7.3 million reduction in federal income tax expense, primarily due to an increase in tax-exempt income and general business credits, as well as a decrease in pre-tax earnings. (See Provision for Income Taxes discussion for details.)
     The return on average assets (ROA) and return on average equity (ROE) in the 2007 first quarter were 1.11% and 12.9%, respectively, compared with 1.26% and 15.5%, respectively, in the year-ago quarter ( see Table 1).
2007 First Quarter versus 2006 Fourth Quarter
     Net income for the first quarter of 2007 was $95.7 million, or $0.40 per common share, compared with $87.7 million, or $0.37 per common share, in the prior quarter. This $8.0 million increase in net income primarily reflected the positive impacts of:

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    $25.7 million, or 10%, reduction in total non-interest expense, reflecting higher 2006 fourth quarter other expense due to that quarter’s contribution to the Huntington Foundation, higher residual value losses on automobile leases, costs associated with the restructuring of FHLB advances; and a decrease in current quarter personnel and professional services costs; partially offset by higher current quarter net occupancy, marketing, and outside data processing and other services expense. (See Non-interest Expense discussion for details.)
 
    $4.6 million, or 3%, increase in total non-interest income reflecting the positive impact of a $15.9 million positive change in securities gains (losses) as the fourth quarter included $15.8 million of securities losses associated with that quarter’s balance sheet restructuring; and increases in mortgage banking, trust services, and brokerage and insurance income; partially offset by a $14.0 million decline in other income, including the current quarter’s equity investment loss compared with a gain on the sale of MasterCard â stock in the fourth quarter; and a seasonal decline in service charges on deposit accounts. (See Non-interest Income discussion for details.)
Partially offset by:
    $13.7 million, or 9%, increase in provision for credit losses, reflecting a higher allowance for credit losses for both an absolute and relative basis. This was due to softness in the residential and commercial real estate markets as reflected in higher levels of “watch list” credits. (See Provision for Credit Losses and the Credit Risk discussions for details.)
 
    $6.2 million, or 2%, increase in federal income tax expense, primarily due to lower pre-tax earnings in 2006. (See Provision for Income Taxes discussion for details.)
 
    $2.4 million, or 1%, decline in net interest income. This primarily reflected a decline in average earning assets, primarily in average investment securities and average total consumer loans, partially offset by the positive impact of an 8 basis point increase in the net interest margin to 3.36%. (See Net Interest Income discussion for details.)
          The ROA and ROE in the 2007 first quarter were 1.11% and 12.9%, respectively, compared with 0.98% and 11.3%, respectively, in the 2006 fourth quarter ( see Table 1).

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Table 1 — Selected Quarterly Income Statement Data (1)
                                         
    2007   2006
(in thousands, except per share amounts)   First   Fourth   Third   Second   First
     
Interest income
  $ 534,949     $ 544,841     $ 538,988     $ 521,903     $ 464,787  
Interest expense
    279,394       286,852       283,675       259,708       221,107  
     
Net interest income
    255,555       257,989       255,313       262,195       243,680  
Provision for credit losses
    29,406       15,744       14,162       15,745       19,540  
     
Net interest income after provision for credit losses
    226,149       242,245       241,151       246,450       224,140  
     
Service charges on deposit accounts
    44,793       48,548       48,718       47,225       41,222  
Trust services
    25,894       23,511       22,490       22,676       21,278  
Brokerage and insurance income
    16,082       14,600       14,697       14,345       15,193  
Other service charges and fees
    13,208       13,784       12,989       13,072       11,509  
Bank owned life insurance income
    10,851       10,804       12,125       10,604       10,242  
Mortgage banking (loss) income
    9,351       6,169       8,512       13,616       13,194  
Gains on sales of automobile loans
    1,144       1,252       863       532       448  
Securities (losses) gains
    104       (15,804 )     (57,332 )     (35 )     (20 )
Other income (2)
    23,750       37,742       34,848       40,984       46,468  
     
Total non-interest income
    145,177       140,606       97,910       163,019       159,534  
     
Personnel costs
    134,639       137,944       133,823       137,904       131,557  
Outside data processing and other services
    21,814       20,695       18,664       19,569       19,851  
Net occupancy
    19,908       17,279       18,109       17,927       17,966  
Equipment
    18,219       18,151       17,249       18,009       16,503  
Marketing
    7,696       6,207       7,846       10,374       7,301  
Professional services
    6,482       8,958       6,438       6,292       5,365  
Telecommunications
    4,126       4,619       4,818       4,990       4,825  
Printing and supplies
    3,242       3,610       3,416       3,764       3,074  
Amortization of intangibles
    2,520       2,993       2,902       2,992       1,075  
Other expense (2)
    23,426       47,334       29,165       30,538       30,898  
     
Total non-interest expense
    242,072       267,790       242,430       252,359       238,415  
     
Income before income taxes
    129,254       115,061       96,631       157,110       145,259  
Provision (benefit) for income taxes (3)
    33,528       27,346       (60,815 )     45,506       40,803  
     
Net income
  $ 95,726     $ 87,715     $ 157,446     $ 111,604     $ 104,456  
     
 
                                       
Average common shares — diluted
    238,754       239,881       240,896       244,538       234,363  
 
                                       
Per common share
                                       
Net income — diluted
  $ 0.40     $ 0.37     $ 0.65     $ 0.46     $ 0.45  
Cash dividends declared
    0.265       0.250       0.250       0.250       0.250  
 
                                       
Return on average total assets
    1.11 %     0.98 %     1.75 %     1.25 %     1.26 %
Return on average total shareholders’ equity
    12.9       11.3       21.0       14.9       15.5  
Return on average tangible shareholder’s equity (4)
    16.5       14.5       27.1       19.3       18.0  
Net interest margin (5)
    3.36       3.28       3.22       3.34       3.32  
Efficiency ratio (6)
    59.2       63.3       57.8       58.1       58.3  
Effective tax rate (3)
    25.9       23.8       (62.9 )     29.0       28.1  
 
                                       
Revenue — fully taxable equivalent (FTE)
                                       
Net interest income
  $ 255,555     $ 257,989     $ 255,313     $ 262,195     $ 243,680  
FTE adjustment
    4,047       4,115       4,090       3,984       3,836  
     
Net interest income (5)
    259,602       262,104       259,403       266,179       247,516  
Non-interest income
    145,177       140,606       97,910       163,019       159,534  
     
Total revenue (5)
  $ 404,779     $ 402,710     $ 357,313     $ 429,198     $ 407,050  
     
 
(1)   Comparisons for presented periods are impacted by a number of factors. Refer to the ‘Significant Items Influencing Financial Performance Comparisions’ for additional discussion regarding these key factors.
 
(2)   Automobile operating lease income and expense is included in ‘Other Income’ and ‘Other Expense’, respectively.
 
(3)   The third-quarter of 2006 includes $84.5 million benefit reflecting the resolution of a federal income tax audit of tax years 2002 and 2003.
 
(4)   Net income less expense (net of tax) for amortization of intangibles for the period divided by average tangible common shareholder’s equity. Average tangible common shareholders’ equity equals average total common shareholders’ equity less average indentifiable intangible assets and goodwill.
 
(5)   On a fully taxable equivalent (FTE) basis assuming a 35% tax rate.
 
(6)   Non-interest expense less amortization of intangibles divided by the sum of FTE net interest income and non-interest income excluding securities gains (losses).

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Significant Items Influencing Financial Performance Comparisons
          Earnings comparisons from the beginning of 2006 through the first quarter of 2007 were impacted by a number of factors, reflecting specific strategies or changes in accounting practices. Those key factors are summarized below.
1.   Balance Sheet Restructuring . In third and fourth quarters of 2006, we utilized the excess capital resulting from the third quarter’s favorable resolution to certain federal income tax audits to restructure certain under-performing components of the balance sheet. Total securities losses as a result of these actions totaled $73.3 million. The refinancing of FHLB funding and the sale of mortgage loans resulted in total charges of $4.4 million, resulting in total balance sheet restructuring costs of $77.7 million ($0.21 per common share). Our actions impacted 2006 third and fourth quarter results as follows:
    $57.5 million pre-tax ($0.16 per common share) negative impact in the 2006 third quarter from securities impairment. Subsequent to the end of the quarter, the company initiated a review of its investment securities portfolio. The objective of this review was to reposition the portfolio to optimize performance in light of changing economic conditions and other factors. A total of $2.1 billion of securities, primarily consisting of U.S. Treasury, agency securities, and mortgage-backed securities, as well as certain other asset-backed securities, were identified as other-than-temporarily impaired as a result of this review.
 
    $20.2 million pre-tax ($13.1 million after tax or $0.05 per common share) negative impact in the 2006 fourth quarter related to costs associated with the completion of the balance sheet restructuring. This consisted of $9.0 million pretax of investment securities losses as well as $6.8 million of additional impairment on certain asset-backed securities not included in the third quarter restructuring, and $4.4 million pre-tax of other balance sheet restructuring expenses, most notably FHLB funding refinancing costs.
2.   Unizan Acquisition. The merger with Unizan Financial Corp. (Unizan) was completed on March 1, 2006. At the time of acquisition, Unizan had assets of $2.5 billion, including $1.6 billion of loans, and core deposits of $1.5 billion. Unizan results were only in consolidated results for a partial quarter in the 2006 first quarter, but fully impact all quarters thereafter. As a result, performance comparisons between 2007 first quarter and the 2006 first quarter periods are affected, as Unizan results were not in the prior period for a full quarter. In contrast, comparisons between the 2007 first and 2006 fourth quarter results are not affected given Unizan fully impacted both of these quarters. Comparisons of the 2007 first quarter compared with the 2006 first quarter reporting periods are impacted as follows:
    Increased reported average balance sheet, revenue, expense, and credit quality results (e.g., net charge-offs).
 
    Increased reported non-interest expense items as a result of costs incurred as part of merger-integration activities, most notably employee retention bonuses, outside programming services related to systems conversions, and marketing expenses related to customer retention initiatives. These net merger costs were $1.0 million in the 2006 first quarter, and a net cost recovery of $0.4 million in the 2006 fourth quarter.
          Given the impact of the merger on reported 2006 results, we believe that an understanding of the impacts of the merger is necessary to understand better underlying performance trends. When comparing post-merger period results to pre-merger periods, two terms relating to the impact of the Unizan merger on reported results are used:
    “Merger-related” refers to amounts and percentage changes representing the impact attributable to the merger.
 
    “Merger costs” represent expenses associated with merger integration activities.
          An analysis reflecting the estimated impact of the Unizan merger on our reported average balance sheet and income statement can be found in Table 20 – Estimated Impact of Unizan Merger.
3.   Mortgage servicing rights (MSRs) and related hedging. 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.
 
    Mortgage banking income reflected a $2.0 million pre-tax ($1.3 million after tax or $0.01 per common share) for the 2007 first quarter, and $2.5 million pre-tax ($1.6 million after tax or $0.01 per common share) for the 2006

26


    fourth quarter due to the negative MSR mark-to-market impact, net of hedge-related trading activity.
 
    Beginning in the first quarter 2006, we adopted Statement of Financial Accounting Standards (Statement) No. 156, Accounting for Servicing of Financial Assets (an amendment of FASB Statement No. 140), which allowed us to carry MSRs at fair value. This resulted in a $5.1 million pre-tax ($0.01 per common share) positive impact in the 2006 first quarter. 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. MSR assets are included in other assets (reference Tables 2, 5, and 6) .
 
4.   Effective tax rate. For 2006, impacts included an $84.5 million ($0.35 per common share) reduction of federal income tax expense from the release of tax reserves as a result of the resolution of the federal income tax audit for 2002 and 2003, and the recognition of a federal tax loss carry back.
 
5.   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:
 
    2007 — First Quarter
    $8.5 million pre-tax ($5.5 million after tax or $0.02 per common share) in equity investment losses, resulting from investments in three hedge funds with a combined market value at March 31, 2007 of $25.9 million. These funds are invested in financial services-related companies, some of which are involved in sub-prime lending or related activities, and were particularly hard hit by declining equity values.
 
    $1.9 million pre-tax ($1.2 million after tax or $0.01 per common share) negative impact due to litigation losses inherited from a bank acquired more than 9 years ago.
    2006 — Fourth Quarter
    $10.0 million pre-tax ($6.5 million after tax or $0.03 per common share) contribution to the Huntington Foundation.
 
    $5.2 million pre-tax ($3.6 million after tax or $0.02 per common share) increase in automobile lease residual value losses. This increase reflected higher relative losses on vehicles sold at auction, most notably high-line imports and larger sport utility vehicles.
 
    $4.5 million pre-tax ($2.9 million after tax or $0.01 per common share) in severance and consolidation expenses. This reflected severance-related expenses associated with a reduction of 75 Regional Banking staff positions, as well as costs associated with the retirements of a vice chairman and an executive vice president.
 
    $3.3 million pre-tax ($2.1 million after tax or $0.01 per common share) in equity investment gains.
 
    $2.6 million pre-tax ($1.7 million after tax or $0.01 per common share) gain related to the sale of MasterCard ® stock.
    2006 — First Quarter
    $2.3 million pre-tax ($1.6 million after tax or $0.01 per common share) negative impact, reflecting a cumulative adjustment to defer annual fees related to home equity loans. This adjustment reduced the year-ago net interest margin by 3 basis points.
Table 2 reflects the earnings impact of the above-mentioned significant items for periods affected by this Discussion of Results of Operations:

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Table 2 — Significant Items Influencing Earnings Performance Comparison (1)
                                                 
    Three Months Ended
    March 31, 2007   December 31, 2006   March 31, 2006
(in millions)   After-tax   EPS   After-tax   EPS   After-tax   EPS
 
Net income — reported earnings
  $ 95.7             $ 87.7             $ 104.5          
Earnings per share, after tax
          $ 0.40             $ 0.37             $ 0.45  
Change from prior quarter — $
            0.03               (0.28 )             0.01  
Change from prior quarter — %
            8.1 %             (43.1 )%             2.3 %
 
Change from a year-ago — $
          $ (0.05 )           $ (0.07 )           $ 0.04  
Change from a year-ago — %
            (11.1 )%             (15.9 )%             9.8 %
                                                 
Significant items - favorable (unfavorable) impact:   Earnings (2)   EPS   Earnings (2)   EPS   Earnings (2)   EPS
 
Equity investment (losses)/gains
  $ (8.5 )   $ (0.02 )   $ 3.3     $ 0.01                  
MSR mark-to-market, net of hedge-related trading activity
    (2.0 )     (0.01 )     (2.5 )     (0.01 )                
Litigation losses
    (1.9 )     (0.01 )                                
Gain on sale of MasterCard ® stock
                2.6       0.01                  
Completion of balance sheet restructuring
                (20.2 )     (0.05 )                
Huntington Foundation contribution
                (10.0 )     (0.03 )                
Automobile lease residual value losses
                (5.2 )     (0.01 )                
Severance and consolidation expenses
                (4.5 )     (0.01 )                
MSR FAS 156 accounting change
                          $ 5.1     $ 0.01  
Adjustment to defer home equity annual fees
                            (2.3 )     (0.01 )
 
(1)   See Significant Items Influencing Financial Performance discussion.
 
(2)   Pre-tax unless otherwise noted.
Net Interest Income
(This section should be read in conjunction with Significant Items 1 and 2.)
2007 First Quarter versus 2006 First Quarter
          Fully taxable equivalent net interest income increased $12.1 million, or 5% ($11.8 million merger-related), from the year-ago quarter, reflecting the favorable impact of a $1.1 billion, or 4%, increase in average earning assets, and an increase in the net interest margin of 4 basis points to 3.36%. The cumulative adjustment for annual fees related to home equity loans reduced the year-ago net interest margin by 3 basis points. Average total loans and leases increased $1.3 billion, or 5% ($1.1 billion merger-related). This primarily reflected growth in commercial loans, partially offset by declines in total consumer loans.
          Average total commercial loans increased $1.3 billion, or 12% ($0.5 billion merger-related). This growth reflected a $0.9 billion, or 17%, increase in average middle market C&I loans and a $0.4 billion, or 21%, increase in average small business loans. Average middle market CRE loans were essentially unchanged.
     Average residential mortgages increased $0.2 billion, or 4%, and average home equity loans increased 2%. However, without the favorable impact attributed to the Unizan merger, both would have declined. These declines reflected continued softness in these markets and sales of mortgage loans in each of the last three quarters.
          Compared with the year-ago quarter, average total automobile loans and leases decreased $0.3 billion, or 7%, with the Unizan merger having no significant impact. The decrease primarily reflected continued softness in lease production levels over this period from low consumer demand and competitive pricing.
          Average automobile loans increased $0.2 billion, or 11%. This growth reflected two factors: (1) the purchase of the residual portion of two matured 2003 automobile loan securitizations, and (2) growth indirectly related to the introduction of the “Huntington Plus” program for automobile dealers in the latter half of last year. This is a program where lower credit-

28


scored automobile loans are originated for dealers and then sold without recourse the next day to an independent third party. As such, this program did not directly impact average balances. However, it did influence dealers to increase their overall allocation of automobile loan applications with higher credit scores to Huntington, resulting in an 18% increase in prime loan production during the quarter as compared to the fourth quarter of 2006 and growth in related average balances.
          Average total investment securities decreased 11% from the 2006 first quarter, reflecting our strategy to reduce the level of investment securities as part of our interest rate risk management.
          Average total core deposits in the 2007 first quarter increased $1.2 billion, or 6% ($1.0 billion merger-related), from the year-ago quarter. Most of the increase reflected higher average core certificates of deposit, which increased $1.1 billion ($0.4 billion merger-related) resulting from continued customer demand for higher, fixed rate deposit products. Average interest bearing demand deposits increased $0.4 billion, or 19% ($0.1 billion merger-related), and average non-interest bearing deposits increased $0.1 billion, all merger-related. In contrast, average savings and other domestic deposits declined $0.3 billion, or 9%, and average money market accounts declined $0.1 billion, even though the Unizan merger added $0.2 billion and $0.3 billion of such deposits, respectively.
2007 First Quarter versus 2006 Fourth Quarter
          Compared with the 2006 fourth quarter, fully taxable equivalent net interest income decreased $2.5 million, or 1%. This was principally due to the reduction in the number of days in the 2007 first quarter compared with the 2006 fourth quarter. It also reflected a decline in average earning assets, primarily in average investment securities and average total consumer loans, partially offset by the positive impact of an 8 basis point increase in the net interest margin to 3.36%. Half of the increase in the net interest margin reflected the benefit of a lower day count in the first quarter versus fourth quarter, with the remaining improvement equally contributed by an enriched earning asset mix and a lower cost funding mix.
          Average total loans and leases declined less than one percent with good growth in average total commercial loans more than offset by a decline in average total consumer loans.
          Average total commercial loans increased $0.1 billion, or 1%, from the prior quarter. This included 3% growth in average middle market C&I loans, reflecting a three-percentage point increase in utilization rates. Average small business loans increased 2%. These increases were partially offset by a 2% decline in average middle market CRE loans, reflecting softness in residential real estate markets.
          Average residential mortgages decreased $0.1 billion, or 3%, reflecting the full impact of the sale of $103 million of mortgage loans at the end of the 2006 fourth quarter. Average home equity loans declined 1%.
          Compared with the 2006 fourth quarter, average total automobile loans and leases declined 1%. The decline primarily reflected an 8% decline in average automobile leases as production levels continued to decline with lease production down 3% from the 2006 fourth quarter. In contrast, average automobile loans increased 5% from the 2006 fourth quarter, reflecting the purchase of the residual portion of two matured 2003 automobile loan securitizations, as well as an 18% increase in automobile loan production.
          Average investment securities decreased $0.2 billion, or 5%, from the 2006 fourth quarter, reflecting the decision to sell certain investment securities as part of our interest rate risk management process.
          Average total core deposits increased slightly from the 2006 fourth quarter, reflecting growth in average total consumer core deposits, partially offset by a decline in average total commercial core deposits. Average interest bearing demand deposits increased 6% and average core certificates of deposit increased 1%, reflecting the factors impacting comparisons to the year-ago quarter noted above. In contrast, average money market deposits, non-interest bearing demand deposits, and savings and other domestic deposits each declined 1%. The decline in average non-interest bearing demand deposits primarily reflected seasonal factors.
          Tables 3 and 4 reflect quarterly average balance sheets and rates earned and paid on interest-earning assets and interest-bearing liabilities.

29


Table 3 — Consolidated Quarterly Average Balance Sheets
                                                           
                                              Change
Fully taxable equivalent basis   2007   2006     1Q07 vs 1Q06
(in millions)   First   Fourth   Third   Second   First     Amount   Percent
           
Assets
                                                         
Interest bearing deposits in banks
  $ 93     $ 77     $ 75     $ 36     $ 24       $ 69       N.M. %
Trading account securities
    48       116       96       100       66         (18 )     (27.3 )
Federal funds sold and securities purchased under resale agreements
    503       531       266       285       201         302       N.M.  
Loans held for sale
    242       265       275       287       274         (32 )     (11.7 )
Investment securities:
                                                         
Taxable
    3,595       3,792       4,364       4,494       4,138         (543 )     (13.1 )
Tax-exempt
    591       594       581       556       548         43       7.8  
           
Total investment securities
    4,186       4,386       4,945       5,050       4,686         (500 )     (10.7 )
Loans and leases: (1)
                                                         
Commercial:
                                                         
Middle market commercial and industrial
    6,070       5,882       5,651       5,512       5,174         896       17.3  
Middle market commercial real estate:
                                                         
Construction
    1,151       1,170       1,129       1,248       1,457         (306 )     (21.0 )
Commercial
    2,772       2,839       2,846       2,845       2,464         308       12.5  
           
Middle market commercial real estate
    3,923       4,009       3,975       4,093       3,921         2       0.1  
Small business
    2,466       2,421       2,413       2,351       2,035         431       21.2  
           
Total commercial
    12,459       12,312       12,039       11,956       11,130         1,329       11.9  
           
Consumer:
                                                         
Automobile loans
    2,215       2,111       2,079       2,044       1,994         221       11.1  
Automobile leases
    1,698       1,838       1,976       2,095       2,221         (523 )     (23.5 )
           
Automobile loans and leases
    3,913       3,949       4,055       4,139       4,215         (302 )     (7.2 )
Home equity
    4,913       4,973       5,041       5,029       4,833         80       1.7  
Residential mortgage
    4,496       4,635       4,748       4,629       4,306         190       4.4  
Other loans
    422       430       430       448       447         (25 )     (5.6 )
           
Total consumer
    13,744       13,987       14,274       14,245       13,801         (57 )     (0.4 )
           
Total loans and leases
    26,203       26,299       26,313       26,201       24,931         1,272       5.1  
Allowance for loan and lease losses
    (278 )     (282 )     (291 )     (293 )     (283 )       5       1.8  
           
Net loans and leases
    25,925       26,017       26,022       25,908       24,648         1,277       5.2  
           
Total earning assets
    31,275       31,674       31,970       31,959       30,182         1,093       3.6  
           
Cash and due from banks
    826       830       823       832       813         13       1.6  
Intangible assets
    627       631       634       638       362         265       73.2  
All other assets
    2,480       2,617       2,633       2,554       2,415         65       2.7  
           
Total Assets
  $ 34,930     $ 35,470     $ 35,769     $ 35,690     $ 33,489       $ 1,441       4.3 %
           
 
                                                         
Liabilities and Shareholders’ Equity
                                                         
Deposits:
                                                         
Demand deposits — non-interest bearing
  $ 3,530     $ 3,580     $ 3,509     $ 3,594     $ 3,436       $ 94       2.7 %
Demand deposits — interest bearing
    2,349       2,219       2,169       2,187       1,974         375       19.0  
Money market deposits
    5,489       5,548       5,689       5,591       5,588         (99 )     (1.8 )
Savings and other domestic deposits
    2,827       2,849       2,923       3,106       3,095         (268 )     (8.7 )
Core certificates of deposit
    5,455       5,380       5,334       5,083       4,389         1,066       24.3  
           
Total core deposits
    19,650       19,576       19,624       19,561       18,482         1,168       6.3  
Other domestic deposits of $100,000 or more
    1,219       1,282       1,141       1,086       938         281       30.0  
Brokered deposits and negotiable CDs
    3,020       3,252       3,307       3,263       3,143         (123 )     (3.9 )
Deposits in foreign offices
    562       598       521       474       465         97       20.9  
           
Total deposits
    24,451       24,708       24,593       24,384       23,028         1,423       6.2  
Short-term borrowings
    1,863       1,832       1,660       2,042       1,669         194       11.6  
Federal Home Loan Bank advances
    1,128       1,121       1,349       1,557       1,453         (325 )     (22.4 )
Subordinated notes and other long-term debt
    3,487       3,583       3,921       3,428       3,346         141       4.2  
           
Total interest bearing liabilities
    27,399       27,664       28,014       27,817       26,060         1,339       5.1  
           
All other liabilities
    987       1,142       1,276       1,284       1,264         (277 )     (21.9 )
Shareholders’ equity
    3,014       3,084       2,970       2,995       2,729         285       10.4  
           
Total Liabilities and Shareholders’ Equity
  $ 34,930     $ 35,470     $ 35,769     $ 35,690     $ 33,489       $ 1,441       4.3 %
           
 
N.M., not a meaningful value.
 
 
(1)   For purposes of this analysis, non-accrual loans are reflected in the average balances of loans.

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Table 4 — Consolidated Quarterly Net Interest Margin Analysis
                                         
    2007     2006
Fully taxable equivalent basis (1)   First   Fourth   Third   Second   First
     
Assets
                                       
Interest bearing deposits in banks
    5.13 %     5.50 %     5.23 %     7.05 %     7.89 %
Trading account securities
    5.27       4.10       4.32       4.51       2.94  
Federal funds sold and securities purchased under resale agreements
    5.24       5.35       5.13       4.75       4.30  
Loans held for sale
    6.27       6.01       6.24       6.23       5.92  
Investment securities:
                                       
Taxable
    6.13       6.05       5.49       5.34       5.04  
Tax-exempt
    6.66       6.68       6.80       6.83       6.71  
     
Total investment securities
    6.21       6.13       5.64       5.51       5.23  
Loans and leases: (3)
                                       
Commercial:
                                       
Middle market commercial and industrial
    7.48       7.55       7.40       7.49       7.08  
Middle market commercial real estate:
                                       
Construction
    8.41       8.37       8.49       8.02       7.56  
Commercial
    7.64       7.57       7.86       6.92       6.25  
     
Middle market commercial real estate
    7.87       7.80       8.05       7.25       6.74  
Small business
    7.24       7.18       7.13       6.94       6.57  
     
Total commercial
    7.56       7.56       7.56       7.30       6.87  
     
Consumer:
                                       
Automobile loans
    6.92       6.75       6.62       6.48       6.40  
Automobile leases
    5.25       5.21       5.10       5.01       4.97  
     
Automobile loans and leases
    6.25       6.03       5.88       5.74       5.65  
Home equity
    7.67       7.75       7.62       7.46       6.88  
Residential mortgage
    5.54       5.55       5.46       5.39       5.34  
Other loans
    9.52       9.28       9.41       9.41       8.38  
     
Total consumer
    6.58       6.58       6.46       6.35       6.08  
     
Total loans and leases
    7.05       7.04       6.96       6.79       6.43  
     
Total earning assets
    6.98 %     6.86 %     6.73 %     6.55 %     6.21 %
     
 
                                       
Liabilities and Shareholders’ Equity
                                       
Deposits:
                                       
Demand deposits — non-interest bearing
    %     %     %     %     %
Demand deposits — interest bearing
    1.21       1.04       0.97       0.86       0.72  
Money market deposits
    3.78       3.75       3.66       3.32       3.05  
Savings and other domestic deposits
    2.02       1.90       1.75       1.59       1.49  
Core certificates of deposit
    4.72       4.58       4.40       4.10       3.84  
     
Total core deposits
    3.41       3.32       3.20       2.89       2.65  
Other domestic deposits of $100,000 or more
    5.32       5.29       5.18       4.83       4.55  
Brokered deposits and negotiable CDs
    5.50       5.53       5.50       5.12       4.69  
Deposits in foreign offices
    2.99       3.18       3.12       2.68       2.62  
     
Total deposits
    3.81       3.78       3.66       3.34       3.07  
Short-term borrowings
    4.32       4.21       4.10       4.12       3.57  
Federal Home Loan Bank advances
    4.44       4.50       4.51       4.34       3.99  
Subordinated notes and other long-term debt
    5.77       5.96       5.75       5.67       5.22  
     
Total interest bearing liabilities
    4.14 %     4.12 %     4.02 %     3.74 %     3.43 %
     
Net interest rate spread
    2.84 %     2.74 %     2.71 %     2.81 %     2.78 %
Impact of non-interest bearing funds on margin
    0.52       0.54       0.51       0.53       0.54  
     
Net interest margin
    3.36 %     3.28 %     3.22 %     3.34 %     3.32 %
     
     
(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.

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Provision for Credit Losses
(This section should be read in conjunction with Significant Item 2 and the Credit Risk section.)
     The provision for credit losses is the expense necessary to maintain the ALLL and the AULC at levels 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 2007 first quarter was $29.4 million, up $9.9 million from the year-ago quarter, and up $13.7 million from the 2006 fourth quarter. The provision for credit losses in the 2007 first quarter exceeded same period net charge-offs by $11.3 million . The increases in the provision for credit losses relative to both the year-ago quarter and the prior quarter were attributable to an increase in the transaction reserve component of the allowance for loan losses, which increased 3 basis points during the quarter. The economic reserve component also increased 1 basis point during the quarter. A higher transaction reserve component was attributable to softness in the residential and commercial real estate markets as reflected in higher levels of watch list credits. The provision for credit losses in the year-ago quarter reflected a 1 basis point decrease in the transaction reserve component. In the fourth quarter of 2006, the provision reflected a 2 basis point improvement in the economic reserve component reflecting improvements in consumer confidence and consumer spending.
Non-Interest Income
(This section should be read in conjunction with Significant Items 1, 2, 3, and 5.)
     Table 5 reflects non-interest income detail for each of the past five quarters.
Table 5 — Non-Interest Income
                                                           
    2007   2006     1Q07 vs 1Q06  
(in thousands)   First   Fourth   Third   Second   First     Amount   Percent
           
Service charges on deposit accounts
  $ 44,793     $ 48,548     $ 48,718     $ 47,225     $ 41,222       $ 3,571       8.7 %
Trust services
    25,894       23,511       22,490       22,676       21,278         4,616       21.7  
Brokerage and insurance income
    16,082       14,600       14,697       14,345       15,193         889       5.9  
Other service charges and fees
    13,208       13,784       12,989       13,072       11,509         1,699       14.8  
Bank owned life insurance income
    10,851       10,804       12,125       10,604       10,242         609       5.9  
Mortgage banking (loss) income
    9,351       6,169       8,512       13,616       13,194         (3,843 )     (29.1 )
Gains on sales of automobile loans
    1,144       1,252       863       532       448         696       N.M.  
Securities (losses) gains
    104       (15,804 )     (57,332 )     (35 )     (20 )       124       N.M.  
Other income (1)
    23,750       37,742       34,848       40,984       46,468         (22,718 )     (48.9 )
           
Total non-interest income
  $ 145,177     $ 140,606     $ 97,910     $ 163,019     $ 159,534       $ (14,357 )     (9.0 )%
           
N.M., not a meaningful value.
     
(1)   Automobile operating lease income and expense is included in ‘Other Income’ and ‘Other Expense’, respectively.
     Table 6 details mortgage banking income and the net impact of MSR hedging activity for each of the past five quarters.

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Table 6 — Mortgage Banking Income and Net Impact of MSR Hedging
                                                           
    2007   2006     1Q07 vs 1Q06  
(in thousands)   First   Fourth   Third   Second   First     Amount   Percent
           
Mortgage Banking Income
                                                         
Origination and secondary marketing
  $ 4,940     $ 4,057     $ 3,070     $ 7,091     $ 3,999       $ 941       23.5 %
Servicing fees
    6,820       6,662       6,077       5,995       5,925         895       15.1  
Amortization of capitalized servicing (1)
    (3,638 )     (3,835 )     (4,484 )     (3,293 )     (3,532 )       (106 )     (3.0 )
Other mortgage banking income
    3,247       1,778       3,887       2,281       2,227         1,020       45.8  
           
Sub-total
    11,369       8,662       8,550       12,074       8,619         2,750       31.9  
MSR valuation adjustment (1)
    (1,057 )     (1,907 )     (10,716 )     8,281       9,213         (10,270 )     N.M.  
Net trading gains (losses) related to MSR hedging
    (961 )     (586 )     10,678       (6,739 )     (4,638 )       3,677       (79.3 )
           
Total mortgage banking (loss) income
  $ 9,351     $ 6,169     $ 8,512     $ 13,616     $ 13,194       $ (3,843 )     (29.1 )%
           
 
                                                         
Capitalized mortgage servicing rights (2)
  $ 134,845     $ 131,104     $ 129,317     $ 136,244     $ 123,257       $ 11,588       9.4 %
Total mortgages serviced for others (2)
    8,494,000       8,252,000       7,994,000       7,725,000       7,585,000         909,000       12.0  
MSR % of investor servicing portfolio
    1.59 %     1.59 %     1.62 %     1.76 %     1.63 %       (0.04 )%     (2.5 )
           
N.M., not a meaningful value.
 
(1)   The change in fair value for the period represents the MSR valuation adjustment, excluding amortization of capitalized servicing.
 
(2)   At period end.
2007 First Quarter versus 2006 First Quarter
  Non-interest income decreased $14.4 million from the year-ago quarter, reflecting:
    $22.7 million decline in other income primarily related to a $14.2 million decrease in automobile operating lease income as that portfolio continued its run off since no automobile operating leases have been originated since April 2002. Also contributing to the decline was an $8.5 million loss on equity investments in the current period (see Significant Item 5) .
 
      Since 2002, the company has invested $15.0 million in three financial services equity funds. Management views such investments as helpful in improving competitive and market intelligence. In 2006, financial services stock price performance was particularly strong and equity investment gains were identified as Significant Items in the second and fourth quarters. In contrast, during the 2007 first quarter, such equities significantly underperformed, resulting in the current quarter’s loss. The total value of these investments at March 31, 2007 was $25.9 million.
 
    $3.8 million, or 29%, decline in mortgage banking income, reflecting a $6.6 million negative impact of MSR valuation adjustments, net of hedge-related trading activity, as the prior year included a $5.1 million positive impact from adopting FAS 156, allowing MSRs to be carried at fair value. Additionally, MSR valuation adjustments, net of hedge-related trading activity, represented a $2.0 million net loss in the 2007 first quarter. This negative impact was partially offset by a $2.8 million increase in other mortgage banking income, primarily gains on sold loans, increases in origination and secondary marketing income, and increased servicing fees.
Partially offset by:
    $4.6 million, or 22% ($1.1 million merger-related), increase in trust services income, reflecting (1) a $2.4 million increase in institutional trust income largely due to the acquisition of Unified Fund Services, Inc. in December 2006, (2) a $1.1 million increase in personal trust income, mostly merger-related, and (3) a $1.0 million increase in fees from Huntington Funds, reflecting 15% fund asset growth.
 
    $3.6 million, or 9% ($1.1 million merger-related), increase in service charges on deposit accounts, reflecting a $2.3 million, or 9%, increase in personal service charges, primarily NSF/OD, and a $1.3 million, or 9%, increase in commercial service charge income.

33


    $1.7 million, or 15% ($0.2 million merger-related), increase in other service charges and fees, primarily reflecting a $1.3 million, or 15%, increase in fees generated by higher debit card volume.
2007 First Quarter versus 2006 Fourth Quarter
  Non-interest income increased $4.6 million from the 2006 fourth quarter, reflecting:
    $15.9 million positive change in securities gains (losses) as the current quarter included $0.1 million of investment securities gains, which compared favorably with $15.8 million of investment securities losses in the prior quarter ( see Significant Item 1 ).
 
    $3.2 million increase in mortgage banking income, primarily due to higher gains on the sales of mortgage loans than in the fourth quarter and increased origination and secondary marketing income.
 
    $2.4 million, or 10%, increase in trust services income, primarily reflecting the benefits from the Unified Fund Services acquisition.
 
    $1.5 million, or 10%, increase in brokerage and insurance income, reflecting higher annuity and mutual fund revenues.
Partially offset by:
    $14.0 million decline in other income, primarily reflecting the current quarter’s $8.5 million of equity investment losses compared with $3.3 million of such gains in the prior quarter. Also contributing to the decline in other income was a $2.5 million decrease in automobile operating lease income, and the fact that the prior quarter included a $2.6 million gain on the sale of MasterCard ® stock. These negatives were partially offset by fees associated with the “Huntington Plus” automobile dealer program and higher capital markets income.
 
    $3.8 million, or 8%, decline in service charges on deposit accounts, reflecting seasonal trends in NSF fees.
Non-Interest Expense
(This section should be read in conjunction with Significant Items 1, 2, and 5.)
          Table 7 reflects non-interest expense detail for each of the last five quarters.
Table 7 — Non-Interest Expense
                                                           
    2007   2006     1Q07 vs 1Q06
(in thousands)   First   Fourth   Third   Second   First     Amount   Percent
           
Salaries
  $ 104,912     $ 111,806     $ 105,144     $ 107,249     $ 101,458       $ 3,454       3.4 %
Benefits
    29,727       26,138       28,679       30,655       30,099         (372 )     (1.2 )
           
Personnel costs
    134,639       137,944       133,823       137,904       131,557         3,082       2.3  
Outside data processing and other services
    21,814       20,695       18,664       19,569       19,851         1,963       9.9  
Net occupancy
    19,908       17,279       18,109       17,927       17,966         1,942       10.8  
Equipment
    18,219       18,151       17,249       18,009       16,503         1,716       10.4  
Marketing
    7,696       6,207       7,846       10,374       7,301         395       5.4  
Professional services
    6,482       8,958       6,438       6,292       5,365         1,117       20.8  
Telecommunications
    4,126       4,619       4,818       4,990       4,825         (699 )     (14.5 )
Printing and supplies
    3,242       3,610       3,416       3,764       3,074         168       5.5  
Amortization of intangibles
    2,520       2,993       2,902       2,992       1,075         1,445       N.M.  
Other expense (1)
    23,426       47,334       29,165       30,538       30,898         (7,472 )     (24.2 )
           
Total non-interest expense
  $ 242,072     $ 267,790     $ 242,430     $ 252,359     $ 238,415       $ 3,657       1.5 %
           
N.M., not a meaningful value.
     
(1)   Automobile operating lease income and expense is included in ‘Other Income’ and ‘Other Expense’, respectively.

34


2007 First Quarter versus 2006 First Quarter
        Non-interest expense increased $3.7 million, or 2%, from the year-ago quarter, reflecting:
    $3.1 million, or 2%, increase in personnel expense, with Unizan contributing $5.2 million, partially offset by lower full-time equivalent staff.
 
    $2.0 million, or 10%, increase in outside data processing and other services of which $0.3 million was Unizan merger-related and $0.6 million representing merger-costs associated with the pending Sky Financial merger.
 
    $1.9 million, or 11%, increase in net occupancy expense ($0.9 million merger-related).
 
    $1.7 million, or 10%, increase in equipment expense ($0.3 million merger-related), reflecting higher depreciation associated with recent technology investments.
 
    $1.4 million increase in the amortization of intangibles, all merger-related.
 
    $1.1 million, or 21%, increase in professional services expense.
Partially offset by:
    $7.5 million decline in other expense, reflecting a $10.6 million decline in automobile operating lease expense as that portfolio continued its runoff, partially offset by higher litigation losses.
        Current period non-interest expense included $0.8 million of merger-costs associated with the pending acquisition of Sky Financial, of which $0.6 million consisted of outside programming costs. The remaining merger-costs were spread over a number of expense categories.
2007 First Quarter versus 2006 Fourth Quarter
        Non-interest expense decreased $25.7 million from the 2006 fourth quarter, reflecting:
    $23.9 million decrease in other expense, reflecting higher 2006 fourth quarter expenses due to that quarter’s $10.0 million contribution to the Huntington Foundation, $5.2 million of higher residual value losses on automobile leases, and $3.5 million related to the restructuring of FHLB advances, as well as a $1.9 million decline in automobile operating lease expense .
 
    $3.3 million, or 2%, decline in personnel costs, reflecting the 2006 fourth quarter’s $4.5 million of severance and consolidation costs .
 
    $2.5 million, or 28%, decrease in professional services, reflecting lower expenses associated with collection activities and lower consulting costs related to revenue initiatives.
Partially offset by:
    $2.6 million, or 15%, increase in net occupancy expense due to seasonally higher costs.
 
    $1.5 million, or 24%, increase in marketing expense.
 
    $1.1 million, or 5%, increase in outside data processing and other services expense, including $0.6 million of merger costs associated with the pending Sky Financial acquisition.
Provision for Income Taxes
(This section should be read in conjunction with Significant Item 4.)
        The provision for income taxes in the first quarter of 2007 was $33.5 million and represented an effective tax rate on income before taxes of 25.9%. The effective tax rates in the year-ago quarter and fourth quarter of 2006 were 28.1% and 23.8%, respectively. The provision for income taxes decreased $7.3 million from a year-ago quarter, primarily due to an increase in tax-exempt income and general business credits, as well as a decrease in pre-tax earnings. The provision increased $6.2 million from fourth quarter 2006, due to lower pretax earnings in 2006. The effective tax rate prior to the anticipated merger of Sky Financial should remain around the first quarter 2007 level.

35


          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 ending 2004 and 2005. In addition, we are subject to ongoing tax examinations in various jurisdictions. We believe that the resolution of these 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 our 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 its 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, 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.
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 banking markets.
          The checks and balances in the credit process and the independence of the credit administration and risk management functions are designed to 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 Item 2.)
          As shown in Table 8, at March 31, 2007, total credit exposure was $26.3 billion. Of this amount, $13.6 billion, or 52%, represented total consumer loans and leases, down from 55% in the year-ago quarter, and $12.6 billion, or 48%, represented total commercial loans and leases, up from 45% a year ago.

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Table 8 — Loans and Leases Composition
                                                                                 
      2007     2006
(in thousands)   March 31,   December 31,   September 30,   June 30,   March 31,
     
By Type
                                                                               
Commercial:
                                                                               
Middle market commercial and industrial
  $ 6,164,569       23.5 %   $ 5,961,445       22.8 %   $ 5,811,130       22.0 %   $ 5,654,537       21.5 %   $ 5,331,497       20.4 %
Middle market commercial real estate:
                                                                               
Construction
    1,187,664       4.5       1,228,641       4.7       1,169,276       4.4       1,179,603       4.5       1,371,266       5.2  
Commercial
    2,807,063       10.7       2,722,599       10.4       2,808,684       10.7       2,783,982       10.6       3,075,731       11.8  
     
Middle market commercial real estate
    3,994,727       15.2       3,951,240       15.1       3,977,960       15.1       3,963,585       15.1       4,446,997       17.0  
Small business
    2,474,955       9.4       2,441,837       9.3       2,418,709       9.2       2,413,646       9.1       2,039,537       7.8  
     
Total commercial
    12,634,251       48.1       12,354,522       47.2       12,207,799       46.3       12,031,768       45.7       11,818,031       45.2  
     
Consumer:
                                                                               
Automobile loans
    2,251,215       8.6       2,125,821       8.1       2,105,623       8.0       2,059,836       7.8       2,053,777       7.9  
Automobile leases
    1,623,758       6.2       1,769,424       6.8       1,910,257       7.2       2,042,213       7.7       2,154,883       8.2  
Home equity
    4,914,462       18.7       4,926,900       18.8       5,019,101       19.0       5,207,023       19.8       5,094,490       19.5  
Residential mortgage
    4,405,944       16.8       4,548,849       17.4       4,678,577       17.7       4,739,814       18.0       4,604,705       17.6  
Other loans
    437,117       1.6       427,909       1.7       440,145       1.8       273,927       1.0       419,703       1.6  
     
Total consumer
    13,632,496       51.9       13,798,903       52.8       14,153,703       53.7       14,322,813       54.3       14,327,558       54.8  
     
Total loans and leases
  $ 26,266,747       100.0     $ 26,153,425       100.0     $ 26,361,502       100.0     $ 26,354,581       100.0     $ 26,145,589       100.0  
     
 
                                                                               
By Business Segment
                                                                               
Regional Banking:
                                                                               
Central Ohio
  $ 3,605,917       13.7 %   $ 3,570,157       13.7 %   $ 3,682,544       14.0 %   $ 3,598,342       13.7 %   $ 3,360,201       12.9 %
Northern Ohio
    2,723,164       10.4       2,619,465       10.0       2,656,635       10.1       2,660,450       10.1       2,552,570       9.8  
Southern Ohio / Kentucky
    2,159,407       8.2       2,196,779       8.4       2,185,979       8.3       2,195,013       8.3       2,121,870       8.1  
Eastern Ohio
    1,260,388       4.8       1,309,260       5.0       1,348,217       5.1       1,416,505       5.4       1,825,985       7.0  
West Michigan
    2,453,300       9.3       2,421,117       9.3       2,443,495       9.3       2,397,525       9.1       2,372,563       9.1  
East Michigan
    1,647,751       6.3       1,636,901       6.3       1,609,932       6.1       1,597,741       6.1       1,536,284       5.9  
West Virginia
    1,109,197       4.2       1,107,222       4.2       1,086,757       4.1       1,053,464       4.0       968,333       3.7  
Indiana
    971,186       3.7       968,369       3.7       962,216       3.7       953,776       3.6       977,589       3.7  
Mortgage and equipment leasing groups
    3,563,762       13.6       3,571,054       13.6       3,611,416       13.7       3,590,621       13.6       3,478,835       13.3  
     
Regional Banking
    19,494,072       74.2       19,400,324       74.2       19,587,191       74.4       19,463,437       73.9       19,194,230       73.4  
Dealer Sales
    4,903,370       18.7       4,908,764       18.7       4,956,635       18.7       5,082,282       19.3       5,218,941       20.0  
Private Financial and Capital Markets Group
    1,869,305       7.1       1,844,337       7.1       1,817,676       6.9       1,808,862       6.8       1,732,418       6.6  
Treasury / Other
                                                           
     
Total loans and leases
  $ 26,266,747       100.0 %   $ 26,153,425       100.0 %   $ 26,361,502       100.0 %   $ 26,354,581       100.0 %   $ 26,145,589       100.0 %
     

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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 results in 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. Analysis of actual default experience indicated that the assigned probability of default was higher than our actual experience. We continually review and adjust our criteria based on actual experience, which may result in further changes to such criteria, in future periods.
          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.
          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 most recent credit bureau score (FICO), 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.
          Home equity loans and lines consist of both first and second position collateral with underwriting criteria based on

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minimum FICO credit scores, debt-to-income ratios, and loan-to-value ratios. We offer closed-end home equity loans with a fixed interest rate and level monthly payments and a variable-rate, interest-only home equity line of credit. At March 31, 2007, we had $1.9 billion of home equity loans and $3.1 billion of home equity lines of credit. The average loan-to-value ratio of our home equity portfolio (both loans and lines) was 77% at March 31, 2007. We do not originate home equity loans or lines that allow negative amortization, or have a loan-to-value ratio at origination greater than 100%. Home equity loans are generally fixed rate with periodic principal and interest payments. We originated $211 million of home equity loans in the first quarter of 2007 with a weighted average loan-to-value ratio of 66% and a weighted average FICO score of 742. 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 2007, we originated commitments of $351 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 748.
          At March 31, 2007, we had $4.4 billion of residential real estate loans. Adjustable-rate mortgages (ARMs), 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 “option ARMs.” Interest-only loans comprised $0.8 billion, or 17%, of residential real estate loans at March 31, 2007. Interest only loans are underwritten to specific standards including minimum FICO credit scores, stressed debt-to-income ratios, and extensive collateral evaluation.
          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. (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.)
Non-Performing Assets (NPAs)
(This section should be read in conjunction with Significant Item 2.)
          NPAs consist of (1) non-performing loans and leases (NPLs), which represent loans and leases that are no longer accruing interest and/or have been renegotiated to below market rates based upon financial difficulties of the borrower, and (2) real estate acquired through foreclosure. Middle-market commercial and industrial (C&I), commercial real-estate (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 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. 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.
          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.
          Table 9 reflects period-end NPLs, NPAs, and past due loans and leases detail for each of the last five quarters.

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Table 9 — Non-Performing Loans (NPLs), Non-Performing Assets (NPAs) and Past Due Loans and Leases
                                         
    2007   2006
(in thousands)   March 31,   December 31,   September 30,   June 30,   March 31,
     
Non-accrual loans and leases:
                                       
Middle market commercial and industrial
  $ 32,970     $ 35,657     $ 37,082     $ 45,713     $ 45,723  
Middle market commercial real estate
    42,458       34,831       27,538       24,970       18,243  
Small business
    30,015       25,852       21,356       27,328       28,389  
Residential mortgage
    35,491       32,527       30,289       22,786       29,376  
Home equity
    16,396       15,266       13,047       14,466       13,778  
     
Total NPLs
    157,330       144,133       129,312       135,263       135,509  
 
                                       
Other real estate, net:
                                       
Residential
    47,762       47,898       40,615       34,743       17,481  
Commercial
    1,586       1,589       1,285       1,062       1,903  
     
Total other real estate, net
    49,348       49,487       41,900       35,805       19,384  
     
Total NPAs
  $ 206,678     $ 193,620     $ 171,212     $ 171,068     $ 154,893  
     
 
                                       
NPLs guaranteed by the U.S. government (1)
  $ 28,748     $ 33,858     $ 33,676     $ 30,710     $ 18,256  
 
                                       
NPLs as a % of total loans and leases
    0.60 %     0.55 %     0.49 %     0.51 %     0.52 %
 
                                       
NPAs as a % of total loans and leases and other real estate
    0.79       0.74       0.65       0.65       0.59  
 
                                       
Accruing loans and leases past due 90 days or more (1)
  $ 70,179     $ 59,114     $ 62,054     $ 48,829     $ 52,297  
 
                                       
Accruing loans and leases past due 90 days or more as a percent of total loans and leases
    0.27 %     0.23 %     0.24 %     0.19 %     0.20 %
 
(1)   Beginning in the second quarter of 2006, OREO includes balances of loans in foreclosure which are fully guaranteed by the U.S. Government that were reported in 90 day past due loans and leases in prior periods.
     NPAs were $206.7 million at March 31, 2007, and represented 0.79% of related assets. This represented a $51.8 million, or 33%, increase from $154.9 million, or 0.59% of related assets, at the end of the year-ago quarter, and a $13.1 million, or 7%, increase from $193.6 million, or 0.74% of related assets, at December 31, 2006.
     Contributing to the $51.8 million increase in NPAs from the year-ago period was a $30.0 million increase in other real estate owned (OREO), reflecting foreclosed mortgage loans fully guaranteed by the U.S. government, which prior to the 2006 second quarter were reported as over 90-day delinquent but still accruing loans. This change in reporting also contributed to the $10.5 million increase in assets guaranteed by the U.S. government, from $18.3 million at the end of the 2006 first quarter to $28.7 million at March 31, 2007. At March 31, 2007, 56% of total NPAs were secured by residential real estate assets or were guaranteed by the U.S. Government, which have shown low loss experience historically. This compared favorably with the 51% level of such NPAs at the end of the year-ago quarter, but declined from 59% at December 31, 2006.
     NPLs, which exclude OREO, increased $21.8 million, or 16%, from the year-earlier period to $157.3 million at March 31, 2007. NPLs increased $13.2 million, or 9%, from December 31, 2006. Contributing to the $13.2 million increase in NPLs, were increases in middle market CRE NPLs ($7.6 million, up 22%), small business NPLs ($4.2 million, up 16%), residential mortgages ($3.0 million, up 9%), and home equity NPLs ($1.1 million, up 7%). These increases were partially offset by a $2.7 million, or 8%, decline in middle market C&I NPLs.

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     For residential real estate secured portfolios, as assets are transferred to OREO status, their values are written down to net realizable fair values, with a resulting increase in related current period net charge-offs. This revaluation of the assets minimizes the potential for further net charge-offs associated with these assets in coming periods. NPLs expressed as a percent of total loans and leases were 0.60% at March 31, 2007, up from 0.52% a year earlier, and from 0.55% at December 31, 2006.
     The over 90-day delinquent, but still accruing, ratio was 0.27% at March 31, 2007, up from 0.20% at the end of the year-ago quarter, and up from 0.23% at December 31, 2006.
     Non-performing asset activity for each of the last five quarters ended March 31, 2007, was as follows:
Table 10 — Non-Performing Assets (NPAs) Activity
                                         
    2007   2006
(in thousands)   First   Fourth   Third   Second   First
     
NPAs, beginning of period
  $ 193,620     $ 171,212     $ 171,068     $ 154,893     $ 117,155  
New NPAs (1)
    51,588       60,287       55,490       52,498       53,768  
Acquired NPAs
                            33,843  
Returns to accruing status
    (6,176 )     (5,666 )     (11,880 )     (12,143 )     (14,310 )
NPA losses
    (9,072 )     (11,908 )     (14,143 )     (6,826 )     (13,314 )
Payments
    (18,086 )     (16,673 )     (16,709 )     (12,892 )     (13,195 )
Sales
    (5,196 )     (3,632 )     (12,614 )     (4,462 )     (9,054 )
     
NPAs, end of period
  $ 206,678     $ 193,620     $ 171,212     $ 171,068     $ 154,893  
     
     
(1)   Beginning in the second quarter of 2006, OREO includes balances of loans in foreclosure which are fully guaranteed by the U.S. Government that were reported in 90 day past due loans and leases in prior periods.
Allowances for Credit Losses (ACL)
(This section should be read in conjunction with Significant Item 2.)
     We maintain two reserves, both of which are available to absorb 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, which is described later in this section, 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. The allowance is comprised of two components: the transaction reserve and the economic reserve.
     The transaction reserve component of the ACL includes both (a) an estimate of loss based on pools of commercial and consumer loans and leases with similar characteristics 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 commercial loans, the estimate of loss based on pools of loans and leases with similar characteristics is 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

41


homogeneous portfolios, such as consumer loans and leases, the determination of the transaction reserve is based on reserve factors that include the use of forecasting models to measure inherent loss in these portfolios. We update the models and analyses 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.
     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 economic indices as well as a variety of other economic factors that are correlated to the historical performance of the loan portfolio. Currently, two national and two regionally focused indices are utilized. The two national indices are: (1) the Real Consumer Spending, and (2) Consumer Confidence. The two regionally focused indices are: (1) the Institute for Supply Management Manufacturing, and (2) Non-agriculture Job Creation. Because of this more quantitative approach to recognizing risks in the general economy, the economic reserve may fluctuate from period-to-period, subject to a minimum level specified by policy.
     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.
     At March 31, 2007, the ALLL was $283.0 million, which was down slightly from $283.8 million a year earlier, but $10.9 million higher than $272.1 million at December 31, 2006. Expressed as a percent of period-end loans and leases, the ALLL ratio at March 31, 2007, was 1.08%, down from 1.09% a year ago, but up from 1.04% at December 31, 2006.
     The increase in the transaction reserve component reflected pressure resulting from softness in the residential and commercial real estate markets as reflected in higher levels of watch list credits. Though watch list credits increased during the quarter, on both an absolute and relative basis, they remained below the year-ago level.
     The ALLL as a percent of NPLs was 180% at March 31, 2007, down from 209% a year ago, and from 189% at December 31, 2006. The ALLL as a percent of NPAs was 137% at March 31, 2007, down from 183% a year ago, and from 141% at December 31, 2006. At March 31, 2007, the AULC was $40.5 million, up from $39.3 million at the end of the year-ago quarter, and from $40.2 million at December 31, 2006.
     On a combined basis, the ACL as a percent of total loans and leases at March 31, 2007, was 1.23%, down from 1.24% a year ago, but up from 1.19% at December 31, 2006. The ACL as a percent of NPAs was 157% at March 31, 2007, down from 209% a year earlier and 161% at December 31, 2006. The decline in the NPA coverage ratio reflected (1) a higher percentage of NPAs secured by residential real estate or guaranteed by the U.S. Government, which have an inherently lower potential for loss, and (2) a reporting change in 2006 to include in NPAs on foreclosed loans guaranteed by the U.S. Government and serviced by Huntington, that had been previously reported as 90-day past due loans.
     Table 11 reflects activity in the ALLL and AULC for each of the last five quarters.

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Table 11 — Quarterly Credit Reserves Analysis
                                         
    2007   2006
(in thousands)   First   Fourth   Third   Second   First
     
Allowance for loan and lease losses, beginning of period
  $ 272,068     $ 280,152     $ 287,517     $ 283,839     $ 268,347  
Acquired allowance for loan and lease losses
                100 (1)     1,498 (1)     22,187  
Loan and lease losses
    (27,813 )     (32,835 )     (29,127 )     (24,325 )     (33,405 )
Recoveries of loans previously charged off
    9,695       9,866       7,888       10,373       9,189  
     
Net loan and lease losses
    (18,118 )     (22,969 )     (21,239 )     (13,952 )     (24,216 )
     
Provision for loan and lease losses
    29,026       14,885       13,774       16,132       17,521  
     
Allowance for loan and lease losses, end of period
  $ 282,976     $ 272,068     $ 280,152     $ 287,517     $ 283,839  
     
 
                                       
Allowance for unfunded loan commitments and letters of credit, beginning of period
  $ 40,161     $ 39,302     $ 38,914     $ 39,301     $ 36,957  
 
                                       
Acquired AULC
                            325  
Provision for unfunded loan commitments and letters of credit losses
    380       859       388       (387 )     2,019  
     
Allowance for unfunded loan commitments and letters of credit, end of period
  $ 40,541     $ 40,161     $ 39,302     $ 38,914     $ 39,301  
     
Total allowances for credit losses
  $ 323,517     $ 312,229     $ 319,454     $ 326,431     $ 323,140  
     
 
                                       
Allowance for loan and lease losses (ALLL) as % of:
                                       
Transaction reserve
    0.89 %     0.86 %     0.86 %     0.89 %     0.88 %
Economic reserve
    0.19       0.18       0.20       0.20       0.21  
     
Total loans and leases
    1.08 %     1.04 %     1.06 %     1.09 %     1.09 %
     
NPLs
    180       189       217       213       209  
NPAs
    137       141       164       168       183  
 
                                       
Total allowances for credit losses (ACL) as % of:
                                       
Total loans and leases
    1.23 %     1.19 %     1.21 %     1.24 %     1.24 %
NPLs
    206       217       247       241       238  
NPAs
    157       161       187       191       209  
Non-guaranteed commercial and NPAs
    360       389       456       403       425  
 
(1)   Represents an adjustment of the allowance and corresponding adjustment to loan balances, resulting from the Unizan merger.
Net Charge-offs
(This section should be read in conjunction with Significant Item 2.)
     Table 12 reflects net loan and lease charge-off detail for each of the last five quarters.

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Table 12 — Quarterly Net Charge-Off Analysis
                                         
    2007   2006
(in thousands)   First   Fourth   Third   Second   First
     
Net charge-offs by loan and lease type:
                                       
Commercial:
                                       
Middle market commercial and industrial
  $ (11 )   $ (1,827 )   $ 1,742     $ (484 )   $ 6,887  
Middle market commercial real estate:
                                       
Construction
    9       3,957       (2 )     (161 )     (241 )
Commercial
    377       144       644       1,557       210  
     
Middle market commercial real estate
    386       4,101       642       1,396       (31 )
Small business
    2,089       4,535       4,451       2,530       3,709  
     
Total commercial
    2,464       6,809       6,835       3,442       10,565  
     
Consumer:
                                       
Automobile loans
    2,853       2,422       1,759       1,172       2,977  
Automobile leases
    2,201       2,866       2,306       1,758       3,515  
     
Automobile loans and leases
    5,054       5,288       4,065       2,930       6,492  
Home equity
    5,968       5,820       6,734       4,776       4,524  
Residential mortgage
    1,931       2,226       876       688       715  
Other loans
    2,701       2,826       2,729       2,116       1,920  
     
Total consumer
    15,654       16,160       14,404       10,510       13,651  
     
Total net charge-offs
  $ 18,118     $ 22,969     $ 21,239     $ 13,952     $ 24,216  
     
 
                                       
Net charge-offs — annualized percentages:
                                       
Commercial:
                                       
Middle market commercial and industrial
    %     (0.12 )%     0.12 %     (0.04 )%     0.53 %
Middle market commercial real estate:
                                       
Construction
          1.35             (0.05 )     (0.07 )
Commercial
    0.05       0.02       0.09       0.22       0.03  
     
Middle market commercial real estate
    0.04       0.41       0.06       0.14        
Small business
    0.34       0.75       0.74       0.43       0.73  
     
Total commercial
    0.08       0.22       0.23       0.12       0.38  
     
Consumer:
                                       
Automobile loans
    0.52       0.46       0.34       0.23       0.60  
Automobile leases
    0.52       0.62       0.47       0.34       0.63  
     
Automobile loans and leases
    0.52       0.54       0.40       0.28       0.62  
Home equity
    0.49       0.47       0.53       0.38       0.37  
Residential mortgage
    0.17       0.19       0.07       0.06       0.07  
Other loans
    2.56       2.63       2.54       1.89       1.72  
     
Total consumer
    0.46       0.46       0.40       0.30       0.40  
     
Net charge-offs as a % of average loans
    0.28 %     0.35 %     0.32 %     0.21 %     0.39 %
     
2007 First Quarter versus 2006 First Quarter and 2005 Fourth Quarter
     Total net charge-offs for the 2007 first quarter were $18.1 million, or an annualized 0.28% of average total loans and leases. This performance remained below the long-term targeted range of 0.35%-0.45%. This was also below the $24.2 million, or an annualized 0.39%, in the year-ago quarter and $23.0 million, or an annualized 0.35%, of average total loans and leases in the 2006 fourth quarter.
     Total commercial net charge-offs in the first quarter were $2.5 million, or an annualized 0.08%. This was down $8.1 million from $10.6 million, or an annualized 0.38%, in the year-ago quarter, and down from $6.8 million, or an annualized

44


0.22%, in the 2006 fourth quarter. The higher level of middle market CRE net charge-offs in the 2006 fourth quarter was influenced by stress in the housing market, and a charge-off associated with the strategic exit of a relationship with a major Ohio-based homebuilder. Net charge-offs on small business loans were $2.1 million, or an annualized 0.34%, in the current quarter. This compared favorably to $3.7 million, or an annualized 0.73%, in the year-ago quarter, and $4.5 million, or an annualized 0.75%, in the 2006 fourth quarter.
     Total consumer net charge-offs in the current quarter were $15.7 million, up $2.0 million, or 15%, from $13.7 million in the year-ago quarter. When expressed as an annualized percentage, total consumer net charge-offs in the 2007 first quarter were 0.46% of average related loans, up from 0.40% in the year-ago quarter. Compared with the 2006 fourth quarter, total consumer net charge-offs decreased $0.5 million, or 3%, from $16.2 million with the annualized net charge-off ratio unchanged at an annualized 0.46% of average related loans.
     Automobile loan and lease net charge-offs declined $1.4 million, or 22%, from the year-ago quarter, and $0.2 million, or 4%, from the 2006 fourth quarter. Expressed as a percent of average total automobile loans and leases, such charge-offs were 0.52% in the current quarter, down from 0.62% in the year-ago quarter and 0.54% in the prior quarter. Overall, the automobile loan and lease portfolios continued to perform well within expectations.
     Residential mortgage net charge-offs totaled $1.9 million, or an annualized 0.17% of related average balances. While higher than $0.7 million, or an annualized 0.07%, in the year-ago quarter, they were lower than the $2.2 million, or an annualized 0.19% in the prior quarter.
     Home equity net charge-offs in the 2007 first quarter were $6.0 million, or an annualized 0.49%, up from $4.5 million, or an annualized 0.37%, in the year-ago quarter, and up from $5.8 million, or an annualized 0.47%, in the prior quarter.
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 two primary sources of market risk: interest rate 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

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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.
     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, 2007, and December 31, 2006. All of the positions were well within the board of directors’ policy limits.
Table 13 — Net Interest Income at Risk
                                 
    Net Interest Income at Risk (%)
Basis point change scenario   -200   -100   +100   +200
     
March 31, 2007
    -0.1 %     +0.2 %     +0.4 %     +0.4 %
December 31, 2006
    0.0 %     0.0 %     -0.2 %     -0.4 %
     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 14 — Economic Value of Equity at Risk
                                 
    Economic Value of Equity at Risk (%)
Basis point change scenario   -200   -100   +100   +200
     
March 31, 2007
    -0.3 %     +1.1 %     -4.5 %     -10.5 %
December 31, 2006
    +0.5 %     +1.4 %     -4.7 %     -11.3 %
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.

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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, our primary subsidiary, 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 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.

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Table 15 — Deposit Composition
                                                                                 
    2007   2006
(in thousands)   March 31,   December 31,   September 30,   June 30,   March 31,
     
By Type
                                                                               
Demand deposits — non-interest bearing
  $ 3,696,231       15.0 %   $ 3,615,745       14.4 %   $ 3,480,888       14.1 %   $ 3,530,828       14.4 %   $ 3,776,790       15.4 %
Demand deposits — interest bearing
    2,486,304       10.1       2,389,085       9.5       2,243,153       9.1       2,228,028       9.1       2,209,617       9.0  
Money market deposits
    5,568,104       22.6       5,362,459       21.4       5,678,252       23.0       5,474,283       22.3       5,467,201       22.3  
Savings and other domestic deposits
    2,879,098       11.7       2,986,287       11.9       3,011,268       12.2       3,125,513       12.7       3,585,840       14.6  
Core certificates of deposit
    5,408,289       22.0       5,364,610       21.4       5,313,473       21.5       5,171,410       21.0       4,949,259       20.2  
     
Total core deposits
    20,038,026       81.4       19,718,186       78.6       19,727,034       79.9       19,530,062       79.5       19,988,707       81.5  
Other domestic deposits of $100,000 or more
    1,287,186       5.2       1,191,984       4.8       1,259,720       5.1       1,111,153       4.5       1,033,447       4.2  
Brokered deposits and negotiable CDs
    2,721,927       11.1       3,345,943       13.4       3,183,489       12.9       3,475,032       14.1       3,081,211       12.5  
Deposits in foreign offices
    538,754       2.3       791,657       3.2       568,152       2.1       476,685       1.9       451,798       1.8  
     
Total deposits
  $ 24,585,893       100.0 %   $ 25,047,770       100.0 %   $ 24,738,395       100.0 %   $ 24,592,932       100.0 %   $ 24,555,163       100.0 %
     
 
                                                                               
Total core deposits:
                                                                               
Commercial
  $ 6,314,309       31.5 %   $ 6,063,372       30.8 %   $ 6,214,462       31.5 %   $ 5,906,817       30.2 %   $ 5,994,233       30.0 %
Personal
    13,723,717       68.5       13,654,814       69.2       13,512,572       68.5       13,623,245       69.8       13,994,474       70.0  
     
Total core deposits
  $ 20,038,026       100.0 %   $ 19,718,186       100.0 %   $ 19,727,034       100.0 %   $ 19,530,062       100.0 %   $ 19,988,707       100.0 %
     
 
                                                                               
By Business Segment
                                                                               
Regional Banking:
                                                                               
Central Ohio
  $ 5,042,229       20.5 %   $ 4,984,296       19.8 %   $ 4,884,052       19.8 %   $ 4,753,677       19.3 %   $ 5,056,754       20.7 %
Northern Ohio
    3,673,519       14.9       3,572,069       14.3       3,662,243       14.9       3,536,794       14.4       3,594,515       14.6  
Southern Ohio / Kentucky
    2,353,129       9.6       2,275,875       9.1       2,212,366       8.9       2,226,385       9.1       2,233,220       9.1  
Eastern Ohio
    1,668,203       6.8       1,716,499       6.9       1,738,913       7.0       1,757,964       7.1       1,762,395       7.2  
West Michigan
    2,826,489       11.5       2,757,440       11.0       2,941,889       11.9       2,798,498       11.4       2,830,635       11.5  
East Michigan
    2,460,100       10.0       2,419,482       9.7       2,354,689       9.5       2,259,497       9.2       2,259,497       9.2  
West Virginia
    1,547,095       6.3       1,513,768       6.0       1,513,206       6.1       1,512,351       6.1       1,533,274       6.2  
Indiana
    903,119       3.7       819,278       3.3       847,824       3.4       828,787       3.4       809,176       3.3  
Mortgage and equipment leasing groups
    163,456       0.7       171,900       0.7       146,075       0.6       165,807       0.7       153,444       0.6  
     
Regional Banking
    20,637,339       83.9       20,230,607       80.8       20,301,257       82.1       19,839,760       80.7       20,232,910       82.4  
Dealer Sales
    54,645       0.2       58,885       0.2       58,918       0.2       60,513       0.2       63,573       0.3  
Private Financial and Capital Markets Group
    1,171,982       4.8       1,162,335       4.6       1,144,731       4.6       1,217,627       5.0       1,177,469       4.8  
Treasury / Other (1)
    2,721,927       11.1       3,595,943       14.4       3,233,489       13.1       3,475,032       14.1       3,081,211       12.5  
     
Total deposits
  $ 24,585,893       100.0 %   $ 25,047,770       100.0 %   $ 24,738,395       100.0 %   $ 24,592,932       100.0 %   $ 24,555,163       100.0 %
     
(1)   Comprised largely of brokered deposits and negotiable CDs.

48


Parent Company Liquidity
     The parent company’s funding requirements consist primarily of dividends to shareholders, income taxes, funding of non-bank subsidiaries, repurchases of our stock, debt service, acquisitions, and operating expenses. The parent company obtains funding to meet obligations from dividends received from direct subsidiaries, net taxes collected from subsidiaries included in the Federal consolidated tax return, fees for services provided to subsidiaries, and the issuance of debt securities.
     We intend to maintain the Bank’s risk-based capital ratios at levels at which the Bank would be considered to be “well capitalized” by regulators. As a result, the amount of dividends that can be paid to the parent company depends on the Bank’s capital needs. At March 31, 2007, the Bank had tier one and total risk-based capital in excess of the minimum level required to be considered to be “well-capitalized” of $211.8 million and $199.0 million, respectively. The Bank could have declared and paid $95.1 million of additional dividends to the parent company at March 31, 2007 without regulatory approval.
     To help meet any additional liquidity needs, we have an open-ended, automatic shelf registration statement filed and effective with the Securities and Exchange Commission, which permits us to issue an unspecified amount of debt or equity securities.
     At March 31, 2007, the parent company had $371.1 million in cash or cash equivalents. There is approximately $350 million that we anticipate will be paid by the parent company in connection with the proposed acquisition of Sky Financial. We anticipate that we will issue debt obligations prior to the acquisition to finance a portion of the $350 million payment. Considering this potential obligation, and expected quarterly dividend payments, we believe the parent company has sufficient liquidity to meet its cash flow obligations for the foreseeable future.
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 2006 Annual Report on Form 10-K for additional discussion.)
     Credit ratings as of March 31, 2007, for the parent company and the Bank were:
Table 16 — Credit Ratings
                                 
    March 31, 2007  
    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  

49


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.
     Table 17 below provides certain information about our standby letters of credit:
Table 17 — Standby Letters of Credit
                                         
    2007   2006
(in millions)   First   Fourth   Third   Second   First
     
Total outstanding
  $ 1,197     $ 1,156     $ 1,136     $ 1,121     $ 1,095  
Percent collateralized
    48 %     47 %     45 %     44 %     49 %
Income recognized from issuance (1)
  $ 3.2     $ 3.1     $ 3.0     $ 3.0     $ 3.0  
Carrying amount of deferred revenue
    4.3       4.3       3.5       3.6       5.3  
 
(1)   Included in other non-interest income on the consolidated statement of income.
     We enter into forward contracts relating to the mortgage banking business. At March 31, 2007, December 31, 2006, and March 31, 2006, we had commitments to sell residential real estate loans of $373.7 million, $319.9 million, and $406.3 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. Risk Management 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.
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.

50


     Shareholders’ equity totaled $3.1 billion at March 31, 2007. This balance represented a slight increase from December 31, 2006.
     There were no share repurchases during the quarter under the current authorization, as all such repurchases have been suspended pending shareholder approval of the Sky Financial merger. At March 31, 2007, we had unused authority to repurchase up to 3.9 million common shares. This authorization may be used to help mitigate the dilutive earnings impact resulting from the issuance of stock options and restricted stock. 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.
     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, which supervises and regulates the parent, sets minimum capital requirements for each of these regulatory capital ratios. In the calculation of these 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 five years are shown in Table 17 and are well in excess of minimum levels established for “well capitalized” institutions of 6.00%, 10.00%, and 5.00%, respectively.
     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, 2007, the Bank had regulatory capital ratios in excess of “well capitalized” regulatory minimums.
     At March 31, 2007, the tangible equity to assets ratio was 7.06%, up from 6.97% a year ago and 6.87% at December 31, 2006. At March 31, 2007, the tangible equity to risk-weighted assets ratio was 7.69%, down from 7.80% at the end of the year-ago quarter, but up slightly from 7.65% at December 31, 2006. The increase in the tangible equity to assets ratio was due primarily to increased retained earnings.
Table 18 — Capital Adequacy
                                         
    2007   2006
(in millions)   March 31,   December 31,   September 30,   June 30,   March 31,
     
Total risk-weighted assets (1)
  $ 31,489     $ 31,155     $ 31,330     $ 31,614     $ 31,298  
 
                                       
Tier 1 leverage ratio (1)
    8.24 %     8.00 %     7.99 %     7.62 %     8.53 %
Tier 1 risk-based capital ratio (1)
    8.97       8.93       8.95       8.45       8.94  
Total risk-based capital ratio (1)
    12.81       12.79       12.81       12.29       12.91  
 
                                       
Tangible equity / asset ratio
    7.06       6.87       7.13       6.46       6.97  
Tangible equity / risk-weighted assets ratio (1)
    7.70       7.65       7.97       7.29       7.80  
Average equity / average assets
    8.63       8.70       8.30       8.39       8.15  
 
(1)   Based on an interim decision by the banking agencies on December 14, 2006, Huntington has excluded the impact of adopting Statement 158 from the regulatory capital calculations.
     On January 18, 2007, the board of directors declared a quarterly cash dividend on its common stock of $0.265 per common share payable April 2, 2007, to shareholders of record on March 15, 2007. Subsequent to the end of the 2007 first quarter, the board of directors on April 18, 2007, declared a quarterly cash dividend on its common stock of $0.265 per common share, payable July 2, 2007, to shareholders of record on June 15, 2007.

51


Table 19 — Quarterly Common Stock Summary
                                         
    2007   2006
(in thousands, except per share amounts)   First   Fourth   Third   Second   First
     
Common stock price, per share
                                       
High (1)
  $ 24.140     $ 24.970     $ 24.820     $ 24.410     $ 24.750  
Low (1)
    21.610       22.870       23.000       23.120       22.560  
Close
    21.850       23.750       23.930       23.580       24.130  
Average closing price
    23.117       24.315       23.942       23.732       23.649  
 
                                       
Dividends, per share
                                       
Cash dividends declared on common stock
  $ 0.265     $ 0.250     $ 0.250     $ 0.250     $ 0.250  
 
                                       
Common shares outstanding
                                       
Average — basic
    235,586       236,426       237,672       241,729       230,968  
Average — diluted
    238,754       239,881       240,896       244,538       234,363  
Ending
    235,714       235,474       237,921       237,361       245,183  
 
                                       
Book value per share
  $ 12.95     $ 12.80     $ 13.15     $ 12.38     $ 12.56  
Tangible book value per share
    10.29       10.12       10.50       9.70       9.95  
 
                                       
Common share repurchases
                                       
Number of shares repurchased
          3,050             8,100       4,831  
 
(1)   High and low stock prices are intra-day quotes obtained from NASDAQ.
ESTIMATING THE FINANCIAL IMPACT DUE TO THE UNIZAN MERGER
     The merger with Unizan Financial Corp. (Unizan) was completed on March 1, 2006. At the time of acquisition, Unizan had assets of $2.5 billion, including $1.6 billion of loans, and core deposits of $1.5 billion. Unizan results were only in consolidated results for a partial quarter in the 2006 first quarter, but fully impact all quarters thereafter. As a result, performance comparisons between 2007 first quarter and the 2006 first quarter periods are affected, as Unizan results were not in the prior period for a full quarter. In contrast, comparisons between the 2007 first and 2006 fourth quarter results are not affected given Unizan fully impacted both of these quarters. Comparisons of the 2007 first quarter compared with the 2006 first quarter reporting periods are impacted as follows:
    Increased reported average balance sheet, revenue, expense, and credit quality results (e.g., net charge-offs).
 
    Increased reported non-interest expense items as a result of costs incurred as part of merger-integration activities, most notably employee retention bonuses, outside programming services related to systems conversions, and marketing expenses related to customer retention initiatives. These net merger costs were $1.0 million in the 2006 first quarter, and a net cost recovery of $0.4 million in the 2006 fourth quarter.
     Given the impact of the merger on reported 2006 results, management believes that an understanding of the impacts of the merger is necessary to understand better underlying performance trends. When comparing post-merger period results to pre-merger periods, two terms relating to the impact of the Unizan merger on reported results are used:
    “Merger-related” refers to amounts and percentage changes representing the impact attributable to the merger.
 
    “Merger costs” represent expenses associated with merger integration activities.
     The following methodology has been implemented to estimate the approximate effect of the Unizan merger used to determine “merger-related” impacts.

52


Balance Sheet Items
     For loans and leases, as well as core deposits, balances as of the acquisition date are pro-rated to the post-merger period being used in the comparison. To estimate the impact on 2006 first quarter average balances, one-third of the closing date balance was used as those balances were in reported results for only one month of the quarter. Full quarter estimated impacts for subsequent periods were developed using this same pro-rata methodology. This methodology assumes acquired balances remain constant over time.
Income Statement Items
     For income statement line items, Unizan’s actual full year results for 2005 were used for pro-rating the impact on post-merger periods. For example, to estimate the 2006 first quarter impact of the merger on personnel costs, one-twelfth of Unizan’s full-year 2005 personnel costs was used. Full quarter estimated impacts for subsequent periods were developed using this same pro-rata methodology. This results in an approximate impact since the methodology does not adjust for any unusual items or seasonal factors in Unizan’s 2005 reported results, or synergies realized since the merger date. The one exception to this methodology relates to the amortization of intangibles expense where the actual post-merger amount is used.
     Table 20 provides detail of changes to selected reported results to quantify the estimated impact of the Unizan merger and the impact of all other factors using this methodology:

53


Table 20 — Estimated Impact of Unizan Merger
2007 First Quarter versus 2006 First Quarter
                                                         
                                    Unizan   Other
Average Loans and Deposits   First Quarter   Change   Merger        
(in millions)   2007   2006   Amount   Percent   Related   Amount   Percent
             
Loans
                                                       
Middle-market C&I
  $ 6,070     $ 5,174     $ 896       17.3 %   $ 47     $ 849       16.4 %
Middle-market CRE
    3,923       3,921       2       0.1       482       (480 )     (12.2 )
Small business
    2,466       2,035       431       21.2             431       21.2  
             
Total commercial
    12,459       11,130       1,329       11.9       529       800       7.2  
             
Automobile loans and leases
    3,913       4,215       (302 )     (7.2 )     47       (349 )     (8.3 )
Home equity
    4,913       4,833       80       1.7       149       (69 )     (1.4 )
Residential mortgage
    4,496       4,306       190       4.4       272       (82 )     (1.9 )
Other consumer
    422       447       (25 )     (5.6 )     112       (137 )     (30.6 )
             
Total consumer
    13,744       13,801       (57 )     (0.4 )     580       (637 )     (4.6 )
             
Total loans
  $ 26,203     $ 24,931     $ 1,272       5.1 %   $ 1,109     $ 163       0.7 %
             
 
                                                       
Deposits
                                                       
Demand deposits — non-interest bearing
  $ 3,530     $ 3,436     $ 94       2.7 %   $ 115     $ (21 )     (0.6 )%
Demand deposits — interest bearing
    2,349       1,974       375       19.0       61       314       15.9  
Money market deposits
    5,489       5,588       (99 )     (1.8 )     279       (378 )     (6.8 )
Savings and other domestic deposits
    2,827       3,095       (268 )     (8.7 )     162       (430 )     (13.9 )
Core certificates of deposit
    5,455       4,389       1,066       24.3       414       652       14.9  
             
Total core deposits
    19,650       18,482       1,168       6.3       1,031       137       0.7  
             
Other deposits
    4,801       4,546       255       5.6       120       135       3.0  
             
Total deposits
  $ 24,451     $ 23,028     $ 1,423       6.2 %   $ 1,151     $ 272       1.2 %
             
                                                                 
                                    Unizan   Other
Selected Income Statement Categories   First Quarter   Change   Merger   Merger        
(in thousands)   2007   2006   Amount   Percent   Related   Costs   Amount   Percent
             
Net interest income — FTE
  $ 259,602     $ 247,516     $ 12,086       4.9 %   $ 11,796     $     $ 290       0.1 %
             
 
Service charges on deposit accounts
  $ 44,793     $ 41,222     $ 3,571       8.7 %   $ 1,052     $     $ 2,519       6.1 %
Trust services
    25,894       21,278       4,616       21.7       1,102             3,514       16.5  
Brokerage and insurance income
    16,082       15,193       889       5.9       304             585       3.9  
Bank owned life insurance income
    10,851       10,242       609       5.9       524             85       0.8  
Other service charges and fees
    13,208       11,509       1,699       14.8       206             1,493       13.0  
Mortgage banking income (loss)
    9,351       13,194       (3,843 )     (29.1 )     172             (4,015 )     (30.4 )
Securities gains (losses)
    104       (20 )     124       N.M.                   124       N.M.  
Gains on sales of automobile loans
    1,144       448       696       N.M.                   696       N.M.  
Other income
    23,750       46,468       (22,718 )     (48.9 )     1,424             (24,142 )     (52.0 )
             
Total non-interest income
  $ 145,177     $ 159,534     $ (14,357 )     (9.0 )   $ 4,784     $     $ (19,141 )     (12.0 )
             
 
                                                               
Personnel costs
  $ 134,639     $ 131,557     $ 3,082       2.3 %   $ 5,150     $     $ (2,068 )     (1.6 )%
Net occupancy
    19,908       17,966       1,942       10.8       860             1,082       6.0  
Outside data processing and other services
    21,814       19,851       1,963       9.9       334             1,629       8.2  
Equipment
    18,219       16,503       1,716       10.4       344             1,372       8.3  
Professional services
    6,482       5,365       1,117       20.8       982             135       2.5  
Marketing
    7,696       7,301       395       5.4       178             217       3.0  
Telecommunications
    4,126       4,825       (699 )     (14.5 )     244             (943 )     (19.5 )
Printing and supplies
    3,242       3,074       168       5.5                   168       5.5  
Amortization of intangibles
    2,520       1,075       1,445       N.M.       1,379             66       6.1  
Other expense
    23,426       30,898       (7,472 )     (24.2 )     2,018             (9,490 )     (30.7 )
             
Total non-interest expense
  $ 242,072     $ 238,415     $ 3,657       1.5     $ 11,489     $     $ (7,832 )     (3.3 )
             

54


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, note 14 of the Notes to Unaudited Condensed Consolidated Financial Statements, 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, 2007 and 2006, 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, management, and reporting of interest rate and liquidity risk in Treasury/Other where it can be monitored and managed.
      Treasury function
     The Treasury function includes revenue and expense related to assets, liabilities, and equity 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.
     Net interest income includes the impact of administering our investment securities portfolios and the net impact of derivatives used to hedge interest rate sensitivity. Non-interest income includes miscellaneous fee income not allocated to other business segments such as bank owned life insurance income and any investment securities and trading assets gains or losses. Non-interest expense includes certain corporate administrative and other miscellaneous expenses not allocated to other business segments.
     The provision for income taxes for the other business segments is calculated at a statutory 35% tax rate, though our overall effective tax rate is lower. As a result, Treasury reflects a credit for income taxes representing the difference between the actual effective tax rate and the statutory tax rate used to allocate income taxes to the other segments.

55


Regional Banking
(This section should be read in conjunction with Significant Items 2 and 5.)
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, over 1,000 ATMs, along with Internet and telephone banking channels. It also provides certain services outside of these five states, including mortgage banking and equipment leasing. 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. At March 31, 2007, Retail Banking accounted for 57% and 77% of total Regional Banking loans and deposits, respectively. Commercial Banking serves middle market and large 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 about the pricing and the offering of these products. Our strategy is to focus on building a deeper relationship with our customers by providing a “Simply the Best” service experience. This focus on service requires continued investments in state-of-the-art platform technology in our branches, award-winning retail and business websites for our customers, extensive development of associates, and internal processes that empower our local bankers to serve our customers better. We expect the combination of local decision-making and “Simply the Best” service will result in a competitive advantage and drive revenue and earnings growth.
Table 21 — Selected Quarterly Data for Regional Banking (1)
                                 
    Three Months Ended March 31,   Change
(in thousands)   2007   2006   Amount   Percent
     
Net income — operating (1)
  $ 83,013     $ 86,667     $ (3,654 )     (4.2) %
Return on average equity
    27.1 %     33.6 %     (6.5 )     (19.3 )
Retail banking # DDA households (eop) (2)
    562,768       517,277       45,491       8.8  
Retail banking # new relationships 90-day cross-sell (average) (2)
    2.79       2.81       (0.02 )     (0.7 )
Small business # business DDA relationships (eop) (2)
    61,130       54,828       6,302       11.5  
Small business # new relationships 90-day cross-sell (average) (2)
    2.32       2.16       0.16       7.4  
Commercial banking # customers (eop) (2)
    5,316       4,914       402       8.2  
Mortgage banking closed loan volume (in millions) (2)
  $ 619     $ 596     $ 23       3.9  
eop — End of Period.
 
(1)   Operating basis, see Lines of Business section for definition.
 
(2)   Periods prior to the second quarter of 2006 exclude Unizan.
2007 First Quarter versus 2006 First Quarter
     Regional Banking net operating earnings for the 2007 first quarter were $83.0 million, down $3.7 million, or 4%, from the prior-year period, and accounted for 87% of total company net operating earnings. Results were significantly impacted by the acquisition of Unizan. Results of the acquisition were not

56


reflected in line-of-business results until 2006 second quarter although the acquisition closed March 1, 2006. The $3.7 million decline in net operating earnings reflected the negative impacts of a $20.8 million, or 15%, increase in non-interest expenses and a $12.1 million increase in provision for credit losses, partially offset by a $15.6 million increase in fully taxable equivalent revenue and a $13.5 million reduction in provision for income taxes. ROE was 27.1% for the 2007 first quarter, down from 33.6% in the prior-year period.
     Revenue growth reflected a $7.0 million, or 3%, increase in fully taxable equivalent net interest income which resulted from a $1.4 billion, or 8%, increase in average loan balances, partially offset by a 19 basis point decline in the net interest margin. The increase in average loan balances resulted primarily from the acquisition of Unizan and its related impact on results in the Eastern Ohio region. Growth in other banking regions was mostly due to improved sales efforts. The decline in the net interest margin resulted from lower spreads on loans and deposits acquired with the Unizan acquisition and continued competitive pressures across all regions, which contributed to spread compression in both loan and deposit portfolios. The following table presents the average loans and leases by region compared with the prior year:
Regional Banking Average Loans & Leases
                 
            Change from
    First Quarter   First Quarter
(in millions of dollars)   2007   2006
 
Region
               
Central Ohio
  $ 3,633       14 %
Northern Ohio
    2,656       6  
Southern Ohio / Kentucky
    2,181       4  
Eastern Ohio
    1,283       47  
West Michigan
    2,441       3  
East Michigan
    1,626       5  
West Virginia
    1,106       15  
Indiana
    959       (6 )
Mortgage and equipment leasing groups
    3,554       3  
 
Total loans and leases
  $ 19,439       8 %
 
     Average loans and leases increased across most categories compared to the first quarter of 2006, primarily due to the Unizan acquisition, including residential mortgages, commercial loans, and home equity. Residential mortgage and home equity loan growth rates were 4% and 2%, respectively. The growth in residential mortgage loans was aided by a 4% increase in closed loan origination volume from 2006. Commercial loan growth reflected a 24% increase commercial and industrial loans as well as a 16% growth in Business Banking.
     The increase in the provision for credit losses resulted from a decline in the asset quality of the loan portfolios, largely in the regions of East Michigan, Northern Ohio, and Southern Ohio.
     Non-interest revenue grew $8.7 million, or 11%, again primarily reflecting the impact of the Unizan acquisition. Growth in non-interest income is largely driven by our “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 was 2.79 products per household while the small business cross-sell ratio was 2.32 products per company.
     Additionally, the Unizan acquisition contributed to the expansion in our customer base. Period-end Retail Banking non-interest bearing checking account (DDA) households totaled 562,768, an increase of 45,491, or 9%, from one year ago. The number of small business DDA relationships increased 6,302, or 12%. We view the DDA as the primary banking relationship account, as most additional services are cross-

57


sold to customers after first establishing a DDA account. As a result, growth in average deposits was also broad-based, with the impact of the Unizan acquisition primarily impacting the Eastern Ohio region:
Regional Banking Average Deposits
                 
            Change from  
    First Quarter     First Quarter  
(in millions of dollars)   2007     2006  
 
Region
               
Central Ohio
  $ 4,822       5 %
Northern Ohio
    3,636       1  
Southern Ohio / Kentucky
    2,285       11  
Eastern Ohio
    1,679       70  
West Michigan
    2,790        
East Michigan
    2,431       8  
West Virginia
    1,533       4  
Indiana
    870       17  
Mortgage and equipment leasing groups
    175       8  
 
Total deposits
  $ 20,221       8 %
 
     The 8% increase in average deposits reflected 26% growth in time deposits. Interest bearing and non-interest bearing demand deposits grew 4% and 3%, respectively, from the year-ago period, while savings deposits declined 15%. The number of on-line consumer banking customers at March 31, 2007 grew 16% to 303,096 customers.

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Dealer Sales
Objectives, Strategies, and Priorities
     Our Dealer Sales line of business provides a variety of banking products and services to more than 3,500 automotive dealerships within our primary banking markets, as well as in Arizona, Florida, Georgia, New Jersey, North Carolina, Pennsylvania, South Carolina, and Tennessee. Dealer Sales finances the purchase of automobiles by customers at the automotive dealerships; purchases automobiles from dealers and simultaneously leases the automobiles to consumers under long-term leases; finances dealerships’ new and used vehicle inventories, dealership real estate, or dealer 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. We have been in this line of business for over 50 years.
     The Dealer Sales strategy has been to focus on developing relationships with the dealership through its finance department, general manager, and owner. An underwriter who understands each local market makes loan decisions, though we prioritize maintaining pricing discipline over market share.
     Automobile lease accounting significantly impacts the presentation of Dealer Sales’ financial results. Automobile leases originated prior to May 2002 are accounted for as automobile operating leases, with leases originated since April 2002 accounted for as direct financing leases. This accounting treatment impacts a number of Dealer Sales’ financial performance results and trends including net interest income, non-interest income, and non-interest expense. Residual values on leased automobiles, including the accounting for residual value losses, are also an important factor in the overall profitability of automobile leases.
Table 22 — Selected Quarterly Data for Dealer Sales (1)
                                 
    Three Months Ended March 31,   Change
(in thousands)   2007   2006   Amount   Percent
     
Net income — operating (1)
  $ 12,497     $ 14,483     $ (1,986 )     (14) %
Return on average equity
    26.4 %     18.1 %     8.3       46  
Automobile loans production (in millions)
  $ 447.4     $ 416.3     $ 31.1       7  
Automobile leases production (in millions)
    68.0     $ 73.9       (5.9 )     (8 )
 
(1)   Operating basis, see Lines of Business section for definition.
2007 First Quarter versus 2006 First Quarter
     Dealer Sales net operating earnings for the 2007 first quarter were $12.5 million, down $2.0 million, or 14%, from the prior-year period, and accounted for 13% of total company net operating earnings. This decline was primarily attributed to an 8% decline in average loan and lease balances, as well as an 11 basis point decline in the net interest margin.
     Direct finance lease average balances declined 24%, primarily reflecting continued softness in lease production levels resulting from low consumer demand and competitive pricing.
     Partially offsetting the declines in average lease balances was an 11% increase in average indirect automobile loans compared to the year-ago quarter. This growth reflected two factors: (1) the purchase of the residual portion of two matured 2003 automobile loan securitizations; and (2) growth indirectly attributed to the introduction of the “Huntington Plus” program for automobile dealers in the latter half of 2006. “Huntington Plus” is a program where lower credit-scored automobile loans are originated for dealers and then sold without recourse the next day to an independent third party. While this program does not directly impact average balances, it resulted in our becoming more of a full spectrum lender to the dealers, thereby influencing them to increase their overall allocation of prime automobile loan applications to Huntington.

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This contributed to the 18% increase in higher credit score loan originations during the first quarter of 2007 as compared to the fourth quarter of 2006 and, accordingly, the growth in related average balances.
     The net interest margin on average loan and direct finance lease balances decreased from 2.68% for the first quarter of 2006 to 2.57% for the 2007 first quarter. This decline reflects a continuation of competitive pricing pressures and the resulting lower margins on new production as compared to margins on loans and leases that are being repaid.

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Private Financial and Capital Markets Group
Objectives, Strategies, and Priorities
     The Private Financial and Capital Markets Group (PFCMG) provides products and services designed to meet the needs of 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. PFCMG provides investment management and custodial services to our 29 proprietary mutual funds, including 10 variable annuity funds, which represented approximately $4.1 billion in assets under management at March 31, 2007. The Huntington Investment Company offers brokerage and investment advisory services to both Regional Banking and PFCMG customers through a combination of more than 600 licensed investment sales representatives and licensed personal bankers. PFCMG’s insurance entities provide a complete array of insurance products including individual life insurance products ranging from basic term life insurance, to estate planning, group life and health insurance, property and casualty insurance, mortgage title insurance, and reinsurance for payment protection products. Income and related expenses from the sale of brokerage and insurance products is shared with the line of business that generated the sale or provided the customer referral, most notably Regional Banking.
     PFCMG’s primary goals are to consistently increase assets under management by offering innovative products and services that are responsive to our clients’ changing financial needs and to grow the balance sheet mainly through increased loan volume achieved through improved cross-selling efforts. To grow managed assets, the Huntington Investment Company sales team has been utilized as the distribution source for trust and investment management.
Table 23 — Selected Quarterly Data for Private Financial and Capital Markets Group (1)
                                 
    Three Months Ended March 31,   Change
(in thousands)   2007   2006   Amount   Percent
     
Net income — operating (1)
  $ 11,756     $ 17,137     $ (5,381 )     (31.4) %
Return on average equity
    28.4 %     50.0 %     (21.6 )     (43.2 )
Total brokerage and insurance income
  $ 15,749     $ 13,498     $ 2,251       16.7  
Total assets under management (in billions) (2)
    12.6       10.9       1.7       15.6  
Total trust assets (in billions) (2)
    53.2       46.2       7.0       15.2  
 
(1)   Operating basis, see Lines of Business section for definition.
 
(2)   Periods prior to the second quarter of 2006 exclude Unizan.
2007 First Quarter versus 2006 First Quarter
     PFCMG net operating earnings for the 2007 first quarter were $11.8 million, down $5.4 million, or 31%, from the prior-year period, and accounted for 12% of total company net operating earnings. The largest contributing factor to the decline from the year-ago quarter was an $8.5 million valuation adjustment on our equity investment portfolio, compared with a positive $1.4 million equity investment portfolio valuation adjustment in the year-ago quarter.
     We again had strong performance in our trust and asset management business. At March 31, 2007, assets under management were $12.6 billion, a 15% increase from March 31, 2006. Period end total trust assets were $53.2 billion, up 15%, with total trust fees for the quarter increasing 22% year-over-year. Results benefited from the Unizan acquisition completed in first quarter 2006 and the Unified Services acquisition completed as of December 31, 2006. Though neither had a significant impact on the year over year trust asset growth, they did contribute $3.7 million of the $4.6 million increase in trust income.

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     Growth in assets under management reflected: (1) approximately $0.2 billion in new Huntington Asset Management Accounts (HAMA) were opened since March 31, 2006; (2) recent market expansion efforts as our Palm Beach and Orlando offices which opened in mid-year 2005, and the Dayton, Indianapolis, and St. Petersburg offices, which opened in the second quarter 2006, had combined managed assets of $0.2 billion as of March 31, 2007; and (3) solid investment performance of the Huntington proprietary mutual funds, which totaled $4.1 billion at quarter end, a 15% increase from the prior year. Period end equity fund assets totaled $1.6 billion, up 12%, as three of the eight equity funds eligible for rating had overall Morningstar “4 Star” or “5 Star” ratings, and one fixed income fund having a “5 Star” rating. Four of the eight equity funds ranked in the top 30% of funds in their respective category for total returns for the one year period ended March 31, 2007.
     Brokerage and insurance revenue increased $1.0 million, or 10%, with insurance revenue increasing $1.2 million, or 45%. The growth in brokerage revenue resulted primarily from strong growth in mutual fund sales reflective of improved market conditions, as well as growth in 12b-1 fees attributable to growth in customer account balances from a combination of increased sales and market appreciation. Total brokerage assets under administration were $5.6 billion at March 31, 2007, up from $5.1 billion a year ago. The increase in insurance revenue reflected a $0.3 million increase in advance market life agency business and revenues from the captive insurance company formed in the 2006 second quarter.
     Non-interest income declined $4.2 million, or 10%, reflecting the negative impact of the equity investment portfolio valuation adjustments and $2.7 million in mezzanine financing gains from the year-ago quarter that did not recur.
     Non-interest expense increased $9.5 million, or 31%, from the year-ago quarter reflecting increased expenses related to the Unizan and Unified acquisitions and increased expenses commensurate with the growth of revenue.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk
     Quantitative and qualitative disclosures for the current period can be found in the Market Risk section of this report, which includes changes in market risk exposures from disclosures presented in Huntington’s 2006 Form 10-K.
Item 4. Controls and Procedures
     Huntington maintains disclosure controls and procedures designed to ensure that the information disclosed in its filings with the Securities and Exchange Commission is recorded, processed, summarized and reported appropriately and on a timely basis. Huntington’s Management, with the participation of its Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of Huntington’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon such evaluation, Huntington’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, Huntington’s disclosure controls and procedures were effective.
     There have not been any changes in Huntington’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, Huntington’s internal control over financial reporting.
Item 4T. Controls and Procedures
Not applicable
PART II. OTHER INFORMATION
     In accordance with the instructions to Part II, the other specified items in this part have been omitted because they are not applicable or the information has been previously reported.

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Item 6. Exhibits
(a) Exhibits
                     
            SEC File or    
Exhibit       Report or Registration   Registration   Exhibit
Number   Document Description   Statement   Number   Reference
 
                   
3.1
  Articles of Restatement of Charter, Articles of
Amendment to Articles of Restatement of
Charter, and Articles Supplementary.
  Annual Report on Form
10-K for the year ended
December 31, 1993.
  000-02525   3(i)
 
                   
3.2
  Articles of Amendment to Articles of
Restatement of Charter.
  Quarterly Report on Form
10-Q for the quarter
ended March 31, 1998.
  000-02525   3(i)(c)
 
                   
3.3
  Amended and Restated Bylaws as of February
21, 2007.
  Annual Report on Form
10-K for the year ended
December 31, 2006.
  000-02525   3.3
 
                   
3.4
  Articles Supplementary   Annual Report on Form
10-K for the year ended
December 31, 2006.
  000-02525   3.4
 
                   
4.1
  Instruments defining the Rights of Security
Holders — reference is made to Articles Fifth,
Eighth, and Tenth of Articles of Restatement
of Charter, as amended and supplemented.
Instruments defining the rights of holders of
long-term debt will be furnished to the
Securities and Exchange Commission upon
request.
  Annual Report on Form
10-K for the year ended
December 31, 2006.
  000-02525   4.1
 
                   
12.1
  Ratio of Earnings to Fixed Charges.                
 
                   
31.1
  Rule 13a-14(a) Certification — Chief Executive Officer.                
 
                   
31.2
  Rule 13a-14(a) Certification — Chief Financial Officer.                
 
                   
32.1
  Section 1350 Certification — Chief Executive Officer.                
 
                   
32.2
  Section 1350 Certification — Chief Financial Officer.                

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SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Huntington Bancshares Incorporated
(Registrant)
         
Date: May 4, 2007  /s/ Thomas E. Hoaglin    
  Thomas E. Hoaglin   
  Chairman, Chief Executive Officer and President   
 
Date: May 4, 2007  /s/ Donald R. Kimble    
  Donald R. Kimble   
  Chief Financial Officer   
 

65


 

Exhibit 12.1
Ratio of Earnings to Fixed Charges
                                                         
    (Unaudited)    
    Three Months Ended    
    March 31,   Twelve Months Ended December 31,
(in thousands of dollars)   2007   2006   2006   2005   2004   2003   2002
 
Earnings:
                                                       
Income before taxes
  $ 129,254     $ 145,259     $ 514,061     $ 543,574     $ 552,666     $ 523,987     $ 522,705  
 
Add: Fixed charges, excluding interest on deposits
    85,524       75,519       345,253       243,239       191,648       179,903       169,788  
 
Earnings available for fixed charges, excluding interest on deposits
    214,778       220,778       859,314       786,813       744,314       703,890       692,493  
Add: Interest on deposits
    196,723       148,314       717,167       446,919       257,099       288,271       385,733  
 
Earnings available for fixed charges, including interest on deposits
  $ 411,501     $ 369,092     $ 1,576,481     $ 1,233,732     $ 1,001,413     $ 992,161     $ 1,078,226  
 
 
                                                       
Fixed Charges:
                                                       
Interest expense, excluding interest on deposits
  $ 82,671     $ 72,793     $ 334,175     $ 232,435     $ 178,842     $ 168,499     $ 157,888  
Interest factor in net rental expense
    2,853       2,726       11,078       10,804       12,806       11,405       11,900  
 
Total fixed charges, excluding interest on deposits
    85,524       75,519       345,253       243,239       191,648       179,903       169,788  
Add: Interest on deposits
    196,723       148,314       717,167       446,919       257,099       288,271       385,733  
 
Total fixed charges, including interest on deposits
  $ 282,247     $ 223,833     $ 1,062,420     $ 690,158     $ 448,747     $ 468,174     $ 555,521  
 
 
                                                       
Ratio of Earnings to Fixed Charges
                                                       
Excluding interest on deposits
    2.51x       2.92x       2.49x       3.23x       3.88x       3.91x       4.08x  
Including interest on deposits
    1.46x       1.65x       1.48x       1.79x       2.23x       2.12x       1.94x  


 

Exhibit 31.1
CERTIFICATION
I, Thomas E. Hoaglin, certify that:
  1.   I have reviewed this Quarterly Report on Form 10-Q of Huntington Bancshares Incorporated;
 
  2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
  3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
 
  4.   The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
  a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and
 
  b)   designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and
 
  c)   evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  d)   disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
  5.   The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
 
  b)   any fraud, whether or not material, that involves Management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 4, 2007
         
     
  /s/ Thomas E. Hoaglin    
  Thomas E. Hoaglin   
  Chief Executive Officer   
 

 


 

Exhibit 31.2
CERTIFICATION
I, Donald R. Kimble, certify that:
  1.   I have reviewed this Quarterly Report on Form 10-Q of Huntington Bancshares Incorporated;
 
  2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
  3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
 
  4.   The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
  a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and
 
  b)   designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and
 
  c)   evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  d)   disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
  5.   The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
 
  b)   any fraud, whether or not material, that involves Management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 4, 2007
         
     
  /s/ Donald R. Kimble    
  Donald R. Kimble   
  Chief Financial Officer   
 

 


 

Exhibit 32.1
SECTION 1350 CERTIFICATION
     In connection with the Quarterly Report of Huntington Bancshares Incorporated (the “Company”) on Form 10-Q for the three month period ended March 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas E. Hoaglin, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
          (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
          (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
         
 
  /s/ Thomas E. Hoaglin    
 
       
 
  Thomas E. Hoaglin    
 
  Chief Executive Officer    
 
  May 4, 2007    

 


 

Exhibit 32.2
SECTION 1350 CERTIFICATION
     In connection with the Quarterly Report of Huntington Bancshares Incorporated (the “Company”) on Form 10-Q for the three month period ended March 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Donald R. Kimble, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
          (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
          (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
         
 
  /s/ Donald R. Kimble    
 
       
 
  Donald R. Kimble    
 
  Chief Financial Officer    
 
  May 4, 2007