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 June 30, 2007
Commission File Number 0-2525
Huntington Bancshares Incorporated
     
Maryland   31-0724920
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
41 South High Street, Columbus, Ohio 43287
Registrant’s telephone number (614) 480-8300
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ      Accelerated filer o       Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o Yes þ No
There were 365,924,668 shares of Registrant’s common stock ($0.01 par value) outstanding on July 31, 2007.
 
 

 


Huntington Bancshares Incorporated
INDEX
             
       
 
           
  Financial Statements (Unaudited)        
 
           
 
  Condensed Consolidated Balance Sheets at June 30, 2007, December 31, 2006, and June 30, 2006     3  
 
           
 
  Condensed Consolidated Statements of Income for the three month and six month periods ended June 30, 2007 and 2006     4  
 
           
 
  Condensed Consolidated Statements of Changes in Shareholders’ Equity for the six month periods ended June 30, 2007 and 2006     5  
 
           
 
  Condensed Consolidated Statements of Cash Flows for the six month periods ended June 30, 2007 and 2006     6  
 
           
 
  Notes to Unaudited Condensed Consolidated Financial Statements     7  
 
           
  Management's Discussion and Analysis of Financial Condition and Results of Operations     24  
 
           
  Quantitative and Qualitative Disclosures about Market Risk     77  
 
           
  Controls and Procedures     77  
 
           
  Controls and Procedures     77  
 
           
Part II. Other Information        
 
           
  Submission of Matters to a Vote of Security Holders     78  
 
           
  Exhibits     78  
 
           
        80  
  EX-10.3
  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)   June 30,   December 31,   June 30,
     
Assets
                       
Cash and due from banks
  $ 818,877     $ 1,080,163     $ 876,121  
Federal funds sold and securities purchased under resale agreements
    857,080       440,584       365,592  
Interest bearing deposits in banks
    271,133       74,168       37,576  
Trading account securities
    619,836       36,056       113,376  
Loans held for sale
    348,272       270,422       298,871  
Investment securities
    3,863,182       4,362,924       5,124,682  
Loans and leases
    26,811,513       26,153,425       26,354,581  
Allowance for loan and lease losses
    (307,519 )     (272,068 )     (287,517 )
     
Net loans and leases
    26,503,994       25,881,357       26,067,064  
     
Bank owned life insurance
    1,107,042       1,089,028       1,070,909  
Premises and equipment
    398,436       372,772       365,763  
Goodwill
    569,738       570,876       571,697  
Other intangible assets
    54,646       59,487       64,141  
Accrued income and other assets
    1,008,450       1,091,182       1,309,985  
     
Total Assets
  $ 36,420,686     $ 35,329,019     $ 36,265,777  
     
 
                       
Liabilities and Shareholders’ Equity Liabilities
                       
Deposits
  $ 24,599,912     $ 25,047,770     $ 24,592,932  
Short-term borrowings
    2,860,939       1,676,189       2,125,932  
Federal Home Loan Bank advances
    1,397,398       996,821       1,271,678  
Other long-term debt
    2,016,199       2,229,140       2,716,784  
Subordinated notes
    1,494,197       1,286,657       1,255,278  
Accrued expenses and other liabilities
    987,900       1,078,116       1,364,017  
     
Total Liabilities
    33,356,545       32,314,693       33,326,621  
     
 
                       
Shareholders’ equity
                       
Preferred stock — authorized 6,617,808 shares; none outstanding
                 
Common stock — No par value and authorized 500,000,000 shares; issued 257,866,255 shares; outstanding 235,474,366 and 237,361,333 shares, respectively.
          2,560,569       2,552,094  
Par value of $0.01 and authorized 1,000,000,000 shares at June 30, 2007; issued 257,866,255 shares; outstanding 236,244,063 shares
    2,579              
Capital surplus
    2,565,185              
Treasury shares at cost, 21,622,192; 22,391,889 and 20,504,922, respectively
    (489,633 )     (506,946 )     (457,758 )
Accumulated other comprehensive loss:
                       
Unrealized (losses) gains on investment securities
    (17,243 )     14,254       (69,723 )
Unrealized gains on cash flow hedging derivatives
    18,158       17,008       28,915  
Pension and other postretirement benefit adjustments
    (81,705 )     (86,328 )     (3,283 )
Retained earnings
    1,066,800       1,015,769       888,911  
     
Total Shareholders’ Equity
    3,064,141       3,014,326       2,939,156  
     
Total Liabilities and Shareholders’ Equity
  $ 36,420,686     $ 35,329,019     $ 36,265,777  
     
      See notes to unaudited condensed consolidated financial statements

3


Huntington Bancshares Incorporated
Condensed Consolidated Statements of Income
(Unaudited)
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
(in thousands, except per share amounts)   2007   2006   2007   2006
 
Interest and fee income
                               
Loans and leases
                               
Taxable
  $ 466,904     $ 445,924     $ 928,045     $ 845,270  
Tax-exempt
    114       520       585       1,029  
Investment securities
                               
Taxable
    49,684       60,852       104,799       112,960  
Tax-exempt
    6,528       5,894       12,621       11,606  
Other
    19,231       8,713       31,360       15,825  
 
Total interest income
    542,461       521,903       1,077,410       986,690  
 
Interest expenses
                               
Deposits
    198,108       173,032       394,831       321,346  
Short-term borrowings
    23,271       20,969       43,108       35,634  
Federal Home Loan Bank advances
    16,009       17,077       28,519       31,565  
Subordinated notes and other long-term debt
    51,682       48,630       102,006       92,270  
 
Total interest expense
    289,070       259,708       568,464       480,815  
 
Net interest income
    253,391       262,195       508,946       505,875  
Provision for credit losses
    60,133       15,745       89,539       35,285  
 
Net interest income after provision for credit losses
    193,258       246,450       419,407       470,590  
 
Service charges on deposit accounts
    50,017       47,225       94,810       88,447  
Trust services
    26,764       22,676       52,658       43,954  
Brokerage and insurance income
    17,199       14,345       33,281       29,538  
Other service charges and fees
    14,923       13,072       28,131       24,581  
Bank owned life insurance income
    10,904       10,604       21,755       20,846  
Mortgage banking income
    7,122       13,616       16,473       26,810  
Securities losses
    (5,139 )     (35 )     (5,035 )     (55 )
Other income
    34,403       41,516       59,297       88,432  
 
Total non-interest income
    156,193       163,019       301,370       322,553  
 
Personnel costs
    135,191       137,904       269,830       269,461  
Outside data processing and other services
    25,701       19,569       47,515       39,420  
Net occupancy
    19,417       17,927       39,325       35,893  
Equipment
    17,157       18,009       35,376       34,512  
Marketing
    8,986       10,374       16,682       17,675  
Professional services
    8,101       6,292       14,583       11,657  
Telecommunications
    4,577       4,990       8,703       9,815  
Printing and supplies
    3,672       3,764       6,914       6,838  
Amortization of intangibles
    2,519       2,992       5,039       4,067  
Other expense
    19,334       30,538       42,760       61,436  
 
Total non-interest expense
    244,655       252,359       486,727       490,774  
 
Income before income taxes
    104,796       157,110       234,050       302,369  
Provision for income taxes
    24,275       45,506       57,803       86,309  
 
Net income
  $ 80,521     $ 111,604     $ 176,247     $ 216,060  
 
 
Average common shares — basic
    236,032       241,729       235,809       236,349  
Average common shares — diluted
    239,008       244,538       238,881       239,451  
 
Per common share
                               
Net income — basic
  $ 0.34     $ 0.46     $ 0.75     $ 0.91  
Net income — diluted
    0.34       0.46       0.74       0.90  
Cash dividends declared
    0.265       0.250       0.530       0.500  
      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   Capital     Treasury Stock   Comprehensive     Retained      
(in thousands)   Shares     Amount     Shares     Amount     Surplus     Shares     Amount     Loss     Earnings     Total
 
Six Months Ended June 30, 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
                                                                    216,060       216,060  
Unrealized net losses on investment securities arising during the period, net of reclassification (1) for net realized losses, net of tax of ($19,461).
                                                            (35,707 )             (35,707 )
Unrealized gains on cash flow hedging derivatives, net of tax of $7,382.
                                                            13,709               13,709  
 
                                                                               
Total comprehensive income
                                                                            194,062  
 
                                                                               
Cumulative effect of change in accounting principle for servicing financial assets, net of tax of $6,521
                                                                    12,110       12,110  
Cash dividends declared ($0.50 per share)
                                                                    (121,103 )     (121,103 )
Shares issued pursuant to acquisition
                            53,366               25,350       522,390                       575,756  
Recognition of the fair value of share-based compensation
                            8,547                                               8,547  
Treasury shares purchased
                                            (12,931 )     (303,943 )                     (303,943 )
Stock options exercised
                            (1,196 )             880       18,445                       17,249  
Other
                            51               (44 )     (1,074 )                     (1,023 )
 
 
Balance, end of period
                257,866       2,552,094             (20,505 )     (457,758 )     (44,091 )     888,911       2,939,156  
 
 
                                                                               
Six Months Ended June 30, 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
                                                                    176,247       176,247  
Unrealized net losses on investment securities arising during the period, net of reclassification (1) for net realized gains, net of tax of ($30,423)
                                                            (31,497 )             (31,497 )
Unrealized gains on cash flow hedging derivatives, net of tax of $619
                                                            1,150               1,150  
Amortization included in net periodic benefit costs:
                                                                               
Net actuarial loss, net of tax of ($2,188)
                                                            4,063               4,063  
Prior service costs, net of tax of ($108)
                                                            200               200  
Transition obligation, net of tax of ($194)
                                                            360               360  
 
                                                                               
Total comprehensive income
                                                                            150,523  
 
                                                                               
Assignment of $0.01 par value per share for each share of Common Stock
                            (2,557,990 )     2,557,990                                        
Cash dividends declared ($0.53 per share)
                                                                    (125,216 )     (125,216 )
Recognition of the fair value of share-based compensation
                                    7,816                                       7,816  
Stock options exercised
                                    (2,851 )     881       19,911                       17,060  
Other
                                    2,230       (111 )     (2,598 )                     (368 )
 
 
Balance, end of period
        $       257,866     $ 2,579     $ 2,565,185       (21,622 )   $ (489,633 )   $ (80,790 )   $ 1,066,800     $ 3,064,141  
 
(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 six months ended June 30, 2007 and 2006, the reclassification adjustments were $5,035, net of tax of ($1,762), and $55, net of tax of ($19), respectively.
See notes to unaudited condensed consolidated financial statements.

5


Huntington Bancshares Incorporated
Condensed Consolidated Statements of Cash Flows
(Unaudited)
                 
    Six Months Ended
    June 30,
(in thousands)   2007   2006
 
Operating activities
               
Net income
  $ 176,247     $ 216,060  
Adjustments to reconcile net income to net cash provided by operating activites:
               
Provision for credit losses
    89,539       35,285  
Depreciation and amortization
    41,280       61,345  
Increase in accrued income taxes
    51,460       9,085  
Deferred income tax benefit
    (111,297 )     (123,830 )
Net increase in trading account securities
    (583,780 )     (27,290 )
Pension contribution
          (29,800 )
Originations of loans held for sale
    (1,280,343 )     (1,318,453 )
Principal payments on and proceeds from loans held for sale
    1,185,067       1,313,926  
Other, net
    (51,260 )     (233,826 )
 
Net cash provided by operating activities
    (483,087 )     (97,498 )
 
 
               
Investing activities
               
Increase in interest bearing deposits in banks
    (123,345 )     (12,089 )
Net cash received in acquisitions
          66,507  
Proceeds from:
               
Maturities and calls of investment securities
    242,945       241,871  
Sales of investment securities
    550,070       376,263  
Purchases of investment securities
    (340,837 )     (1,024,048 )
Proceeds from sales of loans
    108,588        
Net loan and lease originations, excluding sales
    (817,197 )     (246,265 )
Proceeds from sale of operating lease assets
    23,031       82,139  
Purchases of premises and equipment
    (53,029 )     (12,645 )
Other, net
    6,989       (67 )
 
Net cash used for investing activities
    (402,785 )     (528,334 )
 
 
               
Financing activities
               
(Decrease) increase in deposits
    (442,428 )     495,827  
Increase in short-term borrowings
    1,184,750       157,532  
Proceeds from issuance of subordinated notes
    250,010       250,000  
Proceeds from Federal Home Loan Bank advances
    850,600       2,162,050  
Maturity/redemption of Federal Home Loan Bank advances
    (450,023 )     (2,148,969 )
Proceeds from issuance of long-term debt
          935,000  
Maturity of long-term debt
    (240,099 )     (635,549 )
Dividends paid on common stock
    (124,003 )     (103,096 )
Repurchases of common stock
          (303,943 )
Other, net
    12,275       17,917  
 
Net cash provided by financing activities
    1,041,082       826,769  
 
Increase in cash and cash equivalents
    155,210       200,937  
Cash and cash equivalents at beginning of period
    1,520,747       1,040,776  
 
Cash and cash equivalents at end of period
  $ 1,675,957     $ 1,241,713  
 
 
               
Supplemental disclosures:
               
Income taxes paid
  $ 169,822     $ 194,505  
Interest paid
    580,982       463,979  
Non-cash activities
               
Common stock dividends accrued, paid in subsequent quarter
    48,484       46,884  
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.
     On July 1, 2007, Huntington acquired Sky Financial Group, Inc. Accordingly, the balances presented do not include the impact of the acquisition. See Note 3 for information regarding the acquisition.
     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.

7


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. Management is currently assessing the impact this Statement will have on its consolidated financial statements.
Note 3 – Acquisition of Sky Financial Group, Inc.
     On July 1, 2007, Huntington completed its merger with Sky Financial Group, Inc. (Sky Financial) in a stock and cash transaction valued at $3.5 billion. Sky Financial operated over 330 banking offices and over 400 ATMs and served communities in Ohio, Pennsylvania, Indiana, Michigan, and West Virginia.
     Under the terms of the merger agreement, Sky Financial shareholders received 1.098 shares of Huntington common stock, on a tax-free basis, and a cash payment of $3.023 for each share of Sky Financial common stock. The assets and liabilities of the acquired entity were recorded on the Company’s balance sheet at their fair values as of the acquisition date.
     The following table shows the excess purchase price over carrying value of net assets acquired, preliminary purchase price allocation, and resulting goodwill:
         
(in thousands)   July 1, 2007
 
Purchase price
  $ 3,519,213  
Carrying value of net assets acquired
    (1,111,393 )
 
Excess of purchase price over carrying value of net assets acquired
    2,407,820  
 
       
Purchase accounting adjustments:
       
Loans and leases
    120,245  
Accrued income and other assets
    (33,789 )
Deposits
    (13,057 )
Other borrowings
    4,267  
Deferred federal income tax liability
    89,987  
Accrued expenses and other liabilities
    73,819  
 
Goodwill and other intangible assets
    2,649,292  
Less other intangible assets:
       
Core deposit intangible
    (357,000 )
Other identifiable intangible assets
    (115,000 )
 
Other intangible assets
    (472,000 )
 
Goodwill
  $ 2,177,292  
 
     Of the $2.6 billion of acquired intangible assets, $0.4 billion was assigned to core deposit intangible, and $0.1 billion was assigned to customer relationship intangibles. The core deposit and other identifiable intangible assets have useful lives ranging from 10 to 15 years.
     The cost to acquire Sky Financial has been allocated to the identifiable tangible and intangible assets acquired and liabilities assumed based on preliminary estimated fair values. The allocation of the purchase price is subject to changes in the estimated fair values of assets acquired and liabilities assumed as additional information becomes available and plans are finalized. As such, it is not currently possible to report goodwill by segment.

8


     The following table summarizes the estimated fair value of the net assets acquired on July 1, 2007 related to the acquisition of Sky Financial:
                 
(in thousands)   July 1, 2007        
 
Assets
               
Loans held for sale
  $ 81,188          
Securities and other earning assets
    852,209          
Loans and leases
    13,049,217          
Goodwill and other intangible assets
    2,649,292          
Accrued income and other assets
    822,247          
 
Total assets
    17,454,153          
 
               
Liabilities
               
Deposits
    12,850,629          
Borrowings
    866,175          
Accrued expenses and other liabilities
    218,136          
 
Total liabilities
    13,934,940          
 
Purchase price
  $ 3,519,213          
 
Note 4 – Goodwill and Other Intangible Assets
     Goodwill by line of business as of June 30, 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             (1,347 )           (1,138 )
 
Balance, June 30, 2007
  $ 536,064     $     $ 33,674     $     $ 569,738  
 
     The change in goodwill for the six month period ended June 30, 2007, primarily related 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.

9


     At June 30, 2007, December 31, 2006 and June 30, 2006, Huntington’s other intangible assets consisted of the following:
                         
    Gross   Accumulated   Net
(in thousands)   Carrying Amount   Amortization   Carrying Value
June 30, 2007
                       
Leasehold purchased
  $ 23,655     $ (20,038 )   $ 3,617  
Core deposit intangible
    45,000       (11,230 )     33,770  
Borrower relationship
    6,570       (730 )     5,840  
Trust customers
    11,430       (1,317 )     10,113  
Other
    1,437       (131 )     1,306  
     
Total other intangible assets
  $ 88,092     $ (33,446 )   $ 54,646  
 
 
                       
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  
 
 
                       
June 30, 2006
                       
Leasehold purchased
  $ 23,655     $ (19,224 )   $ 4,431  
Core deposit intangible
    45,000       (3,010 )     41,990  
Borrower relationship
    6,570       (182 )     6,388  
Trust customers
    11,430       (327 )     11,103  
Other
    382       (153 )     229  
     
Total other intangible assets
  $ 87,037     $ (22,896 )   $ 64,141  
 
     Amortization expense of other intangible assets for the three month periods ended June 30, 2007 and 2006, was $2.5 million and $3.0 million, respectively. Amortization expense of other intangible assets for the six month periods ended June 30, 2007 and 2006 was $5.0 million and $4.0 million, respectively
     Excluding the estimated amount that will be acquired with the acquisition of Sky Financial, 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
  $ 5,038  
2008
    8,888  
2009
    7,957  
2010
    7,132  
2011
    6,333  
2012
    4,982  

10


Note 5 – Loan Sales and Securitizations
Automobile loans
     Huntington sold $117.9 million and $218.4 million of automobile loans in the second quarter of 2007 and 2006, respectively, resulting in pre-tax gains of $0.9 million and $0.5 million, respectively. For the six month periods ended June 30, 2007 and 2006, sales of automobile loans totaled $259.2 million and $388.2 million, respectively, resulting in pre-tax gains of $2.1 million and $1.0 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 the payoff rate 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 become impaired.
     Changes in the carrying value of automobile loan servicing rights for the three and six month periods ended June 30, 2007 and 2006, and the fair value at the end of each period were as follows:
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
(in thousands)   2007   2006   2007   2006
     
Carrying value, beginning of period
  $ 7,186     $ 9,610     $ 7,916     $ 10,805  
New servicing assets
    874       1,364       1,900       2,362  
Amortization
    (1,781 )     (1,989 )     (3,537 )     (4,182 )
     
Carrying value, end of period
  $ 6,279     $ 8,985     $ 6,279     $ 8,985  
     
 
                               
Fair value, end of period
  $ 7,205     $ 10,486     $ 7,205     $ 10,486  
     
     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 $3.3 million and $3.4 million for the three month periods ended June 30, 2007 and 2006, respectively. For the six month periods ended June 30, 2007 and 2006, servicing income was $6.4 million and $6.8 million, respectively.
Residential Mortgage Loans
     During the first quarter of 2007, Huntington sold $109.5 million of residential mortgage loans held for investment, resulting in a net pre-tax gain of $0.5 million. There were no sales of residential mortgage loans held for investment in the second quarter of 2007 or the first six months of 2006.

11


     The following table is a summary of the changes in mortgage servicing right (MSR) fair value during the three and six month periods ended June 30, 2007 and 2006:
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
(in thousands)   2007   2006   2007   2006
     
Fair value, beginning of period
  $ 134,845       123,257       131,104       109,890  
New servicing assets created
    8,990       7,434       17,426       13,211  
Servicing assets acquired
          565             2,474  
Change in fair value during the period due to:
                               
Time decay (1)
    (1,123 )     (1,062 )     (2,199 )     (1,985 )
Payoffs (2)
    (3,326 )     (2,231 )     (5,888 )     (4,840 )
Changes in valuation inputs or assumptions (3)
    16,034       8,281       14,977       17,494  
     
Fair value, end of period
  $ 155,420     $ 136,244     $ 155,420     $ 136,244  
     
(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 June 30, 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
    10.95 %   $ (6,383 )   $ (12,292 )
Discount rate
    9.39       (6,074 )     (11,700 )
     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 and six month periods ended June 30, 2007 and 2006.
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
(in thousands)   2007     2006     2007     2006  
     
Servicing fees
  $ 6,976     $ 5,995     $ 13,796     $ 11,920  
Late fees
    640       551       1,348       1,161  
Ancillary fees
    273       89       528       341  
     
Total fee income
  $ 7,889     $ 6,635     $ 15,672     $ 13,422  
     

12


Note 6 — Investment Securities
     Listed below are the contractual maturities (under 1 year, 1-5 years, 6-10 years and over 10 years) of investment securities at June 30, 2007, December 31, 2006, and June 30, 2006:
                                                 
    June 30, 2007   December 31, 2006   June 30, 2006
    Amortized           Amortized           Amortized    
(in thousands)   Cost   Fair Value   Cost   Fair Value   Cost   Fair Value
 
U.S. Treasury
                                               
Under 1 year
  $ 200     $ 201     $ 800     $ 800     $ 699     $ 704  
1-5 years
    548       546       1,046       1,056       21,924       21,083  
6-10 years
                            504       522  
Over 10 years
                                   
 
Total U.S. Treasury
    748       747       1,846       1,856       23,127       22,309  
 
Federal agencies
                                               
Mortgage backed securities
                                               
Under 1 year
    2,896       2,888       1,848       1,847       350       347  
1-5 years
    11,110       11,105       9,560       9,608       32,033       30,619  
6-10 years
    3,501       3,476       4,353       4,355       549       519  
Over 10 years
    1,181,589       1,176,050       1,261,423       1,265,651       1,252,384       1,194,850  
 
Total mortgage-backed Federal agencies
    1,199,096       1,193,519       1,277,184       1,281,461       1,285,316       1,226,335  
 
Other agencies
                                               
Under 1 year
    99,751       99,531                   45,000       44,284  
1-5 years
    49,668       49,357       149,819       149,853       249,604       237,742  
6-10 years
                98       96       50,000       45,922  
Over 10 years
                                   
 
Total other Federal agencies
    149,419       148,888       149,917       149,949       344,604       327,948  
 
Total Federal agencies
    1,348,515       1,342,407       1,427,101       1,431,410       1,629,920       1,554,283  
 
Municipal securities
                                               
Under 1 year
    45       45       42       42       42       42  
1-5 years
    9,650       9,541       10,553       10,588       103       103  
6-10 years
    168,481       165,195       165,624       165,229       154,360       150,215  
Over 10 years
    503,199       496,378       410,248       415,564       430,118       421,243  
 
Total municipal securities
    681,375       671,159       586,467       591,423       584,623       571,603  
 
Private label CMO
                                               
Under 1 year
                                   
1-5 years
                                   
6-10 years
                                   
Over 10 years
    727,026       723,515       586,088       590,062       749,019       731,031  
 
Total private label CMO
    727,026       723,515       586,088       590,062       749,019       731,031  
 
Asset backed securities
                                               
Under 1 year
                                   
1-5 years
    30,000       30,000       30,000       30,056       30,000       30,000  
6-10 years
                                   
Over 10 years
    933,778       926,599       1,544,572       1,552,748       1,949,008       1,948,538  
 
Total asset backed securities
    963,778       956,599       1,574,572       1,582,804       1,979,008       1,978,538  
 
Other Under 1 year
    5,600       5,594       4,800       4,784       1,900       1,900  
1-5 years
    2,747       2,736       2,750       2,706       8,795       8,780  
6-10 years
    844       833                   1,050       985  
Over 10 years
    44       86       44       86       44       43  
Non-marketable equity securities
    152,071       152,071       150,754       150,754       146,957       146,957  
Marketable equity securities
    7,053       7,435       6,481       7,039       108,025       108,253  
 
Total other
    168,359       168,755       164,829       165,369       266,771       266,918  
 
Total investment securities
  $ 3,889,801     $ 3,863,182     $ 4,340,903     $ 4,362,924     $ 5,232,468     $ 5,124,682  
 
Duration in years (1)
            3.8               3.2               3.0  
 
(1)   The average duration assumes a market driven pre-payment rate on securities subject to pre-payment.

13


     At June 30, 2007, non-marketable equity securities includes $123.0 million of stock of the Federal Home Loan Bank of Cincinnati and $29.1 million of stock of the Federal Reserve Bank.
     Gross losses on securities totaled $5.1 million for the three months ended June 30, 2007. For the six months ended June 30, 2007, gross gains on securities totaled $5.0 million and gross losses totaled $10.0 million. Gross losses for the six months ended June 30, 2007 included $8.4 million of impairment losses on certain securities backed by mortgage loans to borrowers with low FICO scores. Including impairment recognized since the fourth quarter of 2006, at June 30, 2007, these securities had a carrying value of $9.3 million. Gross gains and losses from the sales of securities were not material for the three or six month periods ended June 30, 2006.
     As of June 30, 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 and other market related conditions. 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 June 30, 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 and six month periods ended June 30, 2007 and 2006, was as follows:
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
(in thousands, except per share amounts)   2007   2006   2007   2006
     
Net income
  $ 80,521     $ 111,604     $ 176,247     $ 216,060  
Average common shares outstanding
    236,032       241,729       235,809       236,349  
Dilutive potential common shares
    2,976       2,809       3,072       3,102  
     
Diluted average common shares outstanding
    239,008       244,538       238,881       239,451  
     
 
                               
Earnings per share
                               
Basic
  $ 0.34     $ 0.46     $ 0.75     $ 0.91  
Diluted
    0.34       0.46       0.74       0.90  
     Options to purchase 9.4 million shares during the three month and six month periods ended June 30, 2007 and 5.6 million shares during the three month and six month periods ended June 30, 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 $24.60 and $24.61 per share and $25.68 and $25.67 per share for the three and six month periods ended June 30, 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.

14


     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 28.8 million shares of common stock authorized for issuance under the plans at June 30, 2007, 19.8 million were outstanding and 9.0 million were available for future grants.
     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. Compensation costs are 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.
                 
    Six Months Ended
    June 30,
    2007   2006
     
Assumptions
               
Risk-free interest rate
    4.57 %     4.58 %
Expected dividend yield
    4.45       4.20  
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     $ 4.23  
     Huntington’s stock option activity and related information for the six month period ended June 30, 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
    (947 )     18.33                  
Forfeited/expired
    (342 )     23.40                  
 
Outstanding at June 30, 2007
    19,302     $ 21.47       4.4     $ 42,049  
 
Exercisable at June 30, 2007
    13,648     $ 20.86       4.1     $ 38,331  
 
     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 six month periods ended June 30, 2007 and 2006, was $4.1 million and $5.9 million, respectively.
     Total share-based compensation expense was $3.9 million and $4.3 million for the three month periods ended June 30, 2007 and 2006, respectively. For the six month periods ended June 30, 2007 and 2006, share-based compensation expense was $7.8 million and $8.5 million, respectively. Huntington also recognized $1.4 million and $1.5 million in tax benefits for the three months ended June 30, 2007 and 2006, respectively, related to share-based compensation. The tax benefits recognized related to share-based compensation for the six month periods ended June 30, 2007 and 2006 were $2.7 million and $3.0 million, respectively.
     Cash received from the exercise of options for the three month periods ended June 30, 2007 and 2006 was $10.7 million and $5.8 million, respectively. For the six month periods ended June 30, 2007 and 2006, cash received from option exercises were $14.6 million and $15.2 million, respectively. The tax benefit realized for the tax deductions from option exercises totaled $0.9 million for both the three month periods ended June 30, 2007 and 2006. For both of the six month periods ended June 30, 2007 and 2006, the tax benefit realized for the tax deductions from option exercises totaled $1.8 million.

15


     Huntington issues shares to fulfill stock option exercises and restricted stock units from available shares held in treasury. At June 30, 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 and for the six months ended June 30, 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
    5       23.62  
Vested
    (6 )     23.34  
Forfeited
    (13 )     23.34  
 
Nonvested at June 30, 2007
    454     $ 23.38  
 
     As of June 30, 2007, the total compensation cost related to restricted stock units not yet recognized was $7.0 million with a weighted-average expense recognition period of 2.1 years. The total fair value of restricted stock units vested during the six months ended June 30, 2007, was $0.1 million.
     As a result of the acquisition of Sky Financial, the outstanding stock options to purchase Sky Financial’s common stock were converted into 7.4 million options to purchase shares of Huntington common stock with a weighted average exercise price of $18.40.
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 June 30, 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.

16


     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
    June 30,   June 30,
(in thousands)   2007   2006   2007   2006
     
Service cost
  $ 4,445     $ 4,414     $ 375     $ 383  
Interest cost
    5,966       5,539       667       565  
Expected return on plan assets
    (9,120 )     (8,319 )            
Amortization of transition asset
    2             276       276  
Amortization of prior service cost
                47       95  
Settlements
    1,000       1,000              
Recognized net actuarial loss (gain)
    3,116       4,377       (122 )     (181 )
     
Benefit expense
  $ 5,409     $ 7,011     $ 1,243     $ 1,138  
     
                                 
    Pension Benefits   Post Retirement Benefits
    Six Months Ended   Six Months Ended
    June 30,   June 30,
(in thousands)   2007   2006   2007   2006
     
Service cost
  $ 8,890     $ 8,723     $ 749     $ 720  
Interest cost
    11,933       11,078       1,334       1,130  
Expected return on plan assets
    (18,240 )     (16,539 )            
Amortization of transition asset
    3             552       552  
Amortization of prior service cost
    1       1       189       190  
Settlements
    2,000       2,000              
Recognized net actuarial loss (gain)
    6,231       8,754       (203 )     (362 )
     
Benefit expense
  $ 10,818     $ 14,017     $ 2,621     $ 2,230  
     
     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 $0.6 million for each of the three month periods ended June 30, 2007 and 2006, respectively. For the respective six-month periods, the cost was $1.4 million and $1.3 million.
     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 $2.7 million and $2.6 million for the three month periods ended June 30, 2007 and 2006, respectively. For the respective six month periods, the cost was $5.4 million and $5.1 million.
     As a result of the acquisition of Sky Financial, Huntington will remeasure its pension and post retirement plan assets and liabilities as of July 1, 2007.

17


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 June 30, 2007, December 31, 2006, and June 30, 2006, were as follows:
                         
    June 30,   December 31,   June 30,
(in millions)   2007   2006   2006
 
Contract amount represents credit risk
                       
Commitments to extend credit
                       
Commercial
  $ 4,602     $ 4,416     $ 4,021  
Consumer
    3,491       3,374       3,595  
Commercial real estate
    1,559       1,645       1,764  
Standby letters of credit
    1,230       1,156       1,121  
Commercial letters of credit
    48       54       54  
     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 $3.8 million, $4.3 million, and $3.6 million at June 30, 2007, December 31, 2006, and June 30, 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 June 30, 2007, December 31, 2006, and June 30, 2006, Huntington had commitments to sell residential real estate loans of $484.5 million, $319.9 million, and $341.5 million, respectively. These contracts mature in less than one year.
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 June 30, 2007, identified by the underlying interest rate-sensitive instruments:
                         
    Fair Value   Cash Flow    
(in thousands )   Hedges   Hedges   Total
 
Instruments associated with:
                       
Deposits
  $ 615,000     $ 315,000       930,000  
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 June 30, 2007
  $ 1,415,000     $ 840,000     $ 2,255,000  
 
     The following table presents additional information about the interest rate swaps used in Huntington’s Asset and Liability Management activities at June 30, 2007:
                                         
            Average           Weighted-Average
    Notional   Maturity   Fair   Rate
(in thousands )   Value   (years)   Value   Receive   Pay
 
Liability conversion swaps Receive fixed — generic
  $ 810,000       9.1     $ (34,481 )     5.29 %     5.57 %
Receive fixed — callable
    605,000       6.1       (18,942 )     4.67       5.26  
Pay fixed — generic
    840,000       2.0       6,485       5.34       4.98  
 
Total liability conversion swaps
  $ 2,255,000       5.7     $ (46,938 )     5.14 %     5.27 %
 
     Interest rate caps used in Huntington’s Asset and Liability Management activities at June 30, 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       1.6     $ 1,900       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 a decrease to net interest income of $0.5 million and $0.8 million for the three month periods ended June 30, 2007 and 2006, respectively. For the six month periods ended June 30, 2007 and 2006, the impact to net interest income was a decrease of $0.2 million and $0.2 million, 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 June 30, 2007, December 31, 2006 and June 30, 2006, aggregate credit risk associated with these derivatives, net of collateral that has been pledged by the counterparty, was $17.2 million, $42.6 million and $31.1 million, respectively. The credit risk associated with interest rate swaps is calculated after considering master netting agreements.
     During 2006, Huntington terminated certain interest rate swaps used to hedge the future expected cash flows of certain FHLB advances and deferred these gains in accumulated other comprehensive income. The deferred swap gains were being amortized into interest expense over the remaining terms of the outstanding advances. During the second quarter of 2007, Huntington prepaid the FHLB advances, and recognized a gain of $4.1 million, which represented the remaining unamortized portion of the terminated swap gains.

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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:
                         
    June 30,   December 31,   June 30,
(in thousands)   2007   2006   2006
 
Derivative assets:
                       
Interest rate lock agreements
  $ 354     $ 236     $ 232  
Forward trades and options
    6,441       1,176       3,029  
 
Total derivative assets
    6,795       1,412       3,261  
 
Derivative liabilities:
                       
Interest rate lock agreements
    (818 )     (838 )     (1,222 )
Forward trades and options
    (417 )     (699 )     (35 )
 
Total derivative liabilities
    (1,235 )     (1,537 )     (1,257 )
 
Net derivative (liability) asset
  $ 5,560     $ (125 )   $ 2,004  
 
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 $2.2 million for the three month periods ended June 30, 2007 and 2006, respectively. For the six month periods ended June 30, 2007 and 2006, total trading revenue for customer accommodation was $6.8 million and $5.2 million, respectively. The total notional value of derivative financial instruments used by Huntington on behalf of customers, including offsetting derivatives was $5.2 billion, $4.6 billion, and $4.6 billion at June 30, 2007, December 31, 2006, and June 30, 2006, respectively. Huntington’s credit risk from interest rate swaps used for trading purposes was $53.3 million, $40.0 million, and $64.4 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 June 30, 2007, was $475.0 million. The total notional amount corresponds to trading assets with a fair value of $0.3 million. Total losses for the three month periods ended June 30, 2007 and 2006 were $12.3 million and $5.8 million, respectively. Total losses for the six month periods ended June 30, 2007 and 2006 were $12.8 million and $9.3 million, respectively.
     In connection with securitization activities, Huntington purchased interest rate caps with a notional value totaling $1.5 billion. These purchased caps were assigned to the securitization trust for the benefit of the security holders. Interest rate caps were also sold totaling $1.5 billion outside the securitization structure. Both the purchased and sold caps are marked to market through income.

20


Note 13 – Shareholders’ Equity
Change in par value and shares authorized:
     During the second quarter, Huntington amended its charter to, among other things, assign a par value of $0.01 to each share of common stock. Shares of common stock previously had no assigned par value. Huntington also amended its charter to increase the number of authorized shares of common stock from 500 million shares to 1.0 billion shares.
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 of common stock (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 month period ended June 30, 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. As of June 30 2007, and excluding the impact of the Sky Financial acquisition, it operated in eight regions within the five states of Ohio, Michigan, West Virginia, Indiana, and Kentucky. It provided these services through a banking network of 375 branches, over 1,000 ATMs, along with Internet and telephone banking channels. It also provided 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 56% 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, Nevada, New Jersey, North Carolina, New York, 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, land, buildings, and other real estate owned by the dealerships, 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.

21


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.
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.

22


     Listed below are certain financial results by line of business. For the three and six month periods ended June 30, 2007 and 2006, operating earnings were the same as reported earnings.
                                         
    Three Months Ended June 30,
Income Statements   Regional   Dealer           Treasury/   Huntington
(in thousands )   Banking   Sales   PFCMG   Other   Consolidated
 
2007
                                       
Net interest income
  $ 213,589     $ 32,333     $ 18,199     $ (10,730 )   $ 253,391  
Provision for credit losses
    (54,873 )     (303 )     (4,957 )           (60,133 )
Non-interest income
    96,657       10,984       45,964       2,588       156,193  
Non-interest expense
    (166,469 )     (18,618 )     (41,063 )     (18,505 )     (244,655 )
Income taxes
    (31,116 )     (8,539 )     (6,350 )     21,730       (24,275 )
 
Operating / reported net income
  $ 57,788     $ 15,857     $ 11,793     $ (4,917 )   $ 80,521  
 
2006
                                       
Net interest income
  $ 227,473     $ 34,784     $ 18,037     $ (18,099 )   $ 262,195  
Provision for credit losses
    (14,844 )     949       (1,850 )           (15,745 )
Non-interest income
    92,759       21,516       39,139       9,605       163,019  
Non-interest expense
    (177,245 )     (28,103 )     (38,116 )     (8,895 )     (252,359 )
Income taxes
    (44,850 )     (10,201 )     (6,024 )     15,569       (45,506 )
 
Operating / reported net income
  $ 83,293     $ 18,945     $ 11,186     $ (1,820 )   $ 111,604  
 
                                         
    Six Months Ended June 30,
Income Statements   Regional   Dealer           Treasury/   Huntington
(in thousands of dollars)   Banking   Sales   PFCMG   Other   Consolidated
 
2007
                                       
Net interest income
  $ 428,589     $ 63,974     $ 37,376     $ (20,993 )   $ 508,946  
Provision for credit losses
    (77,329 )     (8,048 )     (4,162 )           (89,539 )
Non-Interest income
    186,200       24,165       79,615       11,390       301,370  
Non-Interest expense
    (329,370 )     (38,205 )     (81,295 )     (37,857 )     (486,727 )
Income taxes
    (72,831 )     (14,661 )     (11,037 )     40,726       (57,803 )
 
Operating / reported net income
  $ 135,259     $ 27,225     $ 20,497     $ (6,734 )   $ 176,247  
 
2006
                                       
Net interest income
  $ 435,553     $ 69,615     $ 35,606     $ (34,899 )   $ 505,875  
Provision for credit losses
    (25,234 )     (6,813 )     (3,238 )           (35,285 )
Non-Interest income
    170,551       48,508       80,033       23,461       322,553  
Non-Interest expense
    (319,393 )     (59,883 )     (68,827 )     (42,671 )     (490,774 )
Income taxes
    (91,517 )     (17,999 )     (15,251 )     38,458       (86,309 )
 
Operating / reported net income
  $ 169,960     $ 33,428     $ 28,323     $ (15,651 )   $ 216,060  
 
                                                 
    Assets at   Deposits at
    June 30,   December 31,   June 30,   June 30,   December 31,   June 30,
(in millions)   2007   2006   2006   2007   2006   2006
         
Regional Banking
  $ 21,681     $ 20,933     $ 21,035     $ 20,482     $ 20,231     $ 19,839  
Dealer Sales
    5,146       5,003       5,417       58       59       61  
PFCMG
    2,296       2,153       2,179       1,104       1,162       1,218  
Treasury / Other
    7,298       7,240       7,635       2,956       3,596       3,475  
         
Total
  $ 36,421     $ 35,329     $ 36,266     $ 24,600     $ 25,048     $ 24,593  
         

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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 bank subsidiaries, The Huntington National Bank and Sky Bank, we provide full-service commercial and consumer banking services, mortgage banking services, automobile financing, equipment leasing, investment management, trust services, brokerage services, reinsurance of private mortgage insurance; reinsurance of credit life and disability insurance; and other insurance and financial products and services. Our banking offices are located in Ohio, Michigan, Pennsylvania, West Virginia, Indiana, and Kentucky. Sky Insurance offers retail and commercial insurance agency services, through offices in Ohio, Pennsylvania, Michigan, Indiana, and West Virginia. Certain activities are also conducted in Arizona, Florida, Georgia, Maryland, Nevada, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, Tennessee, and Vermont. International banking services are made available through our headquarters office in Columbus, a limited purpose office located in the Cayman Islands, and another located in Hong Kong. The Huntington National Bank (the Bank) was organized in 1866.
     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 this discussion and analysis.
     You should note the following discussion is divided into key segments:
    Introduction - Provides overview comments on important matters including risk factors and other items. 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 completed 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 completed 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 any acquisition may not be fully realized within the expected timeframes; disruption from any 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

24


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 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 (SEC).
     You should understand forward-looking statements to be strategic objectives and not absolute forecasts of future performance. Forward-looking statements speak only as of the date they are made. We assume no obligation to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements were made or to reflect the occurrence of unanticipated events.
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, 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 . Refer to the ‘Risk Management and Capital’ section for additional information regarding risk factors. Additionally, 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, and subsequent filings with the SEC.
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.
Acquisition of Sky Financial
     On July 1, 2007, we acquired Sky Financial Group, Inc. (Sky Financial) in a stock and cash transaction valued at approximately $3.5 billion. As of June 30, 2007, Sky Financial was a $16.7 billion diversified financial holding company with over 330 financial centers and over 400 ATMs. Sky Financial served communities in Ohio, Pennsylvania, Indiana, Michigan, and West Virginia. Sky Financial’s financial service affiliates included: Sky Bank, commercial and retail banking; Sky Trust, asset management services; and Sky Insurance, retail and commercial insurance agency services.
     Sky Financial results will be reflected in consolidated results beginning in the 2007 third quarter and, therefore, had no direct impact on balance sheet comparisons. Refer to the Significant Items Influencing Financial Comparisons section for additional information regarding the impact of the acquisition costs on period to period earnings comparisons.
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

25


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.
Significant Items
     Certain components of the Income Statement are naturally subject to more volatility than others. As a result, analysts/investors may view such items differently in their assessment of performance compared with their expectations and/or any implications resulting from them on their assessment of future performance trends. It is a general practice of analysts/investors to try and determine their perception of what “underlying” or “core” earnings performance is in any given reporting period, as this typically forms the basis for their estimation of performance in future periods.
     Therefore, we believe the disclosure of certain “Significant Items” in current and prior period results aids analysts/investors in better understanding corporate performance so that they can ascertain for themselves what, if any, items they may wish to include/exclude from their analysis of performance; i.e., within the context of determining how that performance differed from their expectations, as well as how, if at all, to adjust their estimates of future performance accordingly.
     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. Such “Significant Items” generally fall within one of two categories: timing differences and other items.
Timing Differences
     Part of our regular business activities are by their nature volatile; 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. By specifically disclosing such items, analysts/investors can better assess how, if at all, to adjust their estimates of future performance.
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 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-offs; and other items deemed significant. By disclosing such items, analysts/investors can better assess how, if at all, to adjust their estimates of future performance.
Provision for Credit Losses
     While the provision for credit losses may vary significantly between periods, we typically exclude it from the list of “Significant Items”, unless in our view, there is a significant specific credit(s) that is causing distortion in the period.
     Provision expense is always an assumption in analyst/investor expectations of earnings, and we believe there is apparent agreement among them that provision expense is included in their definition of “underlying” or “core” earnings, unlike “timing differences” or “other items”. In addition, provision expense 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. Also, the factors influencing the level of provision expense receive detailed additional disclosure and analysis so that analysts/investors have information readily available to understand the underlying factors that result in the reported provision expense amount.
     In addition, provision expense 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, we believe every analyst and most investors incorporate a provision expense estimate in their financial performance estimates.

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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 other factors described from time to time in Huntington’s other filings with the Securities and Exchange Commission, could also significantly impact future periods.
Summary
     Earnings comparisons of 2007 second quarter performance with that of the 2007 first and 2006 second quarters were impacted by a number of factors, some related to changes in the economic and competitive environment, while others reflected specific strategies, changes in accounting practices, the impact of mergers, or other significant items. 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 Second Quarter versus 2006 Second Quarter
     Net income for the second quarter of 2007 was $80.5 million, or $0.34 per common share, compared with $111.6 million, or $0.46 per common share, in the comparable year-ago quarter. This $31.1 million decrease in net income primarily reflected the negative impacts of:
    $44.4 million increase in provision for credit losses, reflecting a higher allowance for credit losses (ACL) on both an absolute basis and as a percentage of total loans and leases. This was due to significant deterioration in commercial credit quality, primarily in the eastern Michigan single-family homebuilder sector. Three credit relationships, two in the single-family home builder sector, and one northern Ohio commercial credit to an auto industry-related manufacturing company, accounted for $24.8 million ($16.1 million after tax, or $0.07 per common share) of the increase in provision for credit losses. These three credits, along with increases in other monitored credits, accounted for a significant portion of the increase in non-performing loans (NPLs) and the ACL. The residential real estate market in eastern Michigan continued to deteriorate during the quarter, reflecting a significant downturn in home sales activity. The spring and early-summer selling season is extremely important for homebuilders, and softness was expected. However, in the case of eastern Michigan, the impact turned out to be far worse than anticipated, particularly for the two noted relationships. (See Provision for Credit Losses and the Credit Risk discussions for details.)
 
    $8.8 million, or 3%, decline in net interest income. This reflected the unfavorable impact of a $0.3 billion, or 1%, decrease in average earning assets and a decrease in the fully taxable equivalent net interest margin of 8 basis points to 3.26%. The decline in average earning assets was due to a decline in average investment securities as part of our overall interest rate risk management strategy. This negative impact was partially offset by an increase in average total loans and leases, which increased $0.2 billion, or 1%, primarily reflecting growth in commercial loans, partially offset by declines in total consumer loans. (See Net Interest Income discussion for details.)
 
    $6.8 million, or 4%, decline in total non-interest income. This reflected the negative impacts of a decline in other income due to the continued decline in automobile operating lease income, investment securities losses due to impairment of certain investment securities, and a negative mortgage servicing rights (MSR) fair value adjustment, net of hedge-related trading activity. Partially offsetting these negative impacts was growth in trust services, brokerage and insurance income, service charges on deposit accounts, and other service charges and fees. (See Non-interest Income discussion for details.)
Partially offset by:
    $21.2 million reduction in federal income tax expense, primarily due to the decrease in pre-tax income. (See Provision for Income Taxes discussion for details.)
 
    $7.7 million, or 3%, decline in total non-interest expense. This reflected a decrease in other expense due to the continued decline in automobile operating lease expense and the recognition of a $4.1 million gain on the repayment of FHLB debt. Personnel and marketing expenses also declined. Partially offsetting these declines were increases in outside data processing and other services expense, as well as professional services expense, due

27


      primarily to Sky Financial merger costs. (See Non-interest Expense discussion for details.)
     The return on average assets (ROA) and return on average equity (ROE) in the 2007 second quarter were 0.92% and 10.6%, respectively, compared with 1.25% and 14.9%, respectively, in the year-ago quarter. The return on average tangible shareholders’ equity (ROTE) in the 2007 second quarter was 13.6%, compared with 19.3% in the year-ago quarter ( see Table 1).
2007 Second Quarter versus 2007 First Quarter
     Net income for the second quarter of 2007 was $80.5 million, or $0.34 per common share, compared with $95.7 million, or $0.40 per common share, in the prior quarter. This $15.2 million decrease in net income primarily reflected the negative impacts of:
    $30.7 million increase in the provision for credit losses. This reflected a higher ACL on both an absolute basis and as a percentage of total loans and leases, due to significant deterioration in commercial credit quality, primarily in the eastern Michigan single-family homebuilder sector. (See Provision for Credit Losses and the Credit Risk discussions for details.)
 
    $2.6 million, or 1%, increase in total non-interest expense. This reflected increases in outside data processing and other services, professional services and marketing expenses, primarily reflecting Sky Financial merger costs. (See Non-interest Expense discussion for details.)
 
    $2.2 million, or 1%, decline in net interest income. This reflected the unfavorable impact of a 10 basis point decline in the net interest margin, due primarily to the negative impact of higher non-accrual loans, including accrued interest reversals. Average total earning assets increased 1%, reflecting growth in average total loans and leases, as well as other earning assets, mostly trading account assets and interest bearing deposits in banks. (See Net Interest Income discussion for details.)
Partially offset by:
    $9.3 million reduction in federal income tax expense, primarily due to the decrease in pre-tax income. (See Provision for Income Taxes discussion for details)
 
    $11.0 million increase in total non-interest income. This reflected the benefit of an increase in other income due to equity investment gains in the current quarter compared with such losses in the prior quarter, and growth in service charges on deposit accounts, other service charges and fees, and brokerage and insurance income. These benefits were partially offset by investment securities impairment losses in the current period, and a decline in mortgage banking income due to a net loss on MSR fair value adjustments, net of hedge-related trading activity. (See Non-interest Income discussion for details.)
     The ROA and ROE in the 2007 second quarter were 0.92% and 10.6%, respectively, compared with 1.11% and 12.9%, respectively, in the 2007 first quarter. The ROTE in the 2007 second quarter was 13.6%, compared with 16.5% in the prior quarter (see Table 1).
2007 First Six Months versus 2006 First Six Months
     Net income for the first six month period of 2007 was $176.2 million, or $0.74 per common share, compared with $216.1 million, or $0.90 per common share, in the comparable year-ago period. This $39.8 million decrease in net income primarily reflected the negative impacts of:
    $54.3 million increase in provision for credit losses, reflecting a higher ACL on both an absolute basis and as a percentage of total loans and leases. This was due to significant deterioration in commercial credit quality, primarily in the eastern Michigan single-family homebuilder sector. Two credit relationships in this sector, along with increases in monitored credits, and a middle market commercial and industrial (C&I) loan in northern Ohio, accounted for a significant portion of the increase in NPLs and the ACL. (See Provision for Credit Losses and the Credit Risk discussions for details.)
 
    $21.2 million, or 7%, decline in total non-interest income. This reflected the negative impacts of a decline in other income due to the continued decline in automobile operating lease income (down $24.7 million), a decline in mortgage banking income reflecting negative MSR fair value adjustments, net of hedge-related trading activity,

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      and investment securities losses due to impairment of certain investment securities. Partially offsetting these negative impacts was growth in trust services, service charges on deposit accounts, brokerage and insurance income, and other service charges and fees. (See Non-interest Income discussion for details.)
Partially offset by:
    $28.5 million reduction in federal income tax expense, primarily due to the decrease in pre-tax income. (See Provision for Income Taxes discussion for details.)
 
    $4.0 million, or 1%, decline in total non-interest expense. This reflected a decrease in other expense due to the continued decline in automobile operating lease expense (down $18.4 million), and a decline in telecommunication expenses, partially offset by increases in outside data process and other services, net occupancy and professional services due primarily to Sky Financial merger costs, as well as Unizan merger-related expenses. (See Non-interest Expense discussion for details.)
 
    $3.1 million, or 1%, increase in net interest income. This reflected the favorable impact of a $0.4 billion, or 1%, increase in average earning assets, partially offset by the negative impact of a 2 basis point decline in the fully taxable equivalent net interest margin to 3.31%. The increase in average earning assets was driven by a $0.7 billion, or 3%, increase in average total loans, consisting of a 9% increase in average total commercial loans, partially offset by a 2% decline in average total consumer loans. (See Net Interest Income discussion for details.)
     The ROA and ROE for the first six month period of 2007 were 1.01% and 11.7%, respectively, compared with 1.26% and 15.2%, respectively, in the comparable year-ago period. The ROTE for the first six months of 2007 was 15.1%, compared with 18.7% in the comparable year-ago period ( see Table 1).

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Table 1 — Selected Quarterly Income Statement Data (1), (6)
                                         
    2007           2006    
(in thousands, except per share amounts)   Second   First   Fourth   Third   Second
     
Interest income
  $ 542,461     $ 534,949     $ 544,841     $ 538,988     $ 521,903  
Interest expense
    289,070       279,394       286,852       283,675       259,708  
     
Net interest income
    253,391       255,555       257,989       255,313       262,195  
Provision for credit losses
    60,133       29,406       15,744       14,162       15,745  
     
Net interest income after provision for credit losses
    193,258       226,149       242,245       241,151       246,450  
     
Service charges on deposit accounts
    50,017       44,793       48,548       48,718       47,225  
Trust services
    26,764       25,894       23,511       22,490       22,676  
Brokerage and insurance income
    17,199       16,082       14,600       14,697       14,345  
Other service charges and fees
    14,923       13,208       13,784       12,989       13,072  
Bank owned life insurance income
    10,904       10,851       10,804       12,125       10,604  
Mortgage banking (loss) income
    7,122       9,351       6,169       8,512       13,616  
Securities (losses) gains
    (5,139 )     104       (15,804 )     (57,332 )     (35 )
Other income
    34,403       24,894       38,994       35,711       41,516  
     
Total non-interest income
    156,193       145,177       140,606       97,910       163,019  
     
Personnel costs
    135,191       134,639       137,944       133,823       137,904  
Outside data processing and other services
    25,701       21,814       20,695       18,664       19,569  
Net occupancy
    19,417       19,908       17,279       18,109       17,927  
Equipment
    17,157       18,219       18,151       17,249       18,009  
Marketing
    8,986       7,696       6,207       7,846       10,374  
Professional services
    8,101       6,482       8,958       6,438       6,292  
Telecommunications
    4,577       4,126       4,619       4,818       4,990  
Printing and supplies
    3,672       3,242       3,610       3,416       3,764  
Amortization of intangibles
    2,519       2,520       2,993       2,902       2,992  
Other expense
    19,334       23,426       47,334       29,165       30,538  
     
Total non-interest expense
    244,655       242,072       267,790       242,430       252,359  
     
Income before income taxes
    104,796       129,254       115,061       96,631       157,110  
Provision (benefit) for income taxes (2)
    24,275       33,528       27,346       (60,815 )     45,506  
     
Net income
  $ 80,521     $ 95,726     $ 87,715     $ 157,446     $ 111,604  
     
 
                                       
Average common shares — diluted
    239,008       238,754       239,881       240,896       244,538  
 
                                       
Per common share
                                       
Net income — diluted
  $ 0.34     $ 0.40     $ 0.37     $ 0.65     $ 0.46  
Cash dividends declared
    0.265       0.265       0.250       0.250       0.250  
 
                                       
Return on average total assets
    0.92 %     1.11 %     0.98 %     1.75 %     1.25 %
Return on average total shareholders’ equity
    10.6       12.9       11.3       21.0       14.9  
Return on average tangible shareholder’s equity (3)
    13.6       16.5       14.5       27.1       19.3  
Net interest margin (4)
    3.26       3.36       3.28       3.22       3.34  
Efficiency ratio (5)
    57.8       59.2       63.3       57.8       58.1  
Effective tax rate
    23.2       25.9       23.8       (62.9 )     29.0  
 
                                       
Revenue — fully taxable equivalent (FTE)
                                       
Net interest income
  $ 253,391     $ 255,555     $ 257,989     $ 255,313     $ 262,195  
FTE adjustment
    4,127       4,047       4,115       4,090       3,984  
     
Net interest income (4)
    257,518       259,602       262,104       259,403       266,179  
Non-interest income
    156,193       145,177       140,606       97,910       163,019  
     
Total revenue (4)
  $ 413,711     $ 404,779     $ 402,710     $ 357,313     $ 429,198  
     
 
(1)   Comparisons for presented periods are impacted by a number of factors. Refer to the ‘Significant Items Influencing Financial Performance Comparisons’ for additional discussion regarding these key factors.
 
(2)   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.
 
(3)   Net income less expense for amortization of intangibles (net of tax) for the period divided by average tangible common shareholders’ equity. Average tangible common shareholders’ equity equals average total common shareholders’ equity less average identifiable intangible assets and goodwill.
 
(4)   On a fully taxable equivalent (FTE) basis assuming a 35% tax rate.
 
(5)   Non-interest expense less amortization of intangibles divided by the sum of FTE net interest income and non-interest income excluding securities gains (losses).
 
(6)   On July 1, 2007, Huntington acquired Sky Financial Group, Inc. Accordingly, the balances presented do not include the impact of the acquisition.

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Table 2 — Selected Year to Date Income Statement Data (1), (5)
                                 
    Six Months Ended June 30,     Change  
(in thousands, except per share amounts)   2007     2006     Amount     Percent  
     
Interest income
  $ 1,077,410     $ 986,690     $ 90,719       9.2 %
Interest expense
    568,464       480,815       87,649       18.2  
     
Net interest income
    508,946       505,875       3,071       0.6  
Provision for credit losses
    89,539       35,285       54,254       N.M.  
     
Net interest income after provision for credit losses
    419,407       470,590       (51,183 )     (10.9 )
     
Service charges on deposit accounts
    94,810       88,447       6,363       7.2  
Trust services
    52,658       43,954       8,704       19.8  
Brokerage and insurance income
    33,281       29,538       3,743       12.7  
Other service charges and fees
    28,131       24,581       3,550       14.4  
Bank owned life insurance income
    21,755       20,846       909       4.4  
Mortgage banking income
    16,473       26,810       (10,337 )     (38.6 )
Securities (losses) gains (1)
    (5,035 )     (55 )     (4,980 )     N.M.  
Other income
    59,297       88,432       (29,135 )     (32.9 )
     
Total non-interest income
    301,370       322,553       (21,183 )     (6.6 )
     
Personnel costs
    269,830       269,461       369       0.1  
Outside data processing and other services
    47,515       39,420       8,095       20.5  
Net occupancy
    39,325       35,893       3,432       9.6  
Equipment
    35,376       34,512       864       2.5  
Marketing
    16,682       17,675       (993 )     (5.6 )
Professional services
    14,583       11,657       2,926       25.1  
Telecommunications
    8,703       9,815       (1,112 )     (11.3 )
Printing and supplies
    6,914       6,838       76       1.1  
Amortization of intangibles
    5,039       4,067       972       23.9  
Other expense
    42,760       61,436       (18,676 )     (30.4 )
     
Total non-interest expense
    486,727       490,774       (4,047 )     (0.8 )
     
Income before income taxes
    234,050       302,369       (68,319 )     (22.6 )
Provision for income taxes
    57,803       86,309       (28,506 )     (33.0 )
     
Net income
  $ 176,247     $ 216,060     $ (39,813 )     (18.4 )%
     
 
                               
Average common shares — diluted
    238,881       239,451       (570 )     (0.2 )%
 
                               
Per common share
                               
Net income per common share — diluted
  $ 0.74     $ 0.90     $ (0.16 )     (17.8 )%
Cash dividends declared
    0.530       0.500       0.030       6.0  
 
                               
Return on average total assets
    1.01 %     1.26 %     (0.25 )%     (19.8 )%
Return on average total shareholders’ equity
    11.7       15.2       (3.5 )     (23.0 )
Return on average tangible shareholders’ equity (2)
    15.1       18.7       (3.6 )     (19.3 )
Net interest margin (3)
    3.31       3.33       (0.02 )     (0.6 )
Efficiency ratio (4)
    58.5       58.2       0.3       0.5  
Effective tax rate
    24.7       28.5       (3.8 )     (13.3 )
 
                               
Revenue — fully taxable equivalent (FTE)
                               
Net interest income
  $ 508,946     $ 505,875     $ 3,071       0.6 %
FTE adjustment (3)
    8,174       7,820       354       4.5  
     
Net interest income
    517,120       513,695       3,425       0.7  
Non-interest income
    301,370       322,553       (21,183 )     (6.6 )
     
Total revenue
  $ 818,490     $ 836,248     $ (17,758 )     (2.1 )%
     
 
N.M., not a meaningful value.
 
(1)   Comparisons for presented periods are impacted by a number of factors. Refer to the ‘Significant Items Influencing Financial Performance Comparisons’ for additional discussion regarding these key factors.
 
(2)   Net income less expense for amortization of intangibles (net of tax) for the period divided by average tangible common shareholders’ equity. Average tangible common shareholders’ equity equals average total common shareholders’ equity less average identifiable intangible assets and goodwill.
 
(3)   On a fully taxable equivalent (FTE) basis assuming a 35% tax rate.
 
(4)   Non-interest expense less amortization of intangibles divided by the sum of FTE net interest income and non-interest income excluding securities gains/(losses).
 
(5)   On July 1, 2007, Huntington acquired Sky Financial Group, Inc. Accordingly, the balances presented do not include the impact of the acquisition.

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Significant Items Influencing Financial Performance Comparisons
     Earnings comparisons from the beginning of 2006 through the second quarter of 2007 were impacted by a number of factors 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.   Sky Financial Group Acquisition. The merger with Sky Financial Group (Sky Financial) was completed on July 1, 2007. At the time of acquisition, Sky Financial had assets of $16.7 billion, including $13.2 billion of loans and core deposits of $12.0 billion. Sky Financial results will be reflected in consolidated results beginning in the 2007 third quarter and, therefore, had no direct impact on balance sheet comparisons. Nevertheless, the 2007 first and second quarters reflected merger costs of $0.8 million and $7.6 million, respectively.
 
3.   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 impacted all quarters thereafter. As a result, performance comparisons between the 2007 second quarter and 2006 second quarter periods, as well as comparisons between the 2007 second quarter and 2007 first quarter periods, are unaffected. However, comparisons between the 2007 six-month period and 2006 six-month period are affected, as Unizan results were included in the 2006 period for four months. Comparisons of the first six months of 2007 with the first six months of 2006 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, $2.6 million in the 2006 second quarter, $0.5 million in the 2006 third 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.
An analysis reflecting the estimated impact of the Unizan merger on our reported average balance sheet and income statement can be found in Table 24 – Estimated Impact of Unizan Merger.
4.   Mortgage servicing rights (MSRs) and related hedging. MSR fair values are very sensitive to movements in

32


      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. A hedging strategy is used to minimize the impact from MSR fair value changes. However, volatile changes in interest rates can diminish the effectiveness of these hedges. We typically report MSR fair value adjustments net of hedge-related trading activity. Mortgage banking income included the following net impact of MSR hedging activity (reference Table 8) :
                         
($in millions)   Pre-tax   After tax   Per Common Share
1Q07
  $ (2.0 )   $ (1.3 )   $ (0.01 )
2Q07
    (4.8 )     (3.1 )     (0.01 )
 
                       
6 Mo. 2007
  $ (6.8 )   $ (4.4 )   $ (0.02 )
 
1Q06
  $ (0.6 )   $ (0.4 )   $  
2Q06
    1.5       1.0        
 
                       
6 Mo. 2006
  $ 1.0     $ 0.6     $  
3Q06
    0.0       0.0        
4Q06
    (2.5 )     (1.6 )     (0.01 )
 
                       
12 Mo. 2006
  ($ 1.6 )   $ (1.0 )   $  
      Beginning in the first quarter of 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 (this impact is not reflected in the above table). 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) .
5.   Significant commercial loan provision expense. Performance for the 2007 second quarter included $24.8 million ($16.1 million after tax, or $0.07 per common share) in provision for credit losses associated with three credit relationships, two in the East Michigan single-family home builder sector, and one northern Ohio commercial credit to an auto industry-related manufacturing company.
 
6.   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.
 
7.   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 — Second Quarter
    $2.3 million pre-tax ($1.5 million after tax or $0.01 per common share) in equity investment gains.
 
    $5.1 million pre-tax ($3.3 million after tax or $0.01 per common share) of impairment loss on certain investment securities backed by mortgage loans to borrowers with low FICO scores.
 
    $4.1 million pre-tax ($2.7 million after tax or $0.01 per common share) gain from the repayment of FHLB debt.
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.
 
    $1.9 million pre-tax ($1.2 million after tax or $0.01 per common share) negative impact due to litigation losses.

33


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 — Third Quarter
    $2.1 million pre-tax ($0.01 per common share) negative impact associated with the write-down of equity method investments.
2006 — Second Quarter
    $2.3 million pre-tax ($1.5 million after tax or $0.1 per common share) positive impact from equity investment gains.
2006 — First Quarter
    $2.3 million pre-tax ($1.5 million after tax or $0.01 per common share) negative impact, reflecting a cumulative adjustment to defer annual fees related to home equity loans.
       Table 3 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 3 — Significant Items Influencing Earnings Performance Comparison (1)
                                                 
    Three Months Ended
    June 30, 2007   March 31, 2007   June 30, 2006
 
(in millions)   After-tax   EPS   After-tax   EPS   After-tax   EPS
 
Net income – reported earnings
  $ 80.5             $ 95.7             $ 111.6          
Earnings per share, after tax
          $ 0.34             $ 0.40             $ 0.46  
Change from prior quarter — $
            (0.06 )             0.03               0.01  
Change from prior quarter — %
            (15.0 )%             8.1 %             2.2 %
 
Change from a year-ago — $
          $ (0.12 )           $ (0.05 )           $ 0.01  
Change from a year-ago — %
            (26.1 )%             (11.1 )%             2.2 %
                                                 
Significant items – favorable (unfavorable) impact:   Earnings (2)   EPS   Earnings (2)   EPS   Earnings (2)   EPS
 
Debt repayment gain
  $ 4.1     $ 0.01     $     $     $     $  
Equity investment gains (losses)
    2.3       0.01       (8.5 )     (0.02 )     2.3       0.01  
Significant commercial loan provision expense
    (24.8 )     (0.07 )                        
Merger costs
    (7.6 )     (0.02 )                 (2.6 )     (0.01 )
Securities impairment
    (5.1 )     (0.01 )                        
MSR fair value adjustments, net of hedge-related trading activity
    (4.8 )     (0.01 )     (2.0 )     (0.01 )            
Litigation losses
                (1.9 )     (0.01 )            
                                 
    Six Months Ended
    June 30, 2007   June 30, 2006
 
(in millions)   After-tax   EPS   After-tax   EPS
 
Net income – reported earnings
  $ 176.2             $ 216.1          
Earnings per share, after tax
          $ 0.74             $ 0.90  
Change from a year-ago — $
            (0.16 )             0.04  
Change from a year-ago — %
            (17.8 )%             4.7 %
                                 
Significant items – favorable (unfavorable) impact:   Earnings (2)   EPS   Earnings (2)   EPS
 
Debt repayment gain
  $ 4.1     $ 0.01     $     $  
Significant commercial loan provision expense
    (24.8 )     (0.07 )            
Merger costs
    (8.4 )     (0.02 )     (3.7 )     (0.01 )
MSR fair value adjustments, net of hedge-related trading activity
    (6.8 )     (0.02 )     1.0       0.01  
Equity investment (losses) gains
    (6.2 )     (0.02 )     3.8       0.01  
Securities impairment
    (5.1 )     (0.01 )            
Litigation losses
    (1.9 )     (0.01 )            
Change in value of MSR, net of hedging
                5.1       0.01  
Adjustment to defer home equity annual fees
                (2.3 )     (0.01 )
 
(1)   Refer to the ‘Significant Items Influencing Financial Performance Comparisons’ for additional discussion regarding these items.
 
(2)   Pre-tax unless otherwise noted.

35


Net Interest Income
(This section should be read in conjunction with Significant Items 1 and 3.)
2007 Second Quarter versus 2006 Second Quarter
     Fully taxable equivalent net interest income decreased $8.7 million, or 3%, from the year-ago quarter, reflecting the unfavorable impact of a $0.3 billion, or 1%, decrease in average earning assets and a decrease in the fully taxable equivalent net interest margin of 8 basis points to 3.26%. The decline in the net interest margin reflected a reversal of accrued interest on new non-accrual loans and higher funding costs. Average total loans and leases increased $0.2 billion, or 1%, primarily reflecting growth in commercial loans, partially offset by declines in total consumer loans.
     Average total commercial loans increased $0.9 billion, or 7%. This growth reflected a $0.7 billion, or 13%, increase in average middle market C&I loans and a $0.1 billion, or 6%, increase in average small business loans. Average middle market commercial real estate (CRE) loans were essentially unchanged.
     Average total consumer loans declined $0.6 billion, or 4%. This reflected a $0.3 billion, or 6%, decrease in average residential mortgages due to the sale of $0.4 billion loans over the three previous quarters. These sales were part of our interest rate risk management strategy. Average home equity loans declined 1%.
     Compared with the year-ago quarter, average total automobile loans and leases decreased $0.3 billion, or 6%, with strong growth in automobile loans offset by the continued decline in automobile leases due to low consumer demand and competitive pricing.
     Average automobile loans increased $0.3 billion, or 14%. This growth was indirectly related to the introduction of the “Huntington Plus” program for automobile dealers late last year. This 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. As such, this program does not directly impact average balances. However, it has influenced dealers to increase their overall allocation of prime automobile loan applications to Huntington, and it contributed to the 7% increase in prime loan production during the quarter and growth in related average balances.
     Average total investment securities decreased 23% from the year-ago quarter, reflecting our strategy to reduce the level of investment securities as part of our interest rate risk management strategy.
     Average total core deposits in the 2007 second quarter increased $0.4 billion, or 2%, from the year-ago quarter. The increase reflected strong growth in average interest bearing demand deposits, up $0.2 billion, or 10%. Average core certificates of deposit increased $0.5 billion, or 10%, resulting from continued customer demand for higher, fixed rate deposit products. In contrast, average savings and other domestic deposits declined $0.2 billion, or 8%, and average money market accounts declined $0.1 billion.
2007 Second Quarter versus 2007 First Quarter
     Compared with the 2007 first quarter, fully taxable equivalent net interest income decreased $2.1 million, or 1%. The net interest margin declined 10 basis points to 3.26%. The decrease in net interest income was a result of the impact of higher non-accrual loans resulting in the reversal of $1.7 million of accrued interest and higher funding costs.
     Average total loans and leases increased 1% with good growth in average total commercial loans, partially offset by a decline in average total consumer loans. Average total commercial loans increased $0.4 billion, or 3%, from the prior quarter, reflecting good growth across all regions except Michigan and Northwest Ohio.
     Average residential mortgages decreased $0.1 billion, or 3%, reflecting the impact of the sale of $109.5 million of residential mortgages at the end of the 2007 first quarter. Average home equity loans increased 1% due to continued growth in the retail channel. The broker channel portfolio continued to decline, reflecting less emphasis on broker-originated home equity loans.
     Compared with the 2007 first quarter, average total automobile loans and leases declined 1%. The decline primarily reflected a 9% decline in average automobile leases due to continued portfolio runoff, although lease production increased

36


seasonally 32% from the 2007 first quarter. Average automobile loans increased 5% from the 2007 first quarter, reflecting a 12% increase in automobile loan production.
     Average investment securities decreased $0.3 billion, or 7%, from the 2007 first quarter, reflecting portfolio runoff from a planned reduction in the level of investment securities as part of our interest rate risk management.
     Average total core deposits increased 1% from the 2007 first quarter, reflecting growth in both consumer and commercial core deposits. Average non-interest bearing demand deposits increased 2% and average interest bearing demand deposits increased 2%. Average core certificates of deposit increased 2%, reflecting the same factors impacting comparisons to the year-ago quarter noted above. Average savings and other domestic deposits increased 1% while average money market deposits declined slightly.
     Tables 4 and 5 reflect quarterly average balance sheets and rates earned and paid on interest-earning assets and interest-bearing liabilities.

37


Table 4 — Consolidated Quarterly Average Balance Sheets
                                                           
                                              Change  
Fully taxable equivalent basis   2007   2006     2Q07 vs 2Q06
(in millions)   Second     First     Fourth     Third     Second       Amount     Percent  
           
Assets
                                                         
Interest bearing deposits in banks
  $ 259     $ 93     $ 77     $ 75     $ 36       $ 223       N.M. %
Trading account securities
    230       48       116       96       100         130       N.M.  
Federal funds sold and securities purchased under resale agreements
    574       503       531       266       285         289       N.M.  
Loans held for sale
    291       242       265       275       287         4       1.4  
Investment securities:
                                                         
Taxable
    3,253       3,595       3,792       4,364       4,494         (1,241 )     (27.6 )
Tax-exempt
    629       591       594       581       556         73       13.1  
           
Total investment securities
    3,882       4,186       4,386       4,945       5,050         (1,168 )     (23.1 )
Loans and leases: (1)
                                                         
Commercial:
                                                         
Middle market commercial and industrial
    6,209       6,070       5,882       5,651       5,512         697       12.6  
Middle market commercial real estate:
                                                         
Construction
    1,245       1,151       1,170       1,129       1,248         (3 )     (0.2 )
Commercial
    2,865       2,772       2,839       2,846       2,845         20       0.7  
           
Middle market commercial real estate
    4,110       3,923       4,009       3,975       4,093         17       0.4  
Small business
    2,499       2,466       2,421       2,413       2,351         148       6.3  
           
Total commercial
    12,818       12,459       12,312       12,039       11,956         862       7.2  
           
Consumer:
                                                         
Automobile loans
    2,322       2,215       2,111       2,079       2,044         278       13.6  
Automobile leases
    1,551       1,698       1,838       1,976       2,095         (544 )     (26.0 )
           
Automobile loans and leases
    3,873       3,913       3,949       4,055       4,139         (266 )     (6.4 )
Home equity
    4,973       4,913       4,973       5,041       5,029         (56 )     (1.1 )
Residential mortgage
    4,351       4,496       4,635       4,748       4,629         (278 )     (6.0 )
Other loans
    424       422       430       430       448         (24 )     (5.4 )
           
Total consumer
    13,621       13,744       13,987       14,274       14,245         (624 )     (4.4 )
           
Total loans and leases
    26,439       26,203       26,299       26,313       26,201         238       0.9  
Allowance for loan and lease losses
    (297 )     (278 )     (282 )     (291 )     (293 )       (4 )     (1.4 )
           
Net loans and leases
    26,142       25,925       26,017       26,022       25,908         234       0.9  
           
Total earning assets
    31,675       31,275       31,674       31,970       31,959         (284 )     (0.9 )
           
Cash and due from banks
    748       826       830       823       832         (84 )     (10.1 )
Intangible assets
    626       627       631       634       638         (12 )     (1.9 )
All other assets
    2,398       2,480       2,617       2,633       2,554         (156 )     (6.1 )
           
Total Assets
  $ 35,150     $ 34,930     $ 35,470     $ 35,769     $ 35,690       $ (540 )     (1.5 )%
           
 
                                                         
Liabilities and Shareholders’ Equity
                                                         
Deposits:
                                                         
Demand deposits — non-interest bearing
  $ 3,591     $ 3,530     $ 3,580     $ 3,509     $ 3,594       $ (3 )     (0.1 )%
Demand deposits — interest bearing
    2,404       2,349       2,219       2,169       2,187         217       9.9  
Money market deposits
    5,466       5,489       5,548       5,689       5,591         (125 )     (2.2 )
Savings and other domestic deposits
    2,863       2,827       2,849       2,923       3,106         (243 )     (7.8 )
Core certificates of deposit
    5,591       5,455       5,380       5,334       5,083         508       10.0  
           
Total core deposits
    19,915       19,650       19,576       19,624       19,561         354       1.8  
Other domestic deposits of $100,000 or more
    1,124       1,219       1,282       1,141       1,086         38       3.5  
Brokered deposits and negotiable CDs
    2,682       3,020       3,252       3,307       3,263         (581 )     (17.8 )
Deposits in foreign offices
    552       562       598       521       474         78       16.5  
           
Total deposits
    24,273       24,451       24,708       24,593       24,384         (111 )     (0.5 )
Short-term borrowings
    2,075       1,863       1,832       1,660       2,042         33       1.6  
Federal Home Loan Bank advances
    1,329       1,128       1,121       1,349       1,557         (228 )     (14.6 )
Subordinated notes and other long-term debt
    3,470       3,487       3,583       3,921       3,428         42       1.2  
           
Total interest bearing liabilities
    27,556       27,399       27,664       28,014       27,817         (261 )     (0.9 )
           
All other liabilities
    960       987       1,142       1,276       1,284         (324 )     (25.2 )
Shareholders’ equity
    3,043       3,014       3,084       2,970       2,995         48       1.6  
           
Total Liabilities and Shareholders’ Equity
  $ 35,150     $ 34,930     $ 35,470     $ 35,769     $ 35,690       $ (540 )     (1.5 )%
           
N.M., not a meaningful value.
 
 
(1)   For purposes of this analysis, non-accrual loans are reflected in the average balances of loans.

38


Table 5 — Consolidated Quarterly Net Interest Margin Analysis
                                         
    2007   2006
Fully taxable equivalent basis (1)   Second     First     Fourth     Third     Second  
     
Assets
                                       
Interest bearing deposits in banks
    6.47 %     5.13 %     5.50 %     5.23 %     7.05 %
Trading account securities
    5.74       5.27       4.10       4.32       4.51  
Federal funds sold and securities purchased under resale agreements
    5.28       5.24       5.35       5.13       4.75  
Loans held for sale
    5.79       6.27       6.01       6.24       6.23  
Investment securities:
                                       
Taxable
    6.11       6.13       6.05       5.49       5.34  
Tax-exempt
    6.69       6.66       6.68       6.80       6.83  
     
Total investment securities
    6.20       6.21       6.13       5.64       5.51  
Loans and leases: (3)
                                       
Commercial:
                                       
Middle market commercial and industrial
    7.39       7.48       7.55       7.40       7.49  
Middle market commercial real estate:
                                       
Construction
    7.62       8.41       8.37       8.49       8.02  
Commercial
    7.34       7.64       7.57       7.86       6.92  
     
Middle market commercial real estate
    7.42       7.87       7.80       8.05       7.25  
Small business
    7.30       7.24       7.18       7.13       6.94  
     
Total commercial
    7.38       7.56       7.56       7.56       7.30  
     
Consumer:
                                       
Automobile loans
    7.10       6.92       6.75       6.62       6.48  
Automobile leases
    5.34       5.25       5.21       5.10       5.01  
     
Automobile loans and leases
    6.39       6.25       6.03       5.88       5.74  
Home equity
    7.63       7.67       7.75       7.62       7.46  
Residential mortgage
    5.61       5.54       5.55       5.46       5.39  
Other loans
    9.57       9.52       9.28       9.41       9.21  
     
Total consumer
    6.69       6.58       6.58       6.46       6.35  
     
Total loans and leases
    7.03       7.05       7.04       6.96       6.79  
     
Total earning assets
    6.92 %     6.98 %     6.86 %     6.73 %     6.55 %
     
 
                                       
Liabilities and Shareholders’ Equity
                                       
Deposits:
                                       
Demand deposits — non-interest bearing
    %     %     %     %     %
Demand deposits — interest bearing
    1.22       1.21       1.04       0.97       0.86  
Money market deposits
    3.85       3.78       3.75       3.66       3.32  
Savings and other domestic deposits
    2.16       2.02       1.90       1.75       1.59  
Core certificates of deposit
    4.79       4.72       4.58       4.40       4.10  
     
Total core deposits
    3.49       3.41       3.32       3.20       2.89  
Other domestic deposits of $100,000 or more
    5.30       5.32       5.29       5.18       4.83  
Brokered deposits and negotiable CDs
    5.53       5.50       5.53       5.50       5.12  
Deposits in foreign offices
    3.16       2.99       3.18       3.12       2.68  
     
Total deposits
    3.84       3.81       3.78       3.66       3.34  
Short-term borrowings
    4.50       4.32       4.21       4.10       4.12  
Federal Home Loan Bank advances
    4.76       4.44       4.50       4.51       4.34  
Subordinated notes and other long-term debt
    5.96       5.77       5.96       5.75       5.67  
     
Total interest bearing liabilities
    4.20 %     4.14 %     4.12 %     4.02 %     3.74 %
     
Net interest rate spread
    2.72 %     2.84 %     2.74 %     2.71 %     2.81 %
Impact of non-interest bearing funds on margin
    0.54       0.52       0.54       0.51       0.53  
     
Net interest margin
    3.26 %     3.36 %     3.28 %     3.22 %     3.34 %
     
 
(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.

39


2007 First Six Months versus 2006 First Six Months
     Fully taxable equivalent net interest income for the first six month period of 2007 increased $3.4 million, or 1%, from the comparable year-ago period. This reflected the favorable impact of a $0.4 billion, or 1%, increase in average earning assets partially offset by a 2 basis point decline in the fully taxable equivalent net interest margin to 3.31%. The decline in the net interest margin reflected a reversal of accrued interest on new non-accrual loans and higher funding costs. Average total loans and leases increased $0.7 billion, or 3%. The Unizan merger contributed $0.6 billion of the increase.
     Average total commercial loans increased $1.1 billion, or 9%, with the Unizan merger contributing $0.3 billion. This growth reflected a $0.8 billion, or 15%, increase in average middle market C&I loans and a $0.3 billion, or 13%, increase in average small business loans. Average middle market CRE loans were essentially unchanged.
     Average total consumer loans declined $0.3 billion, or 2%, despite a positive impact of $0.3 billion from the Unizan merger. The $0.3 billion decline primarily reflecting a $0.5 billion, or 25%, decrease in average automobile leases reflecting the continued decline in automobile leases due to low consumer demand and competitive pricing. In contrast, average total automobile loans increased $0.3 billion, or 12%, with this growth indirectly related to the introduction of the “Huntington Plus” program for automobile dealers late last year. Average total residential mortgages declined slightly despite a positive impact of $0.1 billion from the Unizan merger, reflecting the impact of planned sales. Average home equity loans increased slightly, but would have declined modestly without the favorable impact of the Unizan merger.
     Average total investment securities decreased 17% from the year-ago six-month period, reflecting our strategy to reduce the level of investment securities as part of our interest rate risk management strategy.
     Average total core deposits for the first six month period of 2007 increased $0.8 billion, or 4%, from the comparable year-ago period, with Unizan contributing $0.5 billion of the increase. The increase reflected strong growth in average core certificates of deposit, up $0.8 billion, or 17%, resulting from continued customer demand for higher, fixed rate deposit products. Average interest bearing demand deposits increased $0.3 billion, or 14%. In contrast, average savings and other domestic deposits declined $0.3 billion, or 8%, and average money market accounts declined $0.1 billion, or 2%.

40


Table 6 — Consolidated YTD Average Balance Sheets and Net Interest Margin Analysis
                                                 
    YTD Average Balances   YTD Average Rates (2)
Fully taxable equivalent basis (1)   Six Months Ending June 30,   Change   Six Months Ending June 30,
(in millions of dollars)   2007   2006   Amount   Percent   2007   2006
         
Assets
                                               
Interest bearing deposits in banks
  $ 212     $ 29     $ 183       N.M. %     5.09 %     7.38 %
Trading account securities
    139       83       56       67.5       5.66       4.19  
Federal funds sold and securities purchased under resale agreements
    538       243       295       N.M.       5.26       4.56  
Loans held for sale
    266       281       (15 )     (5.3 )     6.01       6.08  
Investment securities:
                                               
Taxable
    3,423       4,317       (894 )     (20.7 )     6.12       5.19  
Tax-exempt
    610       552       58       10.5       6.67       6.77  
         
Total investment securities
    4,033       4,869       (836 )     (17.2 )     6.21       5.37  
Loans and leases: (3)
                                               
Commercial:
                                               
Middle market commercial and industrial
    6,140       5,348       792       14.8       7.44       7.29  
Middle market commercial real estate:
                                               
Construction
    1,199       1,352       (153 )     (11.3 )     8.00       7.76  
Commercial
    2,820       2,656       164       6.2       7.49       6.62  
         
Middle market commercial real estate
    4,019       4,008       11       0.3       7.64       7.00  
Small business
    2,481       2,194       287       13.1       7.27       6.77  
         
Total commercial
    12,640       11,550       1,090       9.4       7.47       7.09  
         
Consumer:
                                               
Automobile loans
    2,269       2,019       250       12.4       7.01       6.44  
Automobile leases
    1,624       2,157       (533 )     (24.7 )     5.29       4.99  
         
Automobile loans and leases
    3,893       4,176       (283 )     (6.8 )     6.29       5.69  
Home equity
    4,943       4,932       11       0.2       7.65       7.19  
Residential mortgage
    4,423       4,468       (45 )     (1.0 )     5.58       5.37  
Other loans
    423       448       (25 )     (5.6 )     9.55       8.80  
         
Total consumer
    13,682       14,024       (342 )     (2.4 )     6.65       6.22  
         
Total loans and leases
    26,322       25,574       748       2.9       7.04       6.61  
                                     
Allowance for loan and lease losses
    (288 )     (288 )                            
                     
Net loans and leases
    26,034       25,286       748       3.0                  
         
Total earning assets
    31,510       31,079       431       1.4       6.95 %     6.38 %
         
Cash and due from banks
    752       823       (71 )     (8.6 )                
Intangible assets
    626       500       126       25.2                  
All other assets
    2,441       2,486       (45 )     (1.8 )                
                     
Total Assets
  $ 35,041     $ 34,600     $ 441       1.3 %                
                     
 
                                               
Liabilities and Shareholders’ Equity
                                               
Deposits:
                                               
Demand deposits — non-interest bearing
  $ 3,561     $ 3,515     $ 46       1.3 %     %     %
Demand deposits — interest bearing
    2,377       2,081       296       14.2       1.21       0.79  
Money market deposits
    5,477       5,590       (113 )     (2.0 )     3.81       3.18  
Savings and other domestic time deposits
    2,845       3,101       (256 )     (8.3 )     2.08       1.54  
Core certificates of deposit
    5,523       4,738       785       16.6       4.76       3.98  
         
Total core deposits
    19,783       19,025       758       4.0       3.45       2.78  
Other domestic time deposits of $100,000 or more
    1,171       1,012       159       15.7       5.31       4.70  
Brokered deposits and negotiable CDs
    2,850       3,203       (353 )     (11.0 )     5.51       4.91  
Deposits in foreign offices
    557       469       88       18.8       3.07       2.65  
         
Total deposits
    24,361       23,709       652       2.8       3.83       3.21  
Short-term borrowings
    1,970       1,856       114       6.1       4.41       3.87  
Federal Home Loan Bank advances
    1,229       1,505       (276 )     (18.3 )     4.61       4.17  
Subordinated notes and other long-term debt
    3,478       3,392       86       2.5       5.87       5.44  
         
Total interest bearing liabilities
    27,477       26,947       530       2.0       4.16       3.59  
         
All other liabilities
    974       1,275       (301 )     (23.6 )                
Shareholders’ equity
    3,029       2,863       166       5.8                  
                     
Total Liabilities and Shareholders’ Equity
  $ 35,041     $ 34,600     $ 441       1.3 %                
                     
Net interest rate spread
                                    2.79       2.79  
Impact of non-interest bearing funds on margin
                                    0.52       0.54  
                                     
Net interest margin
                                    3.31 %     3.33 %
                                     
N.M., not a meaningful value
 
(1)   Fully taxable equivalent (FTE) yields are calculated assuming a 35% tax rate.
 
(2)   Loan and 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.

41


Provision for Credit Losses
(This section should be read in conjunction with Significant Items 3, 5, 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 second quarter was $60.1 million, up $44.4 million from the year-ago quarter, and up $30.7 million from the 2007 first quarter. The provision for credit losses in the 2007 second quarter exceeded same period net charge-offs by $25.6 million. The increases in the provision for credit losses relative to both the year-ago quarter and the prior quarter were attributable to increases in both the transaction and economic reserve components of the allowance for loan losses. Compared with the prior quarter, the transaction reserve component increased 5 basis points and the economic reserve component increased 2 basis points. The increase in the transaction reserve component reflected the impact of increasing monitored credits, primarily resulting from softness in the residential and commercial real estate markets in the Midwest.
Non-Interest Income
(This section should be read in conjunction with Significant Items 1, 3, 4 and 7.)
     Table 7 reflects non-interest income detail for each of the past five quarters and the first six month periods of 2007 and 2006.
Table 7 — Non-Interest Income
                                                           
    2007   2006     2Q07 vs 2Q06
(in thousands)   Second   First   Fourth   Third   Second     Amount   Percent
           
Service charges on deposit accounts
  $ 50,017     $ 44,793     $ 48,548     $ 48,718     $ 47,225       $ 2,792       5.9 %
Trust services
    26,764       25,894       23,511       22,490       22,676         4,088       18.0  
Brokerage and insurance income
    17,199       16,082       14,600       14,697       14,345         2,854       19.9  
Other service charges and fees
    14,923       13,208       13,784       12,989       13,072         1,851       14.2  
Bank owned life insurance income
    10,904       10,851       10,804       12,125       10,604         300       2.8  
Mortgage banking (loss) income
    7,122       9,351       6,169       8,512       13,616         (6,494 )     (47.7 )
Securities (losses)/gains (1)
    (5,139 )     104       (15,804 )     (57,332 )     (35 )       (5,104 )     N.M.  
Other income
    34,403       24,894       38,994       35,711       41,516         (7,113 )     (17.1 )
           
Total non-interest income
  $ 156,193     $ 145,177     $ 140,606     $ 97,910     $ 163,019       $ (6,826 )     (4.2 )%
           
                                 
    Six Months Ended June 30,   YTD 2007 vs 2006
(in thousands)   2007   2006   Amount   Percent
     
Service charges on deposit accounts
  $ 94,810     $ 88,447     $ 6,363       7.2 %
Trust services
    52,658       43,954       8,704       19.8  
Brokerage and insurance income
    33,281       29,538       3,743       12.7  
Other service charges and fees
    28,131       24,581       3,550       14.4  
Bank owned life insurance income
    21,755       20,846       909       4.4  
Mortgage banking income
    16,473       26,810       (10,337 )     (38.6 )
Securities losses
    (5,035 )     (55 )     (4,980 )     N.M.  
Other income
    59,297       88,432       (29,135 )     (32.9 )
     
Total non-interest income
  $ 301,370     $ 322,553     $ (21,183 )     (6.6 )%
     
N.M., not a meaningful value.
 
(1)   Includes $57.5 million of securities impairment losses for the third quarter of 2006.
     Table 8 details mortgage banking income and the net impact of MSR hedging activity for each of the past five quarters and for the first six month periods of 2007 and 2006.

42


Table 8 — Mortgage Banking Income and Net Impact of MSR Hedging
                                                           
    2007   2006     2Q07 vs 2Q06
(in thousands)   Second   First   Fourth   Third   Second     Amount   Percent
           
Mortgage Banking Income
                                                         
Origination and secondary marketing
  $ 6,771     $ 4,940     $ 4,057     $ 3,070     $ 7,091       $ (320 )%     (4.5 )%
Servicing fees
    6,976       6,820       6,662       6,077       5,995         981       16.4  
Amortization of capitalized servicing (1)
    (4,449 )     (3,638 )     (3,835 )     (4,484 )     (3,293 )       (1,156 )     (35.1 )
Other mortgage banking income
    2,822       3,247       1,778       3,887       2,281         541       23.7  
           
Sub-total
    12,120       11,369       8,662       8,550       12,074         46       0.4  
MSR valuation adjustment (1)
    16,034       (1,057 )     (1,907 )     (10,716 )     8,281         7,753       93.6  
Net trading gains (losses) related to MSR hedging
    (21,032 )     (961 )     (586 )     10,678       (6,739 )       (14,293 )     N.M.  
           
Total mortgage banking (loss) income
  $ 7,122     $ 9,351     $ 6,169     $ 8,512     $ 13,616       $ (6,494 )     (47.7) %
           
 
                                                         
Capitalized mortgage servicing rights (2)
  $ 155,420     $ 134,845     $ 131,104     $ 129,317     $ 136,244       $ 19,176       14.1 %
Total mortgages serviced for others (2)
    8,693,000       8,494,000       8,252,000       7,994,000       7,725,000         968,000       12.5  
MSR % of investor servicing portfolio
    1.79 %     1.59 %     1.59 %     1.62 %     1.76 %       0.03 %     1.7  
           
 
                                                         
Net Impact of MSR Hedging
                                                         
MSR valuation adjustment (1)
  $ 16,034     $ (1,057 )   $ (1,907 )   $ (10,716 )   $ 8,281       $ 7,753       93.6 %
Net trading gains (losses) related to MSR hedging
    (21,032 )     (961 )     (586 )     10,678       (6,739 )       (14,293 )     N.M.  
Net interest income related to MSR hedging
    248             (2 )     38               248        
           
Net impact of MSR hedging
  $ (4,750 )   $ (2,018 )   $ (2,495 )   $     $ 1,542       $ (6,292 )     N.M. %
           
                                         
    Six Months Ended June 30,   YTD 2007 vs 2006        
(in thousands)   2007   2006   Amount   Percent        
     
Mortgage Banking Income
                                       
Origination and secondary marketing
  $ 11,711     $ 11,090     $ 621       5.6 %        
Servicing fees
    13,796       11,920       1,876       15.7          
Amortization of capitalized servicing (1)
    (8,087 )     (6,825 )     (1,262 )     18.5          
Other mortgage banking income
    6,069       4,507       1,562       34.7          
     
Sub-total
    23,489       20,692       2,797       13.5          
MSR valuation adjustment (1)
    14,977       17,494       (2,517 )     (14.4 )        
Net trading gains (losses) related to MSR hedging
    (21,993 )     (11,377 )     (10,616 )     93.3          
     
Total mortgage banking income
  $ 16,473     $ 26,809     $ (10,336 )     (38.6) %        
     
 
                                       
Capitalized mortgage servicing rights (2)
  $ 155,420     $ 136,244     $ 19,176       14.1 %        
Total mortgages serviced for others (2)
    8,693,000       7,725,000       968,000       12.5          
MSR % of investor servicing portfolio
    1.79 %     1.76 %     0.03 %     1.7          
 
                                       
Net Impact of MSR Hedging
                                       
MSR valuation adjustment (1)
  $ 14,977     $ 17,494     $ (2,517 )     (14.4 )%        
Net trading gains (losses) related to MSR hedging
    (21,993 )     (11,377 )     (10,616 )     93.3          
Net interest income related to MSR hedging
    248             248                
     
Net impact of MSR hedging
  $ (6,768 )   $ 6,117     $ (12,885 )     N.M. %        
     
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.

43


2007 Second Quarter versus 2006 Second Quarter
     Non-interest income decreased $6.8 million, or 4%, from the year-ago quarter, reflecting:
    $7.5 million decline in other income, primarily related to a $10.5 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. Partially offsetting this decline were higher derivative fees and fees related to the Huntington Plus program.
 
    $6.5 million, or 48%, decline in mortgage banking income, driven entirely by the negative net impact of MSR hedging. The net impact of MSR hedging included in mortgage banking income represented a $5.0 million loss in the 2007 second quarter, compared with a gain of $1.5 million in the 2006 second quarter. Core mortgage banking income was essentially flat compared with the year-ago quarter.
 
    $5.1 million of impairment losses on certain investment securities backed by mortgage loans to borrowers with low FICO scores.
Partially offset by:
    $4.1 million, or 18%, increase in trust services income, reflecting (1) a $2.3 million increase in institutional trust income largely due to the acquisition of Unified Fund Services, Inc. in December 2006, (2) a $1.2 million increase in fees from Huntington Funds, reflecting 13% fund asset growth, and (3) a $0.6 million increase in personal trust fees.
 
    $2.9 million, or 20%, increase in brokerage and insurance income, reflecting strong growth in mutual fund and annuity sales.
 
    $2.8 million, or 6%, increase in service charges on deposit accounts, reflecting a $2.0 million, or 7%, increase in personal service charges, primarily NSF/OD, and a $0.8 million, or 5%, increase in commercial service charge income.
 
    $1.9 million, or 14%, increase in other service charges and fees, primarily reflecting a $1.7 million, or 18%, increase in fees generated by higher debit card volume.
2007 Second Quarter versus 2007 First Quarter
     Non-interest income increased $11.0 million, or 8%, from the 2007 first quarter, reflecting:
    $9.7 million increase in other income, as the first quarter included an $8.5 million loss on equity investments compared with $2.3 million of such gains in the current quarter. In addition, automobile operating lease income declined $1.3 million as that portfolio continued its runoff.
 
    $5.2 million, or 12%, increase in service charges on deposit accounts, primarily due to seasonally lower fees in the first quarter.
 
    $1.7 million, or 13%, increase in other service charges and fees, reflecting a $1.5 million, or 15%, increase in fees generated by higher debit card volume.
 
    $1.1 million, or 7%, increase in brokerage and insurance fees, reflecting a strong increase in annuity sales volume.
Partially offset by:
    $5.1 million in impairment losses on certain investment securities backed by mortgage loans to borrowers with low FICO scores.
 
    $2.2 million decline in mortgage banking income. The net impact of MSR hedging included in mortgage banking income represented a $5.0 million loss in the 2007 second quarter, compared with a $2.0 million loss in the first quarter.

44


2007 First Six Months versus 2006 First Six Months
     Non-interest income for the first six month period of 2007 decreased $21.2 million, or 7%, from the comparable year-ago period, reflecting:
    $30.2 million, or 35%, decline in other income. This primarily reflected a $24.7 million decline in automobile operating lease income as that portfolio continued to run off and net losses of $6.2 million on equity investments. The Unizan merger contributed $1.4 million of growth in other income.
 
    $10.3 million, or 39%, decline in mortgage banking income. This reflects the impact of MSR fair value adjustments, net of hedging related activities, as the first six month period of 2007 included a negative net impact of $7.0 million, compared with a $6.1 million impact in the comparable year-ago period which included the $5.1 million positive change in the fair value of MSRs prior to the implementation of our hedging program.
 
    $5.0 million of investment securities losses, reflecting $8.4 million in impairment losses in the first six month period of 2007 related to certain investment securities backed by mortgage loans to borrowers with low FICO scores.
Partially offset by:
    $8.7 million ($1.1 million Unizan merger-related), or 20%, increase in trust services income, reflecting (1) a $4.7 million increase in institutional trust income largely due to the acquisition of Unified Fund Services, Inc. in December 2006, (2) a $2.2 million, or 15%, increase in fees from Huntington Funds, reflecting fund asset growth, and (3) a $1.7 million, or 8%, increase in personal trust fees, primarily reflecting asset growth.
 
    $6.4 million ($1.1 million Unizan merger-related), or 7%, increase in service charges on deposit accounts, reflecting a $4.3 million, or 8%, increase in personal service charges, primarily NSF/OD, and a $2.0 million, or 7%, increase in commercial service charge income.
 
    $3.7 million, or 13%, increase in brokerage and insurance income, reflecting strong growth in mutual fund sales.
 
    $3.6 million, or 14%, increase in other service charges and fees, primarily reflecting a $2.9 million, or 16%, increase in fees generated by higher debit card volume.
Non-Interest Expense
(This section should be read in conjunction with Significant Items 1, 2, 3 and 7.)
     Table 9 reflects non-interest expense detail for each of the last five quarters and for the first six month periods of 2007 and 2006.

45


Table 9 — Non-Interest Expense
                                                           
    2007   2006     2Q07 vs 2Q06
(in thousands)   Second   First   Fourth   Third   Second     Amount   Percent
           
Salaries
  $ 106,768     $ 104,912     $ 111,806     $ 105,144     $ 107,249       $ (481 )     (0.4 )%
Benefits
    28,423       29,727       26,138       28,679       30,655         (2,232 )     (7.3 )
           
Personnel costs
    135,191       134,639       137,944       133,823       137,904         (2,713 )     (2.0 )%
Outside data processing and other services
    25,701       21,814       20,695       18,664       19,569         6,132       31.3  
Net occupancy
    19,417       19,908       17,279       18,109       17,927         1,490       8.3  
Equipment
    17,157       18,219       18,151       17,249       18,009         (852 )     (4.7 )
Marketing
    8,986       7,696       6,207       7,846       10,374         (1,388 )     (13.4 )
Professional services
    8,101       6,482       8,958       6,438       6,292         1,809       28.8  
Telecommunications
    4,577       4,126       4,619       4,818       4,990         (413 )     (8.3 )
Printing and supplies
    3,672       3,242       3,610       3,416       3,764         (92 )     (2.4 )
Amortization of intangibles
    2,519       2,520       2,993       2,902       2,992         (473 )     (15.8 )
Other expense
    19,334       23,426       47,334       29,165       30,538         (11,204 )     (36.7 )
           
Total non-interest expense
  $ 244,655     $ 242,072     $ 267,790     $ 242,430     $ 252,359       $ (7,704 )     (3.1 )%
           
                                 
    Six Months Ended June 30,     YTD 2007 vs 2006
(in thousands)   2007     2006     Amount     Percent  
     
Salaries
  $ 211,680     $ 208,707     $ 2,973       1.4 %
Benefits
    58,150       60,754       (2,604 )     (4.3 )
     
Personnel costs
    269,830       269,461       369       0.1  
Outside data processing and other services
    47,515       39,420       8,095       20.5  
Net occupancy
    39,325       35,893       3,432       9.6  
Equipment
    35,376       34,512       864       2.5  
Marketing
    16,682       17,675       (993 )     (5.6 )
Professional services
    14,583       11,657       2,926       25.1  
Telecommunications
    8,703       9,815       (1,112 )     (11.3 )
Printing and supplies
    6,914       6,838       76       1.1  
Amortization of intangibles
    5,039       4,067       972       23.9  
Other expense
    42,760       61,436       (18,676 )     (30.4 )
     
Total non-interest expense
  $ 486,727       490,774     $ (4,047 )     (0.8 )%
     
2007 Second Quarter versus 2006 Second Quarter
     Non-interest expense decreased $7.7 million, or 3%, from the year-ago quarter, reflecting:
    $11.2 million, or 37%, decrease in other expense, driven by $7.8 million lower automobile operating lease expense as that portfolio continued its runoff. In addition, the current quarter was reduced by a gain of $4.1 million related to the repayment of FHLB debt.
 
    $2.7 million, or 2%, decrease in personnel expense driven by lower incentives.
 
    $1.4 million, or 13%, decrease in marketing expense reflecting lower television advertising.
Partially offset by:
    $6.1 million, or 31%, increase in outside data processing and other services expense, including $4.1 million of Sky Financial merger costs.
 
    $1.8 million, or 29%, increase in professional services expense, including $1.1 million of Sky Financial merger costs.

46


2007 Second Quarter versus 2007 First Quarter
     Non-interest expense increased $2.6 million, or 1%, from the 2007 first quarter, reflecting:
    $3.9 million, or 18%, increase in outside data processing and other services expense, including $3.5 million of increased Sky Financial merger costs.
 
    $1.6 million, or 25%, increase in professional services expense, including $1.0 million of increased Sky Financial merger costs.
 
    $1.3 million, or 17%, increase in marketing costs, including $1.5 million of increased Sky Financial merger costs.
Partially offset by:
    $4.1 million, or 17%, decline in other expense, reflecting the $4.1 million gain from FHLB debt repayment and a decline of $1.9 million related to litigation losses incurred in the 2007 first quarter.
2007 First Six Months versus 2006 First Six Months
     Non-interest expense for the first six month period of 2007 declined $4.0 million, or 1%, from the comparable year-ago period, reflecting:
    $18.7 million, or 30%, decline in other expense, primarily due to an $18.4 million decline in automobile operating lease expense. Unizan contributed $2.0 million of merger-related growth.
 
    $1.1 million, or 11%, decline in telecommunication expense.
Partially offset by:
    $8.1 million, or 21%, increase in outside data processing and other services expense, including $4.5 million of Sky Financial merger costs.
 
    $3.4 million, or 10%, increase in net occupancy expenses.
 
    $2.9 million, or 25%, increase in professional services expense, reflecting higher collection expenses and $1.2 million of Sky Financial merger costs.
Provision for Income Taxes
(This section should be read in conjunction with Significant Item 6.)
     The provision for income taxes in the second quarter of 2007 was $24.3 million and represented an effective tax rate on income before taxes of 23.2%. The effective tax rates in the year-ago quarter and first quarter of 2007 were 29.0% and 25.9%, respectively. The provision for income taxes decreased $21.2 million from the year ago quarter and $9.3 million from first quarter 2007 primarily due to a decrease in pre-tax earnings, partially offset by an increase in tax-exempt income and general business credits. The effective tax rate for the full year 2007 is estimated to be 27.0%, although the third quarter rate is expected to be slightly higher, reflecting the impact of the Sky Financial acquisition.
     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.

47


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. Concentration risk is managed via limits on loan type, geography, industry, loan quality factors, and country limits. We continue to focus on extending credit to commercial customers with existing or expandable relationships within our primary banking markets. Also, we continue to focus on expanding existing relationships with our retail customers and adding new borrowers that meet our risk profile.
     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 3.)
     As shown in Table 10, at June 30, 2007, total credit exposure was $26.8 billion. Of this amount, $13.8 billion, or 51%, represented total consumer loans and leases, a decrease from 54% at June 30, 2006, and from 53% at December 31, 2006. Total commercial loans and leases represented $13.1 billion, or 49%, up from 46% at June 30, 2006, and from 47% at December 31, 2006.

48


Table 10 — Loans and Leases Composition (1)
                                                                                 
    2007   2006
(in thousands)   June 30,   March 31,   December 31,   September 30,   June 30,
By Type
                                                                               
Commercial:
                                                                               
Middle market commercial and industrial
  $ 6,210,709       23.2 %   $ 6,164,569       23.5 %   $ 5,961,445       22.8 %   $ 5,811,130       22.0 %   $ 5,654,537       21.5 %
Middle market commercial real estate:
                                                                               
Construction
    1,382,722       5.2       1,187,664       4.5       1,228,641       4.7       1,169,276       4.4       1,179,603       4.5  
Commercial
    2,950,864       11.0       2,807,063       10.7       2,722,599       10.4       2,808,684       10.7       2,783,982       10.6  
     
Middle market commercial real estate
    4,333,586       16.2       3,994,727       15.2       3,951,240       15.1       3,977,960       15.1       3,963,585       15.1  
Small business
    2,507,728       9.4       2,474,955       9.4       2,441,837       9.3       2,418,709       9.2       2,413,646       9.1  
     
Total commercial
    13,052,023       48.8       12,634,251       48.1       12,354,522       47.2       12,207,799       46.3       12,031,768       45.7  
     
Consumer:
                                                                               
Automobile loans
    2,424,105       9.0       2,251,215       8.6       2,125,821       8.1       2,105,623       8.0       2,059,836       7.8  
Automobile leases
    1,488,903       5.6       1,623,758       6.2       1,769,424       6.8       1,910,257       7.2       2,042,213       7.7  
Home equity
    5,015,506       18.7       4,914,462       18.7       4,926,900       18.8       5,019,101       19.0       5,047,990       19.8  
Residential mortgage
    4,398,720       16.4       4,404,220       16.8       4,548,849       17.4       4,678,577       17.7       4,739,814       18.0  
Other loans
    432,256       1.5       437,117       1.6       427,909       1.7       440,145       1.8       432,960       1.0  
     
Total consumer
    13,759,490       51.2       13,630,772       51.9       13,798,903       52.8       14,153,703       53.7       14,322,813       54.3  
     
Total loans and leases
  $ 26,811,513       100.0     $ 26,265,023       100.0     $ 26,153,425       100.0     $ 26,361,502       100.0     $ 26,354,581       100.0  
     
 
                                                                               
By Business Segment
                                                                               
Regional Banking:
                                                                               
Central Ohio
  $ 3,899,692       14.5 %   $ 3,796,470       14.5 %   $ 3,787,631       14.5 %   $ 3,895,724       14.8 %   $ 3,830,352       14.5 %
Northwest Ohio
    449,232       1.7       455,075       1.7       461,622       1.8       465,413       1.8       450,961       1.7  
Greater Cleveland
    2,099,941       7.8       2,019,820       7.7       1,920,421       7.3       1,953,851       7.4       1,966,013       7.5  
Greater Akron/Canton
    1,330,102       5.0       1,318,932       5.0       1,326,374       5.1       1,357,028       5.1       1,422,016       5.4  
Southern Ohio/Kentucky
    2,275,224       8.5       2,159,407       8.2       2,190,115       8.4       2,181,340       8.3       2,190,554       8.3  
Mahoning Valley
                                                           
Ohio Valley
                                                           
West Michigan
    2,439,517       9.1       2,453,300       9.3       2,421,085       9.3       2,443,461       9.3       2,397,688       9.1  
East Michigan
    1,654,934       6.2       1,646,028       6.3       1,630,050       6.2       1,602,647       6.1       1,591,995       6.0  
Western Pennsylvania
                                                           
Pittsburgh
                                                           
Central Indiana
    1,004,934       3.7       971,186       3.7       962,575       3.7       957,612       3.6       947,262       3.6  
West Virginia
    1,148,573       4.3       1,109,197       4.2       1,123,817       4.3       1,102,407       4.2       1,071,552       4.1  
Mortgage and equipment leasing groups
    3,634,720       13.5       3,562,933       13.6       3,576,634       13.6       3,627,708       13.7       3,595,044       13.7  
     
Regional Banking
    19,936,869       74.4       19,492,348       74.2       19,400,324       74.2       19,587,191       74.3       19,463,437       73.9  
Dealer Sales
    4,944,386       18.4       4,903,370       18.7       4,908,764       18.8       4,956,635       18.8       5,082,282       19.3  
Private Financial and Capital Markets Group
    1,930,258       7.2       1,869,305       7.1       1,844,337       7.0       1,817,676       6.9       1,808,862       6.8  
Treasury / Other
                                                           
     
Total loans and leases
  $ 26,811,513       100.0 %   $ 26,265,023       100.0 %   $ 26,153,425       100.0 %   $ 26,361,502       100.0 %   $ 26,354,581       100.0 %
     
 
(1)   Reflects post-Sky merger organizational structure that became effective on July 1, 2007, therefore, the balances presented do not include the impact of the acquisition.

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Commercial Credit
(This section should be read in conjunction with Significant Item 5.)
     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 business banking. 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 commercial 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. We continually review and adjust our risk rating 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. The loan review group validates the risk grades on a minimum of 50% of the portfolio exposure each calendar year.
     Borrower exposures may be designated as monitored credits 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 is involved in the management of all monitored 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.
     At June 30, 2007, we had $0.9 billion of loans to homebuilders, including loans made to both middle market and small business homebuilders. Of this portfolio, 69% were to finance projects where houses were currently under construction, 16% to finance the acquisition of land for future development, and 15% in loans to finance the development of land.
     While there was some geographic dispersion within this portfolio of loans, a large portion is located in Ohio. Within our Ohio markets, the southern and central region housing markets have historically demonstrated greater stability. Nonetheless, there has been a general slowdown in the housing market, reflecting declining prices and excess inventories of houses to be sold. While the expected slowdown in the spring and early summer home sales period did occur, in eastern Michigan it was much worse than expected. As a result, homebuilders, especially the smaller homebuilders, have shown signs of financial deterioration.
     We have made adjustments to our internal risk ratings of the probability of default and the loss in the event of default. These adjustments reflect the current condition of each homebuilder relationship. As a result, we increased our reserves for these loans. We will continue to write down appraised collateral values as warranted, based on our current assessment of market conditions, including lower market valuations on finished units and an excess supply of lots.

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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), which we update quarterly, 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 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 June 30, 2007, we had $2.0 billion of home equity loans and $3.0 billion of home equity lines of credit. The average loan-to-value ratio of our home equity portfolio (both loans and lines) was 75% at June 30, 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 $227 million of home equity loans in the second quarter of 2007 with a weighted average loan-to-value ratio of 67% 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 second quarter of 2007, we originated commitments of $365 million of home equity lines. The lines of credit originated during the quarter had a weighted average loan-to-value ratio of 76% and a weighted average FICO score of 749.
     At June 30, 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 64% 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 $0.9 billion, or 19%, of residential real estate loans at June 30, 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 Items 3 and 5.)
     NPAs consist of (1)  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 C&I, CRE, and small business loans are generally placed on non-accrual status when collection of principal or interest is in doubt or when the loan is 90-days past due. When interest accruals are suspended, accrued interest income is reversed with current year accruals charged to earnings and prior-year amounts generally charged-off as a credit loss.
     Consumer loans and leases, excluding residential mortgages and home equity lines and loans, 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

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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 11 reflects period-end NPLs, NPAs, and past due loans and leases detail for each of the last five quarters.
Table 11 — Non-Performing Loans (NPLs), Non-Performing Assets (NPAs) and Past Due Loans and Leases
                                         
    2007   2006
(in thousands)   June 30,   March 31,   December 31,   September 30,   June 30,
     
Non-accrual loans and leases:
                                       
Middle market commercial and industrial
  $ 41,644     $ 32,970     $ 35,657     $ 37,082     $ 45,713  
Middle market commercial real estate
    81,108       42,458       34,831       27,538       24,970  
Small business
    32,059       30,015       25,852       21,356       27,328  
Residential mortgage
    39,868       35,491       32,527       30,289       22,786  
Home equity
    16,837       16,396       15,266       13,047       14,466  
     
Total NPLs
    211,516       157,330       144,133       129,312       135,263  
 
                                       
Other real estate, net:
                                       
Residential
    47,712       47,762       47,898       40,615       34,743  
Commercial
    1,957       1,586       1,589       1,285       1,062  
     
Total other real estate, net
    49,669       49,348       49,487       41,900       35,805  
     
Total NPAs
  $ 261,185     $ 206,678     $ 193,620     $ 171,212     $ 171,068  
     
 
                                       
NPAs guaranteed by the U.S. government
  $ 24,877     $ 28,748     $ 33,858     $ 33,676     $ 30,710  
 
                                       
NPLs as a % of total loans and leases
    0.79 %     0.60 %     0.55 %     0.49 %     0.51 %
 
                                       
NPAs as a % of total loans and leases and other real estate
    0.97       0.79       0.74       0.65       0.65  
 
                                       
Accruing loans and leases past due 90 days or more
  $ 67,277     $ 70,179     $ 59,114     $ 62,054     $ 48,829  
 
                                       
Accruing loans and leases past due 90 days or more as a percent of total loans and leases
    0.25 %     0.27 %     0.23 %     0.24 %     0.19 %
     NPAs were $261.2 million at June 30, 2007, and represented 0.97% of related assets. This represented a $90.1 million, or 53%, increase from $171.1 million, or 0.65% of related assets, at the end of the year-ago quarter; a $67.6 million, or 35%, increase from $193.6 million, or 0.74% of related assets, at December 31, 2006; and a $54.5 million, or 26%, increase from $206.7 million, or 0.79% of related assets, at March 31, 2007. The three commercial loan relationships noted in prior comments accounted for $43.5 million of the net increase from the prior quarter.
     Contributing to the $90.1 million increase in NPAs from the year-ago period was a $76.3 million increase in NPLs and a $13.9 million increase in other real estate owned (OREO). The $76.3 million, or 56%, increase in NPLs primarily reflected a $56.1 million increase in middle market CRE NPLs, with $28.5 million related to the two commercial real estate relationships classified as NPLs in the 2007 second quarter. Residential mortgage NPLs increased $17.1 million from the year-ago quarter, continuing to reflect the softness in the overall residential market. This increase was consistent with our expectations for the portfolio and in line with the increased charge-off rates from the year-ago quarter.

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     Compared with the 2006 fourth quarter, NPAs increased $67.6 million, or 35%, almost entirely due to higher NPLs as OREO was little changed. Of the $67.4 million increase in NPLs, middle market CRE loans contributed $46.3 million, with $28.5 million attributable to the two eastern Michigan commercial real estate relationships. Middle market C&I loan NPLs increased $6.0 million, reflecting the $15.0 million related to the one northern Ohio commercial credit, partially offset by declines in other loans. The majority of the remainder of the increase resulted from increases of $7.3 million in residential mortgage and $6.2 million in small business.
     Compared with the 2007 first quarter, NPAs increased $54.5 million, or 26%, almost entirely due to higher NPLs as OREO was little changed. Of the $54.2 million increase in NPLs, middle market CRE loans contributed $38.7 million, with $28.5 million attributable to the two eastern Michigan commercial real estate relationships. Middle market C&I loan NPLs increased $8.7 million. This reflected $15.0 million related to the one northern Ohio commercial credit, partially offset by declines in other loans.
     NPLs expressed as a percent of total loans and leases were 0.79% at June 30, 2007, up from 0.51% a year earlier, 0.55% at December 31, 2006, and from 0.60% at March 31, 2007.
     The over 90-day delinquent, but still accruing, ratio was 0.25% at June 30, 2007, up from 0.19% at June 30, 2006 and from 0.23% at December 31, 2006, but down from 0.27% at March 31, 2007.
     Non-performing asset activity for each of the last five quarters ended June 30, 2007, and for the first six month periods of 2007 and 2006 was as follows:
Table 12 — Non-Performing Assets (NPAs) Activity
                                         
    2007   2006
(in thousands)   Second   First   Fourth   Third   Second
     
NPAs, beginning of period
  $ 206,678     $ 193,620     $ 171,212     $ 171,068     $ 154,893  
New NPAs
    112,348       51,588       60,287       55,490       52,498  
Returns to accruing status
    (4,674 )     (6,176 )     (5,666 )     (11,880 )     (12,143 )
NPA losses
    (27,149 )     (9,072 )     (11,908 )     (14,143 )     (6,826 )
Payments
    (19,662 )     (18,086 )     (16,673 )     (16,709 )     (12,892 )
Sales
    (6,356 )     (5,196 )     (3,632 )     (12,614 )     (4,462 )
     
NPAs, end of period
  $ 261,185     $ 206,678     $ 193,620     $ 171,212     $ 171,068  
     
                 
    Six Months Ended June 30,
(in thousands)   2007   2006
 
NPAs, beginning of period
  $ 193,620     $ 117,155  
New NPAs (1)
    163,936       106,266  
Acquired NPAs
          33,843  
Returns to accruing status
    (10,850 )     (26,453 )
Loan and lease losses
    (36,221 )     (20,140 )
Payments
    (37,748 )     (26,087 )
Sales
    (11,552 )     (13,516 )
 
NPAs, end of period
  $ 261,185     $ 171,068  
 
 
(1)   Beginning in the second quarter of 2006, new non-performing assets includes OREO 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.

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Allowances for Credit Losses (ACL)
(This section should be read in conjunction with Significant Items 3 and 5.)
     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 expectation.
     We have an established monthly 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 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.
     At June 30, 2007, the ALLL was $307.5 million, up from $287.5 million a year earlier, $272.1 million at December 31, 2006, and $283.0 million at March 31, 2007. Expressed as a percent of total average loans and leases, the ALLL ratio at June 30, 2007, was 1.15%, up from 1.09% a year ago, 1.04% at December 31, 2006, and 1.08% at March 31, 2007.
     The increase in the transaction reserve component reflected the impact of increasing monitored credits, primarily resulting from softness in the residential and commercial real estate markets in the Midwest. The three relationships noted in the prior comments represented over half of the additional required reserve, with the remaining increase associated with the proper and timely recognition of relationships meeting the monitored credit definition. Our reserve methodology is designed to increase the reserve levels as potential problems are identified. Although monitored credits increased during the quarter, on both an absolute basis and as a percentage of total loans and leases, they were consistent with the level of the year-ago quarter.
     The ALLL as a percent of NPLs was 145% at June 30, 2007, down from 213% a year ago, 189% at December 31, 2006, and from 180% at March 31, 2007. The ALLL as a percent of NPAs was 118% at June 30, 2007, down from 168% a year ago, 141% at December 31, 2006, and from 137% at March 31, 2007. At June 30, 2007, the AULC was $41.6 million, up from $38.9 million at the end of the year-ago quarter, $40.2 million at December 31, 2006, and from $40.5 million at March 31, 2007.

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     On a combined basis, the ACL as a percent of total loans and leases at June 30, 2007, was 1.30%, up from 1.24% a year ago, 1.19% at December 31, 2006, and from 1.23% at March 31, 2007. The ACL as a percent of NPAs was 134% at June 30, 2007, down from 191% a year earlier, 161% at December 31, 2006, and 157% at March 31, 2007.
     Table 13 reflects activity in the ALLL and AULC for each of the last five quarters.
Table 13 — Quarterly Credit Reserves Analysis
                                         
    2007   2006
(in thousands)   Second   First   Fourth   Third   Second
     
Allowance for loan and lease losses, beginning of period
  $ 282,976     $ 272,068     $ 280,152     $ 287,517     $ 283,839  
Acquired allowance for loan and lease losses
                      100   (1)     1,498   (1)
Loan and lease losses
    (44,158 )     (27,813 )     (32,835 )     (29,127 )     (24,325 )
Recoveries of loans previously charged off
    9,658       9,695       9,866       7,888       10,373  
     
Net loan and lease losses
    (34,500 )     (18,118 )     (22,969 )     (21,239 )     (13,952 )
     
Provision for loan and lease losses
    59,043       29,026       14,885       13,774       16,132  
     
Allowance for loan and lease losses, end of period
  $ 307,519     $ 282,976     $ 272,068     $ 280,152     $ 287,517  
     
 
                                       
Allowance for unfunded loan commitments and letters of credit, beginning of period
  $ 40,541     $ 40,161     $ 39,302     $ 38,914     $ 39,301  
 
                                       
Provision for unfunded loan commitments and letters of credit losses
    1,090       380       859       388       (387 )
     
Allowance for unfunded loan commitments and letters of credit, end of period
  $ 41,631     $ 40,541     $ 40,161     $ 39,302     $ 38,914  
     
Total allowances for credit losses
  $ 349,150     $ 323,517     $ 312,229     $ 319,454     $ 326,431  
     
 
                                       
Allowance for loan and lease losses (ALLL) as % of:
                                       
Transaction reserve
    0.94 %     0.89 %     0.86 %     0.86 %     0.89 %
Economic reserve
    0.21       0.19       0.18       0.20       0.20  
     
Total loans and leases
    1.15 %     1.08 %     1.04 %     1.06 %     1.09 %
     
NPLs
    145       180       189       217       213  
NPAs
    118       137       141       164       168  
 
                                       
Total allowances for credit losses (ACL) as % of:
                                       
Total loans and leases
    1.30 %     1.23 %     1.19 %     1.21 %     1.24 %
NPLs
    165       206       217       247       241  
NPAs
    134       157       161       187       191  
Non-guaranteed commercial and NPAs
    249       360       389       456       403  
 
 
(1)   Represents an adjustment of the allowance and corresponding adjustment to loan balances, resulting from the Unizan merger.

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     Table 14 reflects activity in the ALLL and AULC for the first six month periods of 2007 and 2006.
Table 14 — Year to Date Credit Reserves Analysis
                 
    Six Months Ended June 30,
(in thousands)   2007   2006
 
Allowance for loan and lease losses, beginning of period
  $ 272,068     $ 268,347  
Acquired allowance for loan and lease losses
          23,685  
Loan and lease losses
    (71,971 )     (57,730 )
Recoveries of loans previously charged off
    19,353       19,562  
 
Net loan and lease losses
    (52,618 )     (38,168 )
 
Provision for loan and lease losses
    88,069       33,653  
 
Allowance for loan and lease losses, end of period
  $ 307,519     $ 287,517  
 
 
               
Allowance for unfunded loan commitments and letters of credit, beginning of period
  $ 40,161     $ 36,957  
Acquired AULC
          325  
Provision for unfunded loan commitments and letters of credit losses
    1,470       1,632  
 
Allowance for unfunded loan commitments and letters of credit, end of period
  $ 41,631     $ 38,914  
 
Total allowances for credit losses
  $ 349,150     $ 326,431  
 
 
               
Allowance for loan and lease losses (ALLL) as % of:
               
Transaction reserve
    0.94 %     0.89 %
Economic reserve
    0.21       0.20  
 
Total loans and leases
    1.15 %     1.09 %
 
Non-performing loans and leases (NPLs)
    145       213  
Non-performing assets (NPAs)
    118       168  
 
               
Total allowances for credit losses (ACL) as % of:
               
Total loans and leases
    1.30 %     1.24 %
Non-performing loans and leases
    165       241  
Non-performing assets
    134       191  
 

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Net Charge-offs
(This section should be read in conjunction with Significant Items 3 and 5.)
     Table 15 reflects net loan and lease charge-off detail for each of the last five quarters.
Table 15 — Quarterly Net Charge-Off Analysis
                                         
    2007   2006
(in thousands)   Second   First   Fourth   Third   Second
     
Net charge-offs by loan and lease type:
                                       
Commercial:
                                       
Middle market commercial and industrial
  $ 3,628     $ (11 )   $ (1,827 )   $ 1,742     $ (484 )
Middle market commercial real estate:
                                       
Construction
    2,876       9       3,957       (2 )     (161 )
Commercial
    10,428       377       144       644       1,557  
     
Middle market commercial real estate
    13,304       386       4,101       642       1,396  
Small business
    3,603       2,089       4,535       4,451       2,530  
     
Total commercial
    20,535       2,464       6,809       6,835       3,442  
     
Consumer:
                                       
Automobile loans
    1,631       2,853       2,422       1,759       1,172  
Automobile leases
    2,699       2,201       2,866       2,306       1,758  
     
Automobile loans and leases
    4,330       5,054       5,288       4,065       2,930  
Home equity
    5,405       5,968       5,820       6,734       4,776  
Residential mortgage
    1,695       1,931       2,226       876       688  
Other loans
    2,535       2,701       2,826       2,729       2,116  
     
Total consumer
    13,965       15,654       16,160       14,404       10,510  
     
Total net charge-offs
  $ 34,500     $ 18,118     $ 22,969     $ 21,239     $ 13,952  
     
 
                                       
Net charge-offs — annualized percentages:
                                       
Commercial:
                                       
Middle market commercial and industrial
    0.23 %     %     (0.12 )%     0.12 %     (0.04 )%
Middle market commercial real estate:
                                       
Construction
    0.92             1.35             (0.05 )
Commercial
    1.46       0.05       0.02       0.09       0.22  
     
Middle market commercial real estate
    1.29       0.04       0.41       0.06       0.14  
Small business
    0.58       0.34       0.75       0.74       0.43  
     
Total commercial
    0.64       0.08       0.22       0.23       0.12  
     
Consumer:
                                       
Automobile loans
    0.28       0.52       0.46       0.34       0.23  
Automobile leases
    0.70       0.52       0.62       0.47       0.34  
     
Automobile loans and leases
    0.45       0.52       0.54       0.40       0.28  
Home equity
    0.43       0.49       0.47       0.53       0.38  
Residential mortgage
    0.16       0.17       0.19       0.07       0.06  
Other loans
    2.39       2.56       2.63       2.54       1.89  
     
Total consumer
    0.41       0.46       0.46       0.40       0.30  
     
Net charge-offs as a % of average loans
    0.52 %     0.28 %     0.35 %     0.32 %     0.21 %
     

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     Table 16 reflects net loan and lease charge-off detail for the first six month periods of 2007 and 2006.
Table 16 — Year To Date Net Charge-Off Analysis
                 
    Six Months Ended June 30,
(in thousands)   2007   2006
 
Net charge-offs by loan and lease type:
               
Commercial:
               
Middle market commercial and industrial
  $ 3,617     $ 6,403  
Middle market commercial real estate:
               
Construction
    2,885       (402 )
Commercial
    10,805       1,767  
 
Middle market commercial real estate
    13,690       1,365  
Small business
    5,692       6,239  
 
Total commercial
    22,999       14,007  
 
Consumer:
               
Automobile loans
    4,484       4,149  
Automobile leases
    4,900       5,273  
 
Automobile loans and leases
    9,384       9,422  
Home equity
    11,373       9,300  
Residential mortgage
    3,626       1,403  
Other loans
    5,236       4,036  
 
Total consumer
    29,619       24,161  
 
Total net charge-offs
  $ 52,618     $ 38,168  
 
 
               
Net charge-offs — annualized percentages:
               
Commercial:
               
Middle market commercial and industrial
    0.12 %     0.04 %
Middle market commercial real estate:
               
Construction
    0.48       (0.06 )
Commercial
    0.77       0.13  
 
Middle market commercial real estate
    0.68       0.07  
Small business
    0.46       0.57  
 
Total commercial
    0.36       0.24  
 
Consumer:
               
Automobile loans
    0.40       0.41  
Automobile leases
    0.60       0.49  
 
Automobile loans and leases
    0.48       0.45  
Home equity
    0.46       0.38  
Residential mortgage
    0.16       0.06  
Other loans
    2.48       1.80  
 
Total consumer
    0.43       0.34  
 
Net charge-offs as a % of average loans
    0.40 %     0.30 %
 
2007 Second Quarter versus 2006 Second Quarter and 2007 First Quarter
     Total net charge-offs for the 2007 second quarter were $34.5 million, or an annualized 0.52% of average total loans and leases, including $12.2 million, or an annualized 0.18%, associated with the two eastern Michigan commercial real estate credit relationships noted above. This performance was above the long-term targeted range of 0.35%-0.45%, as well as being above the $14.0 million, or an annualized 0.21%, in the year-ago quarter, $23.0 million, or an annualized 0.35%, in the 2006 fourth quarter, and $18.1 million, or an annualized 0.28%, of average total loans and leases in the 2007 first quarter. It is expected that full-year 2007 net charge-offs will be in the mid- to upper-half of our targeted 0.35%-0.45% range, with commercial net charge-offs remaining under pressure, but consumer portfolio net charge-offs remaining generally stable.

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     Total commercial net charge-offs in the second quarter were $20.5 million, or an annualized 0.64%. This increased $17.1 million from $3.4 million, or an annualized 0.12%, in the year-ago quarter; increased $13.7 million from $6.8 million, or an annualized 0.22% in the 2006 fourth quarter; and increased $18.1 million from $2.5 million, or an annualized 0.08%, in the 2007 first quarter. The increase reflected the two commercial real estate credit relationships noted above. Net charge-offs of small business loans were $3.6 million, or an annualized 0.58%, in the current quarter. This compared unfavorably with $2.5 million, or an annualized 0.43%, in the year-ago quarter, and $2.1 million, or an annualized 0.34%, in the 2007 first quarter; however, compared favorably with $4.5 million, or an annualized 0.75%, in the 2006 fourth quarter.
     Total consumer net charge-offs in the current quarter were $14.0 million, up $3.5 million, or 33%, from $10.5 million in the year-ago quarter; however, decreased $2.2 million, or 14%, from the 2006 fourth quarter and $1.7 million, or 11%, from the 2007 first quarter. When expressed as an annualized percentage, total consumer net charge-offs in the 2007 second quarter were 0.41% of average related loans, up from an annualized 0.30% in the year-ago quarter; however, down from an annualized 0.46% in both the 2006 fourth quarter and 2007 first quarter.
     Automobile loan and lease net charge-offs increased $1.4 million, or 48%, from the year-ago quarter, but declined $1.0 million, or 18%, from the 2006 fourth quarter, and $0.7 million, or 14%, from the 2007 first quarter. Expressed as an annualized percent of average total automobile loans and leases, such charge-offs were 0.45% in the current quarter, up from an annualized 0.28% in the year-ago quarter, but down from an annualized 0.54% in the 2006 fourth quarter and an annualized 0.52% in the 2007 first quarter. Some of the decline from the prior quarter was seasonal. Overall, the automobile loan and lease portfolios continued to perform well within expectations.
     Residential mortgage net charge-offs totaled $1.7 million, or an annualized 0.16% of related average balances. While higher than $0.7 million, or an annualized 0.06%, in the year-ago quarter, they were lower than the $2.2 million, or an annualized 0.19%, in the 2006 fourth quarter and the $1.9 million, or an annualized 0.17%, in the 2007 first quarter.
     Home equity net charge-offs in the 2007 second quarter were $5.4 million, or an annualized 0.43%, up from $4.8 million, or an annualized 0.38%, in the year-ago quarter, but down from $5.8 million, or an annualized 0.47%, in the 2006 fourth quarter, and $6.0 million, or an annualized 0.49%, in the 2006 first quarter.
2007 First Six Months versus 2006 First Six Months
     Total net charge-offs for the first six month period of 2007 were $52.6 million, or an annualized 0.40% of average total loans and leases, up from $38.2 million, or an annualized 0.30% in the comparable year-ago period. While higher than in the comparable year-ago period, this performance remained within our long-term annualized net charge-off targeted range of 0.35%-0.45%.
     This increase was driven primarily by an increase in total commercial net charge-offs that totaled $23.0 million, or an annualized 0.36 %, up $9.0 million, or 64%, from $14.0 million, or an annualized 0.24%, in the comparable year-ago period. The increase reflected $12.2 million associated with the two commercial real estate credit relationships noted above.
     Total consumer net charge-offs in for the first six month period of 2007 were $29.6 million, up $5.5 million, or 23%, from $24.2 million in the comparable year-ago period. When expressed as an annualized percentage, total consumer net charge-offs for the first six month period of 2007 were 0.43% of average related loans, up from an annualized 0.34% in the comparable year-ago period. Automobile loan and lease net charge-offs were little changed. Residential mortgage net charge-offs totaled $3.6 million, or an annualized 0.16% of related average balances. Home equity net charge-offs for the first six month period of 2007 were $11.4 million, or an annualized 0.46%, up from $9.3 million, or an annualized 0.38%, in the comparable year-ago period.
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.

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Interest Rate Risk
     Interest rate risk results from timing differences in the repricings and maturities of assets and liabilities, and changes in relationships between market interest rates and the yields on assets and rates on liabilities, as well as from the impact of embedded options, such as borrowers’ ability to prepay residential mortgage loans at any time and depositors’ ability to terminate CDs before maturity.
     Our board of directors establishes broad policy limits with respect to interest rate risk. Our Market Risk Committee (MRC) establishes specific operating guidelines within the parameters of the board of directors’ policies. In general, we seek to minimize the impact of changing interest rates on net interest income and the economic values of assets and liabilities. Our MRC regularly monitors the level of interest rate risk sensitivity to ensure compliance with board of directors approved risk limits.
     Interest rate risk management is a dynamic process that encompasses monitoring loan and deposit flows, investment and funding activities, and assessing the impact of the changing market and business environments. Effective management of interest rate risk begins with understanding the interest rate characteristics of assets and liabilities and determining the appropriate interest rate risk posture given market expectations and policy objectives and constraints.
     Interest rate risk modeling is performed monthly. Two broad approaches to modeling interest rate risk are employed: income simulation and economic value analysis. An income simulation analysis is used to measure the sensitivity of forecasted net interest income to changes in market rates over a one-year time horizon. Although bank owned life insurance and automobile operating lease assets are classified as non-interest earning assets, and the income from these assets is in non-interest income, these portfolios are included in the interest sensitivity analysis because both have attributes similar to fixed-rate interest earning assets. The economic value of equity (EVE) is calculated by subjecting the period-end balance sheet to changes in interest rates, and measuring the impact of the changes on the values of the assets and liabilities. EVE serves as a complement to income simulation modeling as it provides risk exposure estimates for time periods beyond the one-year simulation horizon. Similar to income simulation modeling, EVE analysis also includes the risks of bank owned life insurance and the mortgage servicing asset.
     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 June 30, 2007, March 31, 2007, and December 31, 2006. All of the positions were well within the board of directors’ policy limits.

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Table 17 — Net Interest Income at Risk
                                 
    Net Interest Income at Risk (%)
Basis point change scenario   -200     -100     +100     +200  
     
June 30, 2007
    -0.2 %     +0.1 %     +0.2 %     +0.2 %
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 June 30, 2007 results compared to March 31, 2007 and December 31, 2006.
Table 18 — Economic Value of Equity at Risk
                                 
    Economic Value of Equity at Risk (%)
Basis point change scenario   -200     -100     +100     +200  
     
June 30, 2007
    +1.4 %     +2.4 %     -5.9 %     -12.1 %
March 31, 2007
    -0.3 %     +1.1 %     -4.5 %     -10.5 %
December 31, 2006
    +0.5 %     +1.4 %     -4.7 %     -11.3 %
     The change in the EVE at risk from March 31, 2007 to June 30, 2007 was the result of two primary factors: (1) higher market interest rates during the second quarter decreased the level of projected prepayments on mortgage-related assets which resulted in additional sensitivity of EVE risk, and (2) actions taken at the end of the second quarter to strategically manage the interest rate risk of the combined Huntington/Sky balance sheet in anticipation of the Sky Financial acquisition on July 1, 2007 temporarily increased the sensitivity of EVE risk to Huntington’s stand-alone balance sheet as of June 30, 2007. However, it is anticipated that the EVE at risk of the combined Huntington/Sky balance sheet will be less sensitive to changes in interest rates.
     The change in the EVE at risk from December 31, 2006 to June 30, 2007 was the result of the two factors discussed above as well as actions taken at the beginning of the first quarter to strategically mitigate downside risk resulting from increases in market interest rates.
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 fair value 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, investments in securities backed by mortgage loans to borrowers with low FICO scores, 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.
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.

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     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 our funding needs.

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Table 19 — Deposit Composition (1)
                                                                                 
    2007   2006
(in thousands)   June 30,       March 31,       December 31,       September 30,       June 30,    
    (Unaudited)                                                                
By Type
                                                                               
Demand deposits — non-interest bearing
  $ 3,625,540       14.7 %   $ 3,696,231       15.0 %   $ 3,615,745       14.4 %   $ 3,480,888       14.1 %   $ 3,530,828       14.4 %
Demand deposits — interest bearing
    2,496,250       10.1       2,486,304       10.1       2,389,085       9.5       2,243,153       9.1       2,228,028       9.1  
Money market deposits
    5,323,707       21.6       5,568,104       22.6       5,362,459       21.4       5,678,252       23.0       5,474,283       22.3  
Savings and other domestic deposits
    2,845,945       11.6       2,879,098       11.7       2,986,287       11.9       3,011,268       12.2       3,125,513       12.7  
Core certificates of deposit
    5,738,598       23.3       5,408,289       22.0       5,364,610       21.4       5,313,473       21.5       5,171,410       21.0  
     
Total core deposits
    20,030,040       81.3       20,038,026       81.4       19,718,186       78.6       19,727,034       79.9       19,530,062       79.5  
Other domestic deposits of $100,000 or more
    1,052,545       4.3       1,287,186       5.2       1,191,984       4.8       1,259,720       5.1       1,111,153       4.5  
Brokered deposits and negotiable CDs
    2,920,726       11.9       2,721,927       11.1       3,345,943       13.4       3,183,489       12.9       3,475,032       14.1  
Deposits in foreign offices
    596,601       2.5       538,754       2.3       791,657       3.2       568,152       2.1       476,685       1.9  
     
Total deposits
  $ 24,599,912       100.0 %   $ 24,585,893       100.0 %   $ 25,047,770       100.0 %   $ 24,738,395       100.0 %   $ 24,592,932       100.0 %
     
 
                                                                               
Total core deposits:
                                                                               
Commercial
  $ 6,267,644       31.3 %   $ 6,314,309       31.5 %   $ 6,063,372       30.8 %   $ 6,214,462       31.5 %   $ 5,906,817       30.2 %
Personal
    13,762,396       68.7       13,723,717       68.5       13,654,814       69.2       13,512,572       68.5       13,623,245       69.8  
     
Total core deposits
  $ 20,030,040       100.0 %   $ 20,038,026       100.0 %   $ 19,718,186       100.0 %   $ 19,727,034       100.0 %   $ 19,530,062       100.0 %
     
 
By Business Segment
                                                                               
Regional Banking:
                                                                               
Central Ohio
  $ 5,366,222       21.6 %   $ 5,391,855       21.9 %   $ 5,337,964       21.3 %   $ 5,249,624       21.2 %   $ 5,150,636       20.9 %
Northwest Ohio
    1,097,765       4.5       1,062,255       4.3       1,043,918       4.2       1,008,951       4.1       991,449       4.0  
Greater Cleveland
    2,025,824       8.2       2,020,165       8.2       1,995,203       8.0       2,126,795       8.6       2,022,416       8.2  
Greater Akron/Canton
    1,883,329       7.7       1,909,677       7.8       1,894,707       7.6       1,896,046       7.7       1,886,177       7.7  
Southern Ohio / Kentucky
    2,353,087       9.6       2,353,129       9.6       2,275,880       9.1       2,212,443       8.9       2,226,410       9.1  
Mahoning Valley
                                                           
Ohio Valley
                                                           
West Michigan
    2,820,076       11.5       2,826,489       11.5       2,757,434       11.0       2,938,112       11.9       2,794,728       11.4  
East Michigan
    2,357,108       9.6       2,460,100       10.0       2,418,450       9.7       2,357,607       9.5       2,258,800       9.2  
Western Pennsylvania
                                                           
Pittsburgh
                                                           
Central Indiana
    851,839       3.5       903,119       3.7       819,106       3.3       847,726       3.4       828,706       3.4  
West Virginia
    1,586,407       6.4       1,547,095       6.3       1,515,999       6.1       1,517,834       6.1       1,514,592       6.2  
Mortgage and equipment leasing groups
    176,214       0.7       163,456       0.7       171,946       0.7       146,119       0.6       165,846       0.7  
     
Regional Banking
    20,517,871       83.3       20,637,340       83.9       20,230,607       80.8       20,301,257       82.1       19,839,760       80.7  
Dealer Sales
    57,554       0.2       54,644       0.2       58,885       0.2       58,918       0.2       60,513       0.2  
Private Financial and Capital Markets Group
    1,103,760       4.5       1,171,982       4.8       1,162,335       4.6       1,144,731       4.6       1,217,627       5.0  
Treasury / Other (2)
    2,920,727       12.0       2,721,927       11.1       3,595,943       14.4       3,233,489       13.1       3,475,032       14.1  
     
Total deposits
  $ 24,599,912       100.0 %   $ 24,585,893       100.0 %   $ 25,047,770       100.0 %   $ 24,738,395       100.0 %   $ 24,592,932       100.0 %
     
(1)   Reflects post-Sky merger organizational structure that became effective on July 1, 2007, therefore, the balances presented do not include the impact of the acquisition.