Huntington Bancshares Incorporated 10-Q

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, 2006

Commission File Number 0-2525

Huntington Bancshares Incorporated


Maryland		31-0724920
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

41 South High Street, Columbus, Ohio 43287

Registrant’s telephone number (614) 480-8300

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ Accelerated filer o Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). oYes þNo

There were 237,531,790 shares of Registrant’s without par value common stock outstanding on July 31, 2006.

Huntington Bancshares Incorporated

Condensed Consolidated Balance Sheets


	June 30,			December 31,			June 30,
(in thousands, except number of shares)	2006			2005			2005
	*(Unaudited)*						(Unaudited)
Assets
Cash and due from banks	$	876,121		$	966,445		$	976,432
Federal funds sold and securities purchased under resale agreements		365,592			74,331			121,310
Interest bearing deposits in banks		37,576			22,391			22,758
Trading account securities		113,376			8,619			328,715
Loans held for sale		298,871			294,344			395,053
Investment securities		5,124,682			4,526,520			3,849,955
Loans and leases:
Commercial and industrial loans		7,473,158			6,809,208			6,206,393
Commercial real estate loans		4,558,610			4,036,171			4,518,875
Automobile loans		2,059,836			1,985,304			2,045,771
Automobile leases		2,042,215			2,289,015			2,458,432
Home equity loans		4,888,958			4,638,841			4,683,577
Residential mortgage loans		4,739,814			4,193,139			4,152,203
Other consumer loans		591,990			520,488			501,897

Total loans and leases		26,354,581			24,472,166			24,567,148
Allowance for loan and lease losses		(287,517	)		(268,347	)		(254,784	)

Net loans and leases		26,067,064			24,203,819			24,312,364

Operating lease assets		131,943			229,077			353,678
Bank owned life insurance		1,070,909			1,001,542			983,302
Premises and equipment		365,763			360,677			356,697
Goodwill		571,697			212,530			212,200
Other intangible assets		64,141			4,956			5,376
Accrued income and other assets		1,178,042			859,554			1,071,134

Total assets	$	36,265,777		$	32,764,805		$	32,988,974


Liabilities and shareholders’ equity Liabilities
Deposits in domestic offices
Demand deposits — non-interest bearing	$	3,530,828		$	3,390,044		$	3,221,352
Interest bearing		20,585,420			18,548,943			18,677,408
Deposits in foreign offices		476,684			470,688			431,816

Total deposits		24,592,932			22,409,675			22,330,576
Short-term borrowings		2,125,932			1,889,260			1,266,535
Federal Home Loan Bank advances		1,271,678			1,155,647			903,864
Other long-term debt		2,716,784			2,418,419			3,034,154
Subordinated notes		1,255,278			1,023,371			1,046,283
Allowance for unfunded loan commitments and letters of credit		38,914			36,957			37,511
Deferred income tax liability		615,543			743,655			784,504
Accrued expenses and other liabilities		709,560			530,320			954,772

Total liabilities		33,326,621			30,207,304			30,358,199


Shareholders’ equity
Preferred stock — authorized 6,617,808 shares; none outstanding		—			—			—
Common stock — without par value; authorized 500,000,000 shares; issued 257,866,255 shares; outstanding 237,361,333; 224,106,172 and 230,842,020 shares, respectively		2,552,094			2,491,326			2,487,981
Less 20,504,922; 33,760,083 and 27,024,235 treasury shares respectively.		(457,758	)		(693,576	)		(526,814	)
Accumulated other comprehensive loss		(44,091	)		(22,093	)		(720	)
Retained earnings		888,911			781,844			670,328

Total shareholders’ equity		2,939,156			2,557,501			2,630,775

Total liabilities and shareholders’ equity	$	36,265,777		$	32,764,805		$	32,988,974

See notes to unaudited condensed consolidated financial statements

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)	2006			2005			2006			2005

Interest and fee income
Loans and leases
Taxable	$	445,924		$	352,341		$	845,270		$	677,936
Tax-exempt		520			383			1,029			695
Investment securities
Taxable		60,517			37,355			112,960			75,590
Tax-exempt		5,894			4,341			11,606			8,648
Other		9,048			7,906			15,825			15,562

Total interest income		521,903			402,326			986,690			778,431

Interest expense		173,032			104,559			321,346			193,727
Deposits
Short-term borrowings		20,969			7,086			35,634			11,914
Federal Home Loan Bank advances		17,077			8,663			31,565			17,346
Subordinated notes and other long-term debt		48,630			40,118			92,270			78,346

Total interest expense		259,708			160,426			480,815			301,333

Net interest income		262,195			241,900			505,875			477,098
Provision for credit losses		15,745			12,895			35,285			32,769

Net interest income after provision for credit losses		246,450			229,005			470,590			444,329

Operating lease income		14,851			38,097			34,241			84,829
Service charges on deposit accounts		47,225			41,516			88,447			80,934
Trust services		22,676			19,113			43,954			37,309
Brokerage and insurance income		14,345			13,544			29,538			26,570
Bank owned life insurance income		10,604			10,139			20,846			20,243
Other service charges and fees		13,072			11,252			24,581			21,411
Mortgage banking income		20,355			(2,376	)		38,187			9,685
Securities gains (losses), net		(35	)		(343	)		(55	)		614
Gains on sales of automobile loans		532			254			980			254
Other income		19,394			24,974			41,834			42,371

Total non-interest income		163,019			156,170			322,553			324,220

Operating lease expense		10,804			28,879			25,411			66,827
Personnel costs		137,904			124,090			269,461			248,071
Net occupancy		17,927			17,257			35,893			36,499
Outside data processing and other services		19,569			18,113			39,420			36,883
Equipment		18,009			15,637			34,512			31,500
Professional services		6,292			9,347			11,657			18,806
Marketing		10,374			6,934			17,675			12,770
Telecommunications		4,990			4,801			9,815			9,683
Printing and supplies		3,764			3,293			6,838			6,387
Amortization of intangibles		2,992			204			4,067			408
Other expense		19,734			19,581			36,025			38,579

Total non-interest expense		252,359			248,136			490,774			506,413

Income before income taxes		157,110			137,039			302,369			262,136
Provision for income taxes		45,506			30,614			86,309			59,192

Net income	$	111,604		$	106,425		$	216,060		$	202,944


Average common shares — basic		241,729			232,217			236,349			232,021
Average common shares — diluted		244,538			235,671			239,451			235,362

Per common share
Net income — basic	$	0.46		$	0.46		$	0.91		$	0.87
Net income — diluted		0.46			0.45			0.90			0.86
Cash dividends declared		0.250			0.215			0.500			0.415

See notes to unaudited condensed consolidated financial statements

Condensed Consolidated Statements of Changes in Shareholders’ Equity


												Accumulated
												Other
	Common Stock					Treasury Shares						Comprehensive			Retained
(in thousands)	Shares		Amount			Shares			Amount			Income (Loss)			Earnings			Total

Six Months Ended June 30, 2005 (Unaudited):
Balance, beginning of period		257,866	$	2,484,204			(26,261	)	$	(499,259	)	$	(10,903	)	$	563,596		$	2,537,638
Comprehensive Income:
Net income																202,944			202,944
Unrealized net gains on investment securities arising during the period, net of reclassification of net realized gains													5,248						5,248
Unrealized gains on cash flow hedging derivatives													4,935						4,935

Total comprehensive income																			213,127

Cash dividends declared ($0.415 per share)																(96,212	)		(96,212	)
Treasury shares purchased							(1,818	)		(44,178	)								(44,178	)
Stock options exercised				1,882			852			16,159									18,041
Other				1,895			203			464									2,359


Balance, end of period (Unaudited)		257,866	$	2,487,981			(27,024	)	$	(526,814	)	$	(720	)	$	670,328		$	2,630,775


Six Months Ended June 30, 2006 (Unaudited):
Balance, beginning of period		257,866	$	2,491,326			(33,760	)	$	(693,576	)	$	(22,093	)	$	781,844		$	2,557,501
Comprehensive Income:
Net income																216,060			216,060
Cumulative effect of change in accounting principle for servicing financial assets, net of tax of $6,521																12,110			12,110
Unrealized net losses on investment securities arising during the period, net of reclassification of net realized gains													(35,707	)					(35,707	)
Unrealized gains on cash flow hedging derivatives													13,709						13,709

Total comprehensive income																			206,172

Cash dividends declared ($0.50 per share)																(121,103	)		(121,103	)
Shares issued pursuant to acquisition				53,366			25,350			522,390									575,756
Stock based compensation expense				8,547															8,547
Treasury shares purchased							(12,931	)		(303,943	)								(303,943	)
Stock options exercised, net of related tax effects				(1,196	)		880			18,445									17,249
Other				51			(44	)		(1,074	)								(1,023	)


Balance, end of period (Unaudited)		257,866	$	2,552,094			(20,505	)	$	(457,758	)	$	(44,091	)	$	888,911		$	2,939,156

See notes to unaudited condensed consolidated financial statements.

Huntington Bancshares Incorporated

Condensed Consolidated Statements of Cash Flows
(Unaudited)


	Six Months Ended
	June 30,
(in thousands of dollars)	2006			2005

Operating activities
Net income	$	216,060		$	202,944
Adjustments to reconcile net income to net cash provided by operating activites:
Provision for credit losses		35,285			32,769
Depreciation on operating lease assets		23,666			61,263
Amortization of mortgage servicing rights		—			9,948
Other depreciation and amortization		37,679			39,153
Mortgage servicing rights impairment charges		—			6,471
Mortgage servicing rights valuation adjustment		(10,669	)		—
Stock-based compensation expense		8,547			—
Deferred income tax (benefit) expense		(123,830	)		4,305
Increase in trading account securities		(27,290	)		(19,085	)
Originations of loans held for sale		(1,318,453	)		(1,065,372	)
Principal payments on and proceeds from loans held for sale		1,313,926			893,788
Losses (gains) on sales of investment securities		55			(614	)
Gains on sales/securitizations of loans		(980	)		(254	)
Increase of cash surrender value of bank owned life insurance		(20,846	)		(20,243	)
Increase (decrease) in payable to investors in sold loans		4,498			(134,561	)
Other, net		(235,146	)		(113,052	)

Net cash used for operating activities		(97,498	)		(102,540	)


Investing activities
Increase in interest bearing deposits in banks		(12,089	)		(360	)
Net cash received for acquisition		66,507			—
Proceeds from:
Maturities and calls of investment securities		241,871			207,874
Sales of investment securities		376,263			1,476,685
Purchases of investment securities		(1,024,048	)		(1,273,933	)
Net loan and lease originations, excluding sales		(246,265	)		(1,056,834	)
Purchases of equipment for operating lease assets		(10,934	)		(8,353	)
Proceeds from sale of operating lease assets		82,139			174,427
Proceeds from sale of premises and equipment		4,100			989
Purchases of premises and equipment		(12,645	)		(28,500	)
Proceeds from sales of other real estate		6,767			41,899

Net cash used for investing activities		(528,334	)		(466,106	)


Financing activities
Increase in deposits		495,827			1,562,607
Increase in short-term borrowings		157,532			59,302
Proceeds from issuance of subordinated notes		250,000			—
Proceeds from Federal Home Loan Bank advances		2,162,050			557,789
Maturity of Federal Home Loan Bank advances		(2,148,969	)		(925,013	)
Proceeds from issuance of long-term debt		935,000			—
Maturity of long-term debt		(635,549	)		(975,000	)
Tax benefits in excess of recognized compensation cost for share-based payments		668			—
Dividends paid on common stock		(103,096	)		(92,520	)
Repurchases of common stock		(303,943	)		(44,178	)
Net proceeds from issuance of common stock		17,249			18,041

Net cash provided by financing activities		826,769			161,028

Change in cash and cash equivalents		200,937			(407,618	)
Cash and cash equivalents at beginning of period		1,040,776			1,505,360

Cash and cash equivalents at end of period	$	1,241,713		$	1,097,742


Supplemental disclosures:
Income taxes paid	$	194,505		$	95,611
Interest paid		463,979			279,823
Non-cash activities
Common stock dividends accrued, paid in subsequent quarter		46,884			39,613
Stock issued for purchase acquisition		575,756			—

See notes to unaudited condensed consolidated financial statements.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 — Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Huntington Bancshares Incorporated (Huntington or the Company) reflect all adjustments consisting of normal recurring accruals, which are, in the opinion of Management, necessary for a fair presentation of the consolidated financial position, the results of operations, and cash flows for the periods presented. These unaudited condensed consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission (SEC or Commission) and, therefore, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been omitted. The Notes to Consolidated Financial Statements appearing in Huntington’s 2005 Annual Report on Form 10-K (2005 Form 10-K), which include descriptions of significant accounting policies, as updated by the information contained in this report, should be read in conjunction with these interim financial statements.

Certain amounts in the prior-year’s financial statements have been reclassified to conform to the 2006 presentation.

For statement of cash flows purposes, cash and cash equivalents are defined as the sum of “Cash and due from banks” and “Federal funds sold and securities purchased under resale agreements.”

Note 2 — New Accounting Pronouncements

Financial Accounting Standards Board (FASB) Statement No. 123 (revised 2004), Share-Based Payment (Statement No. 123R) — Statement No. 123R was issued in December 2004, requiring that the compensation cost relating to share-based payment transactions be recognized in the financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. Statement No. 123R covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. Statement No. 123R replaces FASB Statement No. 123, Accounting for Stock-Based Compensation (Statement No.123), and supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). Statement No. 123, as originally issued in 1995, established as preferable a fair-value-based method of accounting for share-based payment transactions with employees. Effective January 1, 2006, Huntington has adopted Statement No. 123R. The impact of adoption to Huntington’s results of operations is presented in Note 10.

FASB Statement No. 154, Accounting Changes and Error Corrections — a replacement of APB Opinion No. 20 and FASB Statement No. 3 (Statement No. 154) — In May 2005, the FASB issued Statement No. 154, which replaces APB Opinion No. 20, Accounting Changes, and Statement No. 3, Reporting Accounting Changes in Interim Financial Statements. Statement No. 154 changes the requirements for the accounting for and reporting of a change in accounting principle. Statement No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The impact of this new pronouncement was not material to Huntington’s financial condition, results of operations, or cash flows.

FASB Statement No. 155, Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140 (Statement No. 155) — On February 16, 2006, the FASB issued Statement No. 155, which amends Statement No. 133 to simplify the accounting for certain derivatives embedded in other financial instruments (hybrid financial instruments) by permitting fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise required bifurcation, provided that the entire hybrid financial instrument is accounted for on a fair value basis. Statement No. 155 also establishes the requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, which replaces the interim guidance in Derivative Instrument Group Issue D1, Recognition and Measurement of Derivatives: Application of Statement No. 133 to Beneficial Interests in Securitized Financial Assets. Statement No. 155 amends Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities—a replacement of FASB Statement No. 125 (Statement No. 140), to allow a qualifying special-purpose entity to hold a derivative financial instrument that pertains to beneficial interests other than another derivative financial instrument. Statement No. 155 is effective for all financial instruments acquired or issued after the beginning of the first fiscal year that begins after September 15, 2006, with earlier adoption allowed. Huntington adopted Statement No. 155 effective January 1, 2006, with no impact to reported financial results.

FASB Statement No. 156, Accounting for Servicing of Financial Assets — an amendment of FASB Statement No. 140 (Statement No. 156) — In March 2006, the FASB issued Statement No. 156, an amendment of Statement No. 140. This Statement requires all separately recognized servicing rights be initially measured at fair value, if practicable. For each class of separately recognized servicing assets and liabilities, this statement permits Huntington to choose either to report servicing assets and liabilities at fair value or at amortized cost. Under the fair value approach, servicing assets and liabilities are recorded at fair value at each reporting date with changes in fair value recorded in earnings in the period in which the changes occur. Under the amortized cost method, servicing assets and liabilities are amortized in proportion to and over the period of estimated net servicing income or net servicing loss and are assessed for impairment based on fair value at each reporting date. The statement is effective for fiscal years beginning after September 15, 2006, and allows early adoption as of the beginning of a fiscal year for which the entity has not previously issued interim financial statements. Huntington elected to adopt the provisions of Statement No. 156 for mortgage servicing rights effective January 1, 2006, and has recorded mortgage servicing right assets using the fair value provision of the standard. The adoption of Statement No. 156 resulted in an $18.6 million increase in the carrying value of mortgage servicing right assets as of January 1, 2006. The cumulative effect of this change was $12.1 million, net of taxes, which is reflected as an increase in retained earnings in the Condensed Consolidated Statement of Shareholders’ Equity. (See Note 5.)

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. The Company will be required to recognize 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 effective date for application of this interpretation is for periods beginning after December 15, 2006. The cumulative effect of applying the provisions of this Interpretation must be reported as an adjustment to the opening balance of retained earnings for that fiscal period. Huntington is currently evaluating the impact this Interpretation will have on its consolidated financial statements.

Proposed FASB amendment to FAS 132, Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132R — In March 2006, the FASB issued an Exposure Draft, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”. This Exposure Draft would amend the FASB Statements No. 87, 88, 106 and 132R. The intent of the Exposure Draft is to require an employer to recognize in its statement of financial position the overfunded or underfunded status of its defined benefit plans and to recognize as a component of other comprehensive income, net of tax, the actuarial gains and losses and prior service costs and credits that arise during the period. A final statement is expected in the third quarter of 2006. The Company is reviewing the Exposure Draft and evaluating the impact on its consolidated financial statements. Management estimates that, based on the carrying value of its net pension asset at December 31, 2005, the proposed standard would result in a write-down of its pension asset by $155.7 million pre-tax, which would decrease other comprehensive income by $101.2 million in the period that the standard is adopted.

Note 3 — Formal Regulatory Supervisory Agreements

On March 1, 2005, Huntington announced that it had entered into a formal written agreement with the Federal Reserve Bank of Cleveland (FRBC), and The Huntington National Bank (Bank) had entered into a formal written agreement with the Office of the Comptroller of the Currency (OCC), providing for a comprehensive action plan designed to enhance corporate governance, internal audit, risk management, accounting policies and procedures, and financial and regulatory reporting. The agreements called for independent third-party reviews, as well as the submission of written plans and progress reports by Management and would remain in effect until terminated by the banking regulators.

On October 6, 2005, Huntington announced that the OCC had lifted its formal written agreement with the Bank dated February 28, 2005, and that the FRBC written agreement remained in effect. Huntington was verbally advised that it was in full compliance with the financial holding company and financial subsidiary requirements under the Gramm-Leach-Bliley Act (GLB Act). This notification reflected that Huntington and the Bank met both the “well-capitalized” and “well-managed” criteria under the GLB Act.

On May 10, 2006, Huntington announced that the FRBC notified Huntington’s board of directors that Huntington had satisfied the provisions of the written agreement dated February 28, 2005, and that the FRBC, under delegated authority of the Board of Governors of the Federal Reserve System, had terminated the written agreement.

Note 4 — Business Combination

On March 1, 2006, Huntington completed its merger with Canton, Ohio-based Unizan Financial Corp. (Unizan). Unizan operated 42 banking offices in five metropolitan markets in Ohio: Canton, Columbus, Dayton, Newark, and Zanesville.

Under the terms of the merger agreement announced January 27, 2004, and amended November 11, 2004, Unizan shareholders of record as of the close of trading on February 28, 2006, received 1.1424 shares of Huntington common stock for each share of Unizan. The assets and liabilities of the acquired entity were recorded on the Company’s balance sheet at their fair values as of the acquisition date. Unizan’s results of operations have been included in the Company’s consolidated statement of income since the acquisition date.

The following table shows the excess purchase price over carrying value of net assets acquired, preliminary purchase price allocation, and resulting goodwill:


(in thousands)	March 1, 2006

Purchase price	$	575,793
Carrying value of net assets acquired		(194,996	)

Excess of purchase price over carrying value of net assets acquired		380,797

Purchase accounting adjustments:
Loans and leases		17,466
Premises and equipment		421
Accrued income and other assets		257
Deposits		748
Subordinated notes		2,845
Deferred federal income tax liability		11,838
Accrued expenses and other liabilities		8,047

Goodwill and other intangible assets		422,419
Less other intangible assets:
Core deposit intangible		(45,000	)
Other identifiable intangible assets		(18,252	)

Other intangible assets		(63,252	)

Goodwill	$	359,167

Of the $63.3 million of acquired intangible assets, $45.0 million was assigned to core deposit intangible, and $18.3 million was assigned to customer relationship intangibles. The core deposit and customer relationship intangibles have useful lives ranging from 10 to 15 years.

Goodwill resulting from the transaction totaled $359.2 million and was assigned to Regional Banking and the Private Financial and Capital Markets Group in the amount of $341.2 million and $18.0 million, respectively.

The following table summarizes the estimated fair value of the net assets acquired on March 1, 2006 related to the acquisition of Unizan:


(in thousands)	March 1, 2006

Assets
Cash and due from banks	$	66,544
Interest bearing deposits in banks		3,096
Investment securities		300,416
Loans and leases		1,665,006
Allowance for loan and lease losses		(22,187	)

Net loans and leases		1,642,819

Bank owned life insurance		48,521
Premises and equipment		20,980
Goodwill		359,167
Other intangible assets		63,252
Accrued income and other assets		22,012

Total assets		2,526,807

Liabilities
Deposits		1,696,124
Short-term borrowings		79,140
Federal Home Loan Bank advances		102,950
Subordinated notes		23,464
Deferred federal income tax liability		11,838
Accrued expenses and other liabilities		37,498

Total liabilities		1,951,014

Purchase price	$	575,793

Huntington’s consolidated financial statements include the results of operations of Unizan only since March 1, 2006, the date of acquisition. The following unaudited summary information presents the consolidated results of operations of Huntington on a pro forma basis, as if the Unizan acquisition had occurred at the beginning of 2006 and 2005.


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(in thousands, except per share amounts)	2006			2005			2006			2005
Net interest income	$	262,195		$	259,317		$	517,487		$	511,932
Provision for credit losses		(15,745	)		(14,561	)		(36,395	)		(36,101	)

Net interest income after provision for credit losses		246,450			244,756			481,092			475,831

Non-interest income		163,019			163,347			327,337			338,574
Non-interest expense		(252,359	)		(266,091	)		(502,620	)		(542,323	)

Income before income taxes		157,110			142,012			305,809			272,082
Provision for income taxes		(45,506	)		(32,029	)		(88,306	)		(62,021	)

Net income	$	111,604		$	109,983		$	217,503		$	210,061

Net income per common share
Basic	$	0.46		$	0.43		$	0.89		$	0.82
Diluted		0.46			0.42			0.88			0.81

Average common shares outstanding
Basic		241,729			257,451			244,799			257,255
Diluted		244,538			261,032			247,901			260,723

The pro forma results include amortization of fair value adjustments on loans, deposits, and debt, and amortization of newly created intangibles and post-merger acquisition related charges. The pro forma number of average common shares outstanding includes adjustments for shares issued for the acquisition and the impact of additional dilutive securities but does not assume any incremental share repurchases. The pro forma results presented do not reflect cost savings, or revenue enhancements anticipated from the acquisition, and are not necessarily indicative of what actually would have occurred if

the acquisition had been completed as of the beginning of the periods presented, nor are they necessarily indicative of future consolidated results.

Note 5 — Goodwill and Other Intangible Assets

Changes to the carrying amount of goodwill by line of business for the six months ended June 30, 2006, were as follows:


	Regional		Dealer				Treasury/		Huntington
(in thousands)	Banking		Sales		PFCMG		Other		Consolidated

Balance, January 1, 2006	$	199,970	$	—	$	12,560	$	—	$	212,530
Goodwill acquired during the period		341,200		—		17,967		—		359,167
Impairment losses recognized		—		—		—		—		—

Balance, June 30, 2006	$	541,170	$	—	$	30,527	$	—	$	571,697

As further described in Note 4, goodwill acquired during 2006 was a result of the completion of the merger with Unizan. 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.

At June 30, 2006, Huntington’s other intangible assets consisted of the following:


	June 30, 2006
	Gross		Accumulated			Net
(in thousands)	Carrying Amount		Amortization			Carrying Value
Other intangible assets:
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 months ended June 30, 2006, and 2005, was $3 million and $0.2 million, respectively. Amortization expense of other intangible assets for the six months ended June 30, 2006 and 2005 was $4.0 million and $0.4 million, respectively.

The estimated amortization expense of other intangible assets for the next five annual fiscal years are as follows:


	Amortization
Fiscal year:	Expense

2007		9,815
2008		8,653
2009		7,748
2010		6,949
2011		6,229

Note 6 — Loan Sales and Securitizations

Automobile loans

Huntington sold $218.4 million and $53.4 million of automobile loans in the second quarter of 2006 and 2005, resulting in pre-tax gains of $0.5 million and $0.3 million, respectively. For the six-month periods ended June 30, 2006 and 2005, sales of automobile loans totaled $388.2 million and $53.4 million, resulting in pre-tax gains of $1.0 million and $0.3 million, respectively.

Huntington adopted Statement No. 156 as of January 1, 2006. Automobile loan servicing rights are acccounted for under the amortization provision of that statement. A servicing asset is established at an initial carrying value based on the relative fair value at the time of the sale. The servicing asset is then amortized against servicing income. Impairment, if any, is recognized when carrying value exceeds the fair value as determined by calculating the present value of expected net future cash flows. The primary risk characteristic for measuring servicing assets is payoff rates of the underlying loan pools. Valuation calculations rely on the predicted payoff assumption and, if actual payoff is quicker than expected, then future value would be impaired.

Changes in the carrying value of automobile loan servicing rights for the three months and six months ended June 30, 2006 and 2005, 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)	2006			2005			2006			2005
Carrying value, beginning of period	$	9,610		$	17,046		$	10,805		$	20,286
New servicing assets		1,364			332			2,362			332
Amortization		(1,989	)		(3,050	)		(4,182	)		(6,290	)
Impairment charges		—			(66	)		—			(66	)

Carrying value, end of period	$	8,985		$	14,262		$	8,985		$	14,262


Fair value, end of period	$	10,486		$	14,842		$	10,486		$	14,842

Huntington has retained servicing responsibilities on sold automobile loans and receives annual servicing fees from 0.55% to 1.00% of the outstanding loan balances. Servicing income, net of amortization of capitalized servicing assets, amounted to $3.4 million and $2.6 million for the three months ended June 30, 2006 and 2005, respectively. For the six months ended June 30, 2006 and 2005, servicing income was $6.8 million and $5.0 million, respectively.

During the second quarter of 2006, Huntington transferred $1.2 billion automobile loans and leases to a trust in a securitization transaction. The securitization did not qualify for sale accounting under Statement No. 140 and, therefore, is accounted for as a secured financing.

Residential Mortgage Loans

A mortgage servicing right (MSR) is established only when the servicing is contractually separated from the underlying mortgage loans by sale or securitization of the loans with servicing rights retained. Effective January 1, 2006, the Company early adopted Statement No. 156. The same risk management practices are applied to all MSRs and, accordingly, MSRs were identified as a single asset class and were re-measured to fair value as of January 1, 2006, with an adjustment to retained earnings.

At initial recognition, the MSR asset is established at its fair value using assumptions that are consistent with assumptions used at the time to estimate the fair value of the total MSR portfolio. Subsequent to initial capitalization, MSR assets are carried at fair value and are included in other assets. Any increase or decrease in fair value during the period is recorded as an increase or decrease in servicing income, which is reflected in non-interest income in the consolidated income statement.

The following table is a summary of the changes in MSR fair value during the three months and six months ended June 30, 2006:


	Three Months Ended		Six Months Ended
	June 30,		June 30,
(in thousands)	2006		2006
Carrying value, beginning of period	$	N/A	$	91,259
Cumulative effect in change in accounting principle		N/A		18,631

Fair value, beginning of period		123,257		109,890
New servicing assets created		7,434		13,211
Servicing assets acquired		565		2,474
Change in fair value during the period		4,988		10,669

Fair value, end of period	$	136,244	$	136,244

N/A, Not applicable

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, 2006 to changes in these assumptions follows:


				Decline in fair value
				due to
				10%			20%
				adverse			adverse
(in thousands)	Actual			change			change
Constant pre-payment rate		10.44	%	$	(5,252	)	$	(10,168	)
Discount rate		9.39			(5,344	)		(10,293	)

MSR values are very sensitive to movements in interest rates as expected future net servicing income depends on the projected outstanding principal balances of the underlying loans, which can be greatly impacted by the level of prepayments. The Company hedges against changes in MSR fair value attributable to changes in interest rates through a combination of derivative instruments and trading securities.

Prior to 2006, servicing rights were evaluated quarterly for impairment based on the fair value of those rights, using a disaggregated approach. The fair value of the servicing rights was determined by estimating the present value of future net cash flows, taking into consideration market loan prepayment speeds, discount rates, servicing costs, and other economic factors. Temporary impairment was recognized in a valuation allowance against the mortgage servicing rights.

Changes in the impairment allowance of mortgage servicing rights for the three and six months ended June 30, 2005, were as follows:


	Three Months Ended			Six Months Ended
	June 30,			June 30,
(in thousands)	2005			2005
Balance, beginning of period	$	(1,015	)	$	(4,775	)
Impairment charges		(10,231	)		(11,411	)
Impairment recovery		—			4,940

Balance, end of period	$	(11,246	)	$	(11,246	)

Below is a summary of servicing fee income earned during the three and six months ended June 30, 2006.


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2006		2005		2006		2005
Servicing fees	$	5,996	$	5,464	$	11,920	$	10,858
Late fees		551		504		1,161		1,009
Ancillary fees		88		171		341		297

Total fee income	$	6,635	$	6,139	$	13,422	$	12,164

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, 2006, December 31, 2005, and June 30, 2005:


	June 30, 2006				December 31, 2005				June 30, 2005
	Amortized				Amortized				Amortized
(in thousands)	Cost		Fair Value		Cost		Fair Value		Cost		Fair Value
U.S. Treasury
Under 1 year	$	699	$	704	$	—	$	—	$	—	$	—
1-5 years		21,924		21,083		23,446		22,893		23,949		23,821
6-10 years		504		522		753		782		248		267
Over 10 years		—		—		—		—		—		—

Total U.S. Treasury		23,127		22,309		24,199		23,675		24,197		24,088

Federal agencies
Mortgage backed securities
Under 1 year		350		347		—		—		—		—
1-5 years		32,033		30,619		31,058		30,047		15,221		15,010
6-10 years		549		519		—		—		19,775		19,568
Over 10 years		1,252,384		1,194,850		1,278,540		1,248,975		1,118,023		1,108,410

Total mortgage-backed Federal agencies		1,285,316		1,226,335		1,309,598		1,279,022		1,153,019		1,142,988

Other agencies
Under 1 year		45,000		44,284		—		—		—		—
1-5 years		249,604		237,742		296,945		286,754		410,298		403,883
6-10 years		50,000		45,922		52,440		49,712		198,210		193,763
Over 10 years		—		—		—		—		—		—

Total other Federal agencies		344,604		327,948		349,385		336,466		608,508		597,646

Total Federal agencies		1,629,920		1,554,283		1,658,983		1,615,488		1,761,527		1,740,634

Municipal securities
Under 1 year		42		42		65		65		65		65
1-5 years		103		103		145		145		166		165
6-10 years		154,360		150,215		144,415		143,597		102,460		103,599
Over 10 years		430,118		421,243		400,156		401,043		393,905		402,053

Total municipal securities		584,623		571,603		544,781		544,850		496,596		505,882

Private label CMO
Under 1 year		—		—		—		—		—		—
1-5 years		—		—		—		—		—		—
6-10 years		—		—		—		—		—		—
Over 10 years		749,019		731,031		402,959		393,569		424,521		420,103

Total private label CMO		749,019		731,031		402,959		393,569		424,521		420,103

Asset backed securities
Under 1 year		—		—		—		—		—		—
1-5 years		30,000		30,000		31,663		31,659		34,625		34,636
6-10 years		—		—		—		—		—		—
Over 10 years		1,949,008		1,948,538		1,757,031		1,757,121		1,011,868		1,015,621

Total asset backed securities		1,979,008		1,978,538		1,788,694		1,788,780		1,046,493		1,050,257

Other
Under 1 year		1,900		1,900		1,700		1,700		1,200		1,200
1-5 years		8,795		8,780		10,997		11,051		12,109		12,382
6-10 years		1,050		985		2,062		2,063		1,555		1,573
Over 10 years		44		43		44		43		87,657		87,939
Non-marketable equity securities		146,957		146,957		89,661		89,661		—		—
Marketable equity securities		108,025		108,253		55,058		55,640		5,657		5,897

Total other		266,771		266,918		159,522		160,158		108,178		108,991

Total investment securities	$	5,232,468	$	5,124,682	$	4,579,138	$	4,526,520	$	3,861,512	$	3,849,955

Duration in years⁽¹⁾				3.0				2.8				3.0


⁽¹⁾		The average duration assumes a market driven pre-payment rate on securities subject to pre-payment.

Based upon its assessment, Management does not believe any individual unrealized loss at June 30, 2006, represents an other-than-temporary impairment. In addition, Huntington has the ability to hold these securities for a time necessary, including to maturity, to recover the amortized cost. There were no securities classified as held to maturity at June 30, 2006.

Other securities include Federal Home Loan Bank and Federal Reserve Bank stock, corporate debt, and marketable equity securities.

Note 8 — Other Comprehensive Income

The components of Huntington’s other comprehensive income in the three and six months ended June 30, 2006 and 2005, were as follows:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(in thousands)	2006			2005			2006			2005
Unrealized gains and losses on investment securities arising during the period:
Unrealized net (losses) gains	$	(26,652	)	$	39,881		$	(55,223	)	$	8,716
Related tax benefit (expense)		9,616			(14,067	)		19,480			(3,069	)

Net		(17,036	)		25,814			(35,743	)		5,647

Reclassification adjustment for net losses (gains) from sales of investment securities realized during the period:
Realized net losses (gains)		35			343			55			(614	)
Related tax (benefit) expense		(12	)		(120	)		(19	)		215

Net		23			223			36			(399	)


Total unrealized net (losses) gains on investment securities arising during the period, net of reclassification of net realized gains and losses		(17,013	)		26,037			(35,707	)		5,248


Unrealized gains (losses) on cash flow hedging derivatives arising during the period:
Unrealized net (losses) gains		6,702			(12,417	)		21,091			7,592
Related tax benefit (expense)		(2,346	)		4,346			(7,382	)		(2,657	)

Net		4,356			(8,071	)		13,709			4,935


Total other comprehensive (loss) income	$	(12,657	)	$	17,966		$	(21,998	)	$	10,183

Activity in accumulated other comprehensive income for the six months ended June 30, 2006 and 2005, was as follows:


	Unrealized gains
	and losses on			Unrealized gains on		Minimum
	investment			cash flow hedging		pension
(in thousands)	securities			derivatives		liability			Total

Balance, December 31, 2004	$	(12,683	)	$	4,252	$	(2,472	)	$	(10,903	)
Period change		5,248			4,935		—			10,183

Balance, June 30, 2005	$	(7,435	)	$	9,187	$	(2,472	)	$	(720	)


Balance, December 31, 2005	$	(34,016	)	$	15,206	$	(3,283	)	$	(22,093	)
Period change		(35,707	)		13,709		—			(21,998	)

Balance, June 30, 2006	$	(69,723	)	$	28,915	$	(3,283	)	$	(44,091	)

Note 9 — Earnings per Share

Basic earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period. Diluted earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period adjusted for the potential issuance of common shares for dilutive stock options. The calculation of basic and diluted earnings per share for each of the three and six months ended June 30, 2006 and 2005, is as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands, except per share amounts)	2006		2005		2006		2005

Net income	$	111,604	$	106,425	$	216,060	$	202,944

Average common shares outstanding		241,729		232,217		236,349		232,021
Dilutive potential common shares		2,809		3,454		3,102		3,341

Diluted average common shares outstanding		244,538		235,671		239,451		235,362


Earnings per share
Basic	$	0.46	$	0.46	$	0.91	$	0.87
Diluted		0.46		0.45		0.90		0.86

The average market price of Huntington’s common stock for the period was used in determining the dilutive effect of outstanding stock options. Dilutive potential common shares include stock options and options held in deferred compensation plans. Dilutive potential common shares are computed based on the number of shares subject to options that have an exercise price less than the average market price of Huntington’s common stock for the period.

Options to purchase 5.6 million and 2.6 million shares during both the three months and six months ended June 30, 2006 and 2005, respectively, were outstanding but were not included in the computation of diluted earnings per share because the effect would be antidilutive. The weighted average exercise price for these options was $25.68 and $26.96 per share and $25.67 and $26.92 for the three months and six months ended June 30, 2006 and 2005, respectively.

Note 10 — Stock-Based Compensation

Huntington sponsors nonqualified and incentive stock option plans. These plans provide for the granting of stock options to officers, directors, and other employees at the market price on the date of the grant. Huntington’s board of directors has approved all of the plans. Shareholders have approved each of the plans, except for the broad-based Employee Stock Incentive Plan. Of the 26.2 million options to purchase shares of common stock authorized for issuance under the plans at June 30, 2006, 20.5 million were outstanding and 5.7 million were available for future grants. Options vest ratably over three years or when other conditions are met. Options granted prior to May 2004 have a maximum term of ten years. All options granted beginning in May 2004 have a maximum term of seven years.

On January 1, 2006, Huntington adopted the fair value recognition provisions of Statement No. 123R relating to its stock-based compensation plans. Prior to January 1, 2006, Huntington had accounted for stock-based compensation plans under the intrinsic value method promulgated by APB Opinion 25, Accounting for Stock Issued to Employees, and related interpretations. In accordance with APB 25, compensation expense for employee stock options was generally not recognized for options granted that had an exercise price equal to the market value of the underlying common stock on the date of grant.

Under the modified prospective method of Statement No. 123R, compensation expense was recognized during the three and six months ended June 30, 2006, for all unvested stock options, based on the grant date fair value estimated in accordance with the original provisions of Statement No. 123 and for all stock based payments granted after January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of Statement No. 123R. Stock-based compensation expense was recorded in personnel costs in the consolidated statements of income. Huntington’s financial results for the prior periods have not been restated.

The following table presents the unfavorable impact of adoption of Statement 123R on Huntington’s income before income taxes, net income, and basic and diluted earnings per share for the three and six months ended June 30, 2006.


	Stock-based compensation expense
	Three Months Ended			Six Months Ended
(in tmillions, except per share amounts)	June 30, 2006			June 30, 2006
Income before income taxes	$	(4.3	)	$	(8.5	)

Net income		(2.8	)		(5.6	)

Earnings per share
Basic	$	(0.01	)	$	(0.02	)
Diluted		(0.01	)		(0.02	)

Prior to the adoption of Statement 123R, Huntington presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the consolidated statements of cash flows. Statement 123R requires the cash flows from tax benefits resulting from tax deductions in excess of compensation costs recognized for those options (excess tax benefits) to be classified as financing cash flows. As a result, the benefits of tax deductions in excess of recognized compensation cost included in net financing cash flows for the six months ended June 30, 2006 was $0.7 million.

Consistent with the valuation method used for the disclosure only provisions of Statement No. 123, Huntington uses the Black-Scholes option-pricing model to value stock-based compensation expense. This model assumes that the estimated fair value of options is amortized over the options’ vesting periods and the compensation costs would be included in personnel costs on the consolidated statements of income. Forfeitures are estimated at the date of grant based on historical rates and reduce the compensation expense recognized. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant. Expected volatility is based on the historical volatility of Huntington’s stock. The expected term of options granted is derived from historical data on employee exercises. The expected dividend yield is based on the dividend rate and stock price on the date of the grant. The following table illustrates the weighted-average assumptions used in the option-pricing model for options granted in each of the periods presented.


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2006			2005			2006			2005

Assumptions
Risk-free interest rate		4.61	%		3.63	%		4.58	%		4.02	%
Expected dividend yield		4.18			3.24			4.20			3.42
Expected volatility of Huntington’s common stock		22.2			26.3			22.2			26.3
Expected option term (years)		6.0			6.0			6.0			6.0

Weighted-average grant date fair value	$	4.20		$	5.01		$	4.23		$	4.89

The following pro forma disclosures for net income and earnings per diluted common share for the three and six months ended June 30, 2005, are presented as if Huntington had applied the fair value method of accounting of Statement No. 123 in measuring compensation costs for stock options.


	Three Months Ended			Three Months Ended
(in millions, except per share amounts)	June 30, 2005			June 30, 2005

Pro forma results
Net income, as reported	$	106.4		$	202.9
Pro forma expense, net of tax		(2.9	)		(5.8	)

Pro forma net income	$	103.5		$	197.1

Net income per common share:
Basic, as reported	$	0.46		$	0.87
Basic, pro forma		0.45			0.85
Diluted, as reported		0.45			0.86
Diluted, pro forma		0.44			0.84

Huntington’s stock option activity and related information for the six months ended June 30, 2006, was as follows:

Weighted-

Average

Remaining

Aggregate

Exercise

Contractual

Intrinsic

(in thousands, except per share amounts)

Options

Price

Life (Years)

Value

Outstanding at January 1, 2006

21,004

21.11

Granted

23.82

Acquired ⁽¹⁾

655

16.56

Exercised

(882

)

17.37

Forfeited/expired

(340

)

22.70

Outstanding at June 30, 2006

20,495

21.10

5.2

62,471

Exercisable at June 30, 2006

12,882

20.13

4.7

52,845


⁽¹⁾		Relates to option plans acquired from the merger with Unizan.

The aggregate intrinsic value represents the amount by which the fair value of underlying stock exceeds the option exercise price. The total intrinsic value of stock options exercised during the six months ended June 30, 2006, was $5.9 million.

Huntington issues shares to fulfill stock option exercises from available shares held in treasury. At June 30, 2006, the Company believes there are adequate shares in treasury to satisfy anticipated stock option exercises in 2006.

The following table summarizes the status of Huntington’s nonvested options for the six months ended June 30, 2006:


				Weighted-
				Average
				Grant Date
(in thousands, except per share amounts)	Options			Fair Value

Nonvested at January 1, 2006		7,956		$	5.53
Granted		58			4.23
Acquired ⁽¹⁾		19			4.61
Vested		(112	)		5.35
Forfeited		(308	)		5.51

Nonvested at June 30, 2006		7,613		$	5.52


⁽¹⁾		Relates to option plans acquired from the merger with Unizan.

As of June 30, 2006, the total compensation cost related to nonvested awards not yet recognized was $21.7 million with a weighted-average expense recognition period of 2.2 years. The total fair value of options vested during the six months ended June 30, 2006, was $0.6 million.

The following table presents additional information regarding options outstanding as of June 30, 2006.


(in thousands, except per share amounts)	Options Outstanding						Exercisable Options
			Weighted-
			Average		Weighted-				Weighted-
			Remaining		Average				Average
Range of			Contractual		Exercise				Exercise
Exercise Prices	Shares		Life (Years)		Price		Shares		Price

$9.91 to $15.00		773		5.1	$	14.23		773	$	14.23
$15.01 to $20.00		7,940		5.0		18.06		6,567		17.67
$20.01 to $25.00		9,516		5.9		22.74		3,294		21.58
$25.01 to $28.35		2,266		2.6		27.22		2,248		27.24

Total		20,495		5.2	$	21.10		12,882	$	20.13

Note 11 — Benefit Plans

Huntington sponsors the Huntington Bancshares Retirement Plan (the Plan), a non-contributory defined benefit pension plan covering substantially all employees. The Plan provides benefits based upon length of service and compensation levels. The funding policy of Huntington is to contribute an annual amount that is at least equal to the minimum funding requirements but not more than that deductible under the Internal Revenue Code. In addition, Huntington has an unfunded, defined benefit post-retirement plan (Post-Retirement Benefit Plan) that provides certain healthcare and life insurance benefits to retired employees who have attained the age of 55 and have at least 10 years of vesting service under this plan. For any employee retiring on or after January 1, 1993, post-retirement healthcare benefits are based upon the employee’s number of months of service and are limited to the actual cost of coverage. Life insurance benefits are a percentage of the employee’s base salary at the time of retirement, with a maximum of $50,000 of coverage.

The following table shows the components of net periodic benefit expense of the Plan and the Post-Retirement Benefit Plan:


	Pension Benefits						Post Retirement Benefits
	Three Months Ended						Three Months Ended
	June 30,						June 30,
(in thousands of dollars)	2006			2005			2006			2005

Service cost	$	4,414		$	3,547		$	383		$	353
Interest cost		5,539			4,754			565			778
Expected return on plan assets		(8,319	)		(6,716	)		—			—
Amortization of transition asset		—			(1	)		276			276
Amortization of prior service cost		—			—			95			95
Settlements		1,000			750			—			—
Recognized net actuarial loss		4,377			2,672			(181	)		—

Benefit expense	$	7,011		$	5,006		$	1,138		$	1,502


	Pension Benefits						Post Retirement Benefits
	Six Months Ended						Six Months Ended
	June 30,						June 30,
(in thousands of dollars)	2006			2005			2006			2005

Service cost	$	8,723		$	7,092		$	720		$	706
Interest cost		11,078			9,507			1,130			1,556
Expected return on plan assets		(16,539	)		(12,812	)		—			—
Amortization of transition asset		—			(2	)		552			552
Amortization of prior service cost		1			1			190			189
Settlements		2,000			1,500			—			—
Recognized net actuarial loss		8,754			5,345			(362	)		—

Benefit expense	$	14,017		$	10,631		$	2,230		$	3,003

There is no expected minimum contribution for 2006 to the Plan. Although not required, Huntington made a contribution to the Plan of $29.8 million in June 2006.

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 and $0.5 million for the three-month periods ended June 30, 2006 and 2005, respectively. For the respective six-month periods, the cost was $1.3 million and $1.1 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 $2.6 million and $2.4 million for the three months ended June 30, 2006 and 2005, respectively. For the respective six-month periods, the cost was $5.1 million and $4.9 million.

Note 12 — 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, 2006, December 31, 2005, and June 30, 2005, were as follows:


	June 30,		December 31,		June 30,
(in millions)	2006		2005		2005

Contract amount represents credit risk
Commitments to extend credit
Commercial	$	4,021	$	3,316	$	2,947
Consumer		3,595		3,046		2,983
Commercial real estate		1,764		1,567		1,480
Standby letters of credit		1,121		1,079		968
Commercial letters of credit		54		47		61

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 $3.6 million, $4.0 million, and $3.2 million at June 30, 2006, December 31, 2005, and June 30, 2005, respectively.

Commercial letters of credit represent short-term, self-liquidating instruments that facilitate customer trade transactions and generally have maturities of no longer than 90 days. The merchandise or cargo being traded normally secures these instruments.

Commitments to sell loans:

Huntington enters into forward contracts relating to its mortgage banking business. At June 30, 2006, December 31, 2005, and June 30, 2005, Huntington had commitments to sell residential real estate loans of $341.5 million, $348.3 million, and $534.3 million, respectively. These contracts mature in less than one year.

During the 2005 second quarter, Huntington entered into a two-year agreement to sell a portion of its monthly automobile loan production at the cost of such loans, subject to certain limitations, provided the production meets certain pricing, asset quality, and volume parameters. At June 30, 2006, approximately $62.0 million of automobile loans related to this commitment were classified as held for sale.

Litigation:

In the ordinary course of business, there are various legal proceedings pending against Huntington and its subsidiaries. In the opinion of Management, the aggregate liabilities, if any, arising from such proceedings are not expected to have a material adverse effect on Huntington’s consolidated financial position.

Note 13 — Derivative Financial Instruments

A variety of derivative financial instruments, principally interest rate swaps, are used in asset and liability management activities to protect against market risk of adverse price or interest rate movements on the value of certain assets and liabilities and on future cash flows. These derivative financial instruments provide flexibility in adjusting the Company’s sensitivity to changes in interest rates without exposure to loss of principal and higher funding requirements. By using derivatives to manage interest rate risk, the effect is a smaller, more efficient balance sheet, with a lower wholesale funding requirement and a higher net interest margin. Derivatives are sold to meet customers’ financing needs. All derivatives are reflected at fair value in the consolidated balance sheet.

Market risk, which is the possibility that economic value of net assets or net interest income will be adversely affected by changes in interest rates or other economic factors, is managed through the use of derivatives. Like other financial instruments, derivatives contain an element of credit risk, which is the possibility that Huntington will incur a loss because a counter-party fails to meet its contractual obligations. Notional values of interest rate swaps and other off-balance sheet financial instruments significantly exceed the credit risk associated with these instruments and represent contractual balances on which calculations of amounts to be exchanged are based. Credit exposure is limited to the sum of the aggregate fair value of positions that have become favorable to Huntington, including any accrued interest receivable due from counterparties. Potential credit losses are minimized through careful evaluation of counterparty credit standing, selection of counterparties from a limited group of high quality institutions, collateral agreements, and other contractual provisions.

Collateral agreements are regularly entered into as part of the underlying derivative agreements with Huntington’s counterparties to mitigate the credit risk associated with both the derivatives used for asset and liability management and used in trading activities. At June 30, 2006, December 31, 2005, and June 30, 2005, aggregate credit risk associated with these derivatives, net of collateral that has been pledged by the counterparty, was $31.1 million, $26.2 million, and $26.5 million, respectively. The credit risk associated with interest rate swaps is calculated after considering master netting agreements.

Asset and Liability Management

Derivatives that are used in asset and liability management are classified as fair value hedges or cash flow hedges and are required to meet specific criteria. To qualify as a hedge, the hedge relationship is designated and formally documented at inception, detailing the particular risk management objective and strategy for the hedge. This includes identifying the item and risk being hedged, the derivative being used, and how the effectiveness of the hedge is being assessed. A derivative must be highly effective in accomplishing the objective of offsetting either changes in fair value or cash flows for the risk being hedged. Correlation is evaluated on a retrospective and prospective basis using quantitative measures. If a hedge relationship is found not to be effective, the derivative no longer qualifies as a hedge and any excess gains or losses attributable to ineffectiveness, as well as subsequent changes in its fair value, are recognized in other income.

For fair value hedges, deposits, short-term borrowings, and long-term debt are effectively converted to variable-rate obligations by entering into interest rate swap contracts whereby fixed-rate interest is received in exchange for variable-rate interest without the exchange of the contract’s underlying notional amount. Forward contracts, used primarily in connection with mortgage banking activities, can be settled in cash at a specified future date based on the differential between agreed interest rates applied to a notional amount. The changes in fair value of the hedged item and the hedging instrument are reflected in current earnings.

For cash flow hedges, the Company enters into interest rate swap contracts which require the payment of fixed-rate interest in exchange for the receipt of variable-rate interest without the exchange of the contract’s underlying notional amount, which effectively converts a portion of its floating-rate debt to fixed-rate. This reduces the potentially adverse impact of increases in interest rates on future interest expense. To the extent these derivatives are effective in offsetting the variability of the hedged cash flows, changes in the derivatives’ fair value will not be included in current earnings, but are reported as a component of accumulated other comprehensive income in shareholders’ equity. These changes in fair value

will be included in earnings of future periods when earnings are also affected by the changes in the hedged cash flows. To the extent these derivatives are not effective, changes in their fair values are immediately included in earnings.

Derivatives used to manage interest rate risk at June 30, 2006, are shown in the table below:


			Average					Weighted-Average
	Notional		Maturity		Fair			Rate
(in thousands )	Value		(years)		Value			Receive			Pay

Liability conversion swaps
Receive fixed — generic	$	925,250		8.9	$	(35,672	)		5.12	%		5.38	%
Receive fixed — callable		665,000		6.7		(28,776	)		4.46			5.10
Pay fixed — generic		490,000		3.3		6,468			5.18			5.04

Total liability conversion swaps		2,080,250		6.9		(57,980	)		4.92	%		5.21	%

Liability caps
Pay fixed — forwards		300,000		N/A		3,165			N/A			N/A

Total swap portfolio	$	2,380,250		6.9	$	(54,815	)		4.92	%		5.21	%


		N/A, not applicable

During the first quarter of 2006, Huntington terminated asset and liability conversion interest rate swaps with a total notional value of $2.5 billion. The terminations generated gross gains of $34.9 million and gross losses of $34.5 million, resulting in a net deferred gain of $0.4 million. The net gain is being amortized into interest income over the remainder of the original terms of the terminated swaps as follows: 2006: ($2.2 million), 2007: $2.2 million, 2008: ($1.4 million), 2009: $0.2 million, and 2010: $1.6 million.

As is the case with cash securities, the fair value of interest rate swaps is largely a function of financial market expectations regarding the future direction of interest rates. Accordingly, current market values are not necessarily indicative of the future impact of the swaps on net interest income. This will depend, in large part, on the shape of the yield curve as well as interest rate levels. Management made no assumptions regarding future changes in interest rates with respect to the variable-rate information presented in the table above.

The following table represents the gross notional value of derivatives used to manage interest rate risk at June 30, 2006, identified by the underlying interest rate-sensitive instruments. The notional amounts shown in the tables above and below should be viewed in the context of overall interest rate risk management activities to assess the impact on the net interest margin.


	Fair Value		Cash Flow
(in thousands )	Hedges		Hedges		Total

Instruments associated with:
Deposits	$	790,250	$	400,000	$	1,190,250
Federal Home Loan Bank advances		—		325,000		325,000
Subordinated notes		750,000		—		750,000
Other long-term debt		50,000		65,000		115,000

Total notional value at June 30, 2006	$	1,590,250	$	790,000	$	2,380,250

These derivative financial instruments were entered into for the purpose of mitigating the interest rate risk embedded in assets and liabilities. Consequently, net amounts receivable or payable on contracts hedging either interest earning assets or interest bearing liabilities were accrued as an adjustment to either interest income or interest expense. The net amount resulted in a (decrease) increase to net interest income of $(0.8) million and $6.9 million, for the three months ended June 30, 2006 and 2005, respectively. For the six months ended June 30, 2006 and 2005, the impact to net interest income was a (decrease) increase of $(0.2) million and $14.5 million, respectively.

Derivatives Used in Mortgage Banking Activities

Huntington also uses derivatives, principally loan sale commitments, in the hedging of its mortgage loan commitments and its mortgage loans held for sale. For derivatives that are used in hedging mortgage loans held for sale, ineffective hedge gains and losses are reflected in mortgage banking revenue in the income statement. Mortgage loan commitments and the related hedges are carried at fair value on the consolidated balance sheet with changes in fair value reflected in mortgage banking revenue. The following is a summary of the derivative assets and liabilities that Huntington used in its mortgage banking activities as of June 30, 2006 and 2005:


	At June 30,
(in thousands)	2006			2005

Derivative assets:
Interest rate lock agreements	$	232		$	1,333
Forward trades and options		3,029			243

Total derivative assets		3,261			1,576

Derivative liabilities:
Interest rate lock agreements		(1,222	)		(861	)
Forward trades and options		(35	)		(2,122	)

Total derivative liabilities		(1,257	)		(2,983	)

Net derivative asset (liability)	$	2,004		$	(1,407	)

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.

Supplying these derivatives to customers results in fee income. These instruments are carried at fair value in other assets with gains and losses reflected in other non-interest income. Total trading revenue for customer accommodation was $2.2 million and $2.0 million for the three months ended June 30, 2006 and 2005, respectively. For the six months ended June 30, 2006 and 2005, total trading revenue for customer accommodation was $5.2 million and $3.7 million, respectively. The total notional value of derivative financial instruments used by Huntington on behalf of customers, for which the related interest rate risk is offset by third parties, was $4.6 billion, $4.2 billion, and $4.5 billion at June 30, 2006, December 31, 2005, and June 30, 2005. Huntington’s credit risk from interest rate swaps used for trading purposes was $64.4 million, $44.3 million, and $49.7 million at the same dates.

In connection with securitization activities, Huntington purchased interest rate caps with a notional value totaling $1.8 billion. These purchased caps were assigned to the securitization trust for the benefit of the security holders. Interest rate caps were also sold totaling $1.8 billion outside the securitization structure. Both the purchased and sold caps are marked to market through income.

Note 14 — Shareholders’ Equity

Share Repurchase Program:

On October 18, 2005, the Company announced that the board of directors authorized a new program for the repurchase of up to 15 million shares (the 2005 Repurchase Program). The repurchase program authorized in 2004, with 3.1 million shares remaining, was cancelled and replaced by the 2005 Repurchase Program.

On April 20, 2006, the Company announced that the board of directors authorized a new program for the repurchase of up to 15 million shares (the 2006 Repurchase Program). The 2006 Repurchase Program does not have an expiration date. The 2005 Repurchase Program, with 5 million shares remaining, was canceled and replaced by the 2006 Repurchase Program. The Company expects to repurchase the shares from time to time in the open market or through privately negotiated transactions depending on market conditions.

On May 24, 2006, Huntington repurchased 6.0 million shares of common stock from Bear Stearns under an accelerated share repurchase program. The accelerated share repurchase program enabled Huntington to purchase the shares immediately, while Bear Stearns may purchase shares in the market over a period of up to four months (the Repurchase Term). In connection with the repurchase of these shares, Huntington entered into a variable share forward sale agreement, which provides for a settlement, reflecting a price differential based on the adjusted volume-weighted average price as defined in the agreement with Bear Stearns. The variable share forward agreement may be settled in shares or in cash, at Huntington’s discretion. Any settlement will be reflected as an adjustment to treasury shares on Huntington’s balance sheet at the end of the Repurchase Term. Based on the adjusted volume-weighted average prices through June 30, 2006, the settlement of the variable share forward agreement is not expected to have a material impact to Huntington.

Listed below is the share repurchase activity under the 2006 Repurchase Program for the three months ended June 30, 2006:


					Total Number of Shares		Maximum Number of
	Total Number		Average		Purchased as Part of		Shares that May Yet Be
	of Shares		Price Paid		Publicly Announced Plans		Purchased Under the
Period	Purchased		Per Share		or Programs⁽¹⁾		Plans or Programs⁽¹⁾

April 1, 2006 to April 30, 2006		—	$	—		—		15,000,000
May 1, 2006 to May 31, 2006		8,100,000		23.53		8,100,000		6,900,000
June 1, 2006 to June 30, 2006		—		—		8,100,000		6,900,000

Total		8,100,000	$	23.53		8,100,000		6,900,000


(1)		Information is as of the end of the period.

Note 15 — Segment Reporting

Huntington has three distinct lines of business: Regional Banking, Dealer Sales, and the Private Financial and Capital Markets Group (PFCMG). A fourth segment includes the Treasury function and other unallocated assets, liabilities, revenue, and expense. Lines of business results are determined based upon the Company’s management reporting system, which assigns balance sheet and income statement items to each of the business segments. The process is designed around the Company’s organizational and management structure and, accordingly, the results derived are not necessarily comparable with similar information published by other financial institutions. An overview of this system is provided below, along with a description of each segment and discussion of financial results.

The following provides a brief description of the four operating segments of Huntington:

Regional Banking: This segment provides traditional banking products and services to consumer, small business, and commercial customers located in eight operating regions within the five states of Ohio, Michigan, West Virginia, Indiana, and Kentucky. It provides these services through a banking network of 370 branches, over 1,000 ATMs, plus on-line and telephone banking channels. Each region is further divided into Retail and Commercial Banking units. Retail products and services include home equity loans and lines of credit, first mortgage loans, direct installment loans, small business loans, personal and business deposit products, as well as sales of investment and insurance services. Retail Banking accounts for 59% and 79% of total Regional Banking loans and deposits, respectively. Commercial Banking serves middle market commercial banking relationships, which use a variety of banking products and services including, but not limited to, commercial loans, international trade, cash management, leasing, interest rate protection products, capital market alternatives, 401(k) plans, and mezzanine investment capabilities.

Dealer Sales: This segment provides a variety of banking products and services to more than 3,500 automotive dealerships within the Company’s primary banking markets, as well as in Arizona, Florida, Georgia, North Carolina, Pennsylvania, South Carolina, and Tennessee. Dealer Sales finances the purchase of automobiles by customers of the automotive dealerships, purchases automobiles from dealers and simultaneously leases the automobiles to consumers under long-term operating or direct finance leases, finances the dealerships’ floor plan inventories, real estate, or working capital needs, and provides other banking services to the automotive dealerships and their owners. Competition from the financing divisions of automobile manufacturers and from other financial institutions is intense. Dealer Sales’ production opportunities are directly impacted by the general automotive sales business, including programs initiated by manufacturers to enhance and increase sales directly. Huntington has been in this line of business for over 50 years.

Private Financial and Capital Markets Group (PFCMG): This segment provides products and services designed to meet the needs of the Company’s higher net worth customers. Revenue is derived through the sale of trust, asset management, investment advisory, brokerage, insurance, and private banking products and services. It also focuses on financial solutions for corporate and institutional customers that include investment banking, sales and trading of securities, mezzanine capital financing, and risk management products. To serve high net worth customers, a unique distribution model is used that employs a single, unified sales force to deliver products and services mainly through Regional Banking distribution channels.

Treasury / Other: This segment includes revenue and expense related to assets, liabilities, and equity that are not directly assigned or allocated to one of the other three business segments. Assets in this segment include investment securities and bank owned life insurance.

Use of Operating Earnings to Measure Segment Performance

Management uses earnings on an operating basis, rather than on a GAAP (reported) basis, to measure underlying performance trends for each business segment. Operating earnings represent reported earnings adjusted to exclude the impact of the significant items listed in the reconciliation table below. Analyzing earnings on an operating basis is very helpful in assessing underlying performance trends, a critical factor used to determine the success of strategies and future earnings capabilities.

Listed below is certain financial results by line of business. For the three months and six months ended June 30, 2006 and 2005, operating earnings were the same as reported earnings.


	Three Months Ended June 30,
Income Statements	Regional			Dealer						Treasury/			Huntington
(in thousands of dollars)	Banking			Sales			PFCMG			Other			Consolidated

2006
Net interest income	$	227,454		$	34,803		$	18,037		$	(18,099	)	$	262,195
Provision for credit losses		(14,844	)		949			(1,850	)		—			(15,745	)
Non-interest income		92,785			21,489			39,139			9,606			163,019
Non-interest expense		(175,524	)		(27,936	)		(37,464	)		(11,435	)		(252,359	)
Income taxes		(45,455	)		(10,257	)		(6,252	)		16,458			(45,506	)

Operating / reported net income	$	84,416		$	19,048		$	11,610		$	(3,470	)	$	111,604

2005
Net interest income	$	193,741		$	36,890		$	19,555		$	(8,286	)	$	241,900
Provision for credit losses		(8,717	)		(4,468	)		290			—			(12,895	)
Non-interest income		76,321			46,052			33,077			720			156,170
Non-interest expense		(147,488	)		(47,905	)		(32,801	)		(19,942	)		(248,136	)
Income taxes		(39,850	)		(10,699	)		(7,042	)		26,977			(30,614	)

Operating / reported net income	$	74,007		$	19,870		$	13,079		$	(531	)	$	106,425


	Six Months Ended June 30,
Income Statements	Regional			Dealer						Treasury/			Huntington
(in thousands of dollars)	Banking			Sales			PFCMG			Other			Consolidated

2006
Net interest income	$	435,517		$	69,651		$	35,606		$	(34,899	)	$	505,875
Provision for credit losses		(25,234	)		(6,813	)		(3,238	)		—			(35,285	)
Non-Interest income		170,594			48,465			80,033			23,461			322,553
Non-Interest expense		(318,225	)		(59,294	)		(68,175	)		(45,080	)		(490,774	)
Income taxes		(91,928	)		(18,203	)		(15,479	)		39,301			(86,309	)

Operating / reported net income	$	170,724		$	33,806		$	28,747		$	(17,217	)	$	216,060

2005
Net interest income	$	378,768		$	74,799		$	36,400		$	(12,869	)	$	477,098
Provision for credit losses		(21,035	)		(11,399	)		(335	)		—			(32,769	)
Non-Interest income		147,520			99,195			65,128			12,377			324,220
Non-Interest expense		(297,711	)		(104,582	)		(66,250	)		(37,870	)		(506,413	)
Income taxes		(72,640	)		(20,304	)		(12,230	)		45,982			(59,192	)

Operating / reported net income	$	134,902		$	37,709		$	22,713		$	7,620		$	202,944


	Assets at						Deposits at
Balance Sheets	June 30,		December 31,		June 30,		June 30,		December 31,		June 30,
(in millions of dollars)	2006		2005		2005		2006		2005		2005

Regional Banking	$	21,035	$	18,851	$	18,785	$	19,839	$	17,957	$	17,627
Dealer Sales		5,417		5,612		6,021		61		65		68
PFCMG		2,179		2,010		2,009		1,218		1,180		1,176
Treasury / Other		7,635		6,292		6,174		3,475		3,208		3,460

Total	$	36,266	$	32,765	$	32,989	$	24,593	$	22,410	$	22,331

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

INTRODUCTION

Huntington Bancshares Incorporated (we or our) is a multi-state diversified financial holding company organized under Maryland law in 1966 and headquartered in Columbus, Ohio. Through our subsidiaries, we provide full-service commercial and consumer banking services, mortgage banking services, automobile financing, equipment leasing, investment management, trust services, brokerage services, and private mortgage insurance; reinsure credit life and disability insurance; and sell other insurance and financial products and services. Our banking offices are located in Ohio, Michigan, West Virginia, Indiana, and Kentucky. Certain activities are also conducted in Arizona, Florida, Georgia, Maryland, Nevada, New Jersey, North Carolina, Pennsylvania, South Carolina, and Tennessee. We have a foreign office in the Cayman Islands and another in Hong Kong. The Huntington National Bank (the Bank), organized in 1866, is our only bank subsidiary.

The following discussion and analysis provides you with information we believe necessary for understanding our financial condition, changes in financial condition, results of operations, and cash flows and should be read in conjunction with the financial statements, notes, and other information contained in this report. The Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) appearing in our 2005 Annual Report on Form 10-K, as amended (2005 Form 10-K), as updated by the information contained in this report, should be read in conjunction with this interim MD&A.

You should note the following discussion is divided into key segments:

	•		Introduction - Provides overview comments on important matters including risk factors and bank regulatory agreements. These are essential for understanding our performance and prospects.

	•		Discussion of Results of Operations - Reviews financial performance from a consolidated company perspective. It also includes a Significant Factors Influencing Financial Performance Comparisons section that summarizes key issues helpful for understanding performance trends. Key consolidated balance sheet and income statement trends are also discussed in this section.

	•		Risk Management and Capital - Discusses credit, market, liquidity, and operational risks, including how these are managed, as well as performance trends. It also includes a discussion of liquidity policies, how we fund ourselves, and related performance. In addition, there is a discussion of guarantees and/or commitments made for items such as standby letters of credit and commitments to sell loans, and a discussion that reviews the adequacy of capital, including regulatory capital requirements.

	•		Lines of Business Discussion – Describes our lines of business, provides an overview of financial performance for each line of business, and provides additional discussion of trends underlying consolidated financial performance.

Forward-Looking Statements

This report, including MD&A, contains forward-looking statements. These include descriptions of products or services, plans or objectives for future operations, and forecasts of revenues, earnings, cash flows, or other measures of economic performance. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts.

By their nature, forward-looking statements are subject to numerous assumptions, risks, and uncertainties. A number of factors could cause actual conditions, events, or results to differ significantly from those described in the forward-looking statements. These factors include, but are not limited to, those set forth under Risk Factors of our 2005 Form 10-K, and other factors described in this report and from time to time in our other filings with the SEC.

You should understand forward-looking statements to be strategic objectives and not absolute forecasts of future performance. Forward-looking statements speak only as of the date they are made. We assume no obligation to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements were made or to reflect the occurrence of unanticipated events.

Risk Factors

We, like other financial companies, are subject to a number of risks, many of which are outside of our direct control, though efforts are made to manage those risks while optimizing returns. Among the risks assumed are: (1) credit risk, which is the risk that loan and lease customers or other counter parties will be unable to perform their contractual obligations, (2) market risk, which is the risk that changes in market rates and prices will adversely affect our financial condition or results of operation, (3) liquidity risk, which is the risk that we and / or the Bank will have insufficient cash or access to cash to meet operating needs, and (4) operational risk, which is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. (More information on risk is set forth under the heading “Risk Factors” included in Item 1A of our 2005 Form 10-K.)

Critical Accounting Policies and Use of Significant Estimates

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of financial statements in conformity with GAAP requires us to establish critical accounting policies and make accounting estimates, assumptions, and judgments that affect amounts recorded and reported in our financial statements. Note 1 of the Notes to Consolidated Financial Statements included in our 2005 Form 10-K as supplemented by this report lists significant accounting policies we use in the development and presentation of our financial statements. This discussion and analysis, the significant accounting policies, and other financial statement disclosures identify and address key variables and other qualitative and quantitative factors necessary for an understanding and evaluation of our company, financial position, results of operations, and cash flows.

An accounting estimate requires assumptions about uncertain matters that could have a material effect on the financial statements if a different amount within a range of estimates were used or if estimates changed from period-to-period. Readers of this report should understand that estimates are made under facts and circumstances at a point in time, and changes in those facts and circumstances could produce actual results that differ from when those estimates were made.

Formal Regulatory Supervisory Agreements

On March 1, 2005, we announced that we had entered into a formal written agreement with the Federal Reserve Bank of Cleveland (FRBC), and the Bank had entered into a formal written agreement with the Office of the Comptroller of the Currency (OCC), providing for a comprehensive action plan designed to enhance our corporate governance, internal audit, risk management, accounting policies and procedures, and financial and regulatory reporting. The agreements called for independent third-party reviews, as well as the submission of written plans and progress reports by Management and would remain in effect until terminated by the banking regulators.

On October 6, 2005, we announced that the OCC had lifted its formal written agreement with the Bank dated February 28, 2005, and that the FRBC written agreement remained in effect. We were verbally advised that we were in full compliance with the financial holding company and financial subsidiary requirements under the Gramm-Leach-Bliley Act (GLB Act). This notification reflected that we, and the Bank, met both the “well-capitalized” and “well-managed” criteria under the GLB Act.

On May 10, 2006, we announced that the FRBC notified our board of directors that we had satisfied the provisions of the written agreement dated February 28, 2005, and that the FRBC, under delegated authority of the Board of Governors of the Federal Reserve System, had terminated the written agreement.

DISCUSSION OF RESULTS OF OPERATIONS

This section provides a review of financial performance from a consolidated perspective. It also includes a Significant Factors Influencing Financial Performance Comparisons section that summarizes key issues important for a complete understanding of performance trends. Key consolidated balance sheet and income statement trends are discussed in this section. All earnings per share data are reported on a diluted basis. For additional insight on financial performance, this section should be read in conjunction with the Lines of Business Discussion.

Summary

Earnings comparisons of 2006 second quarter and first six-month performance with that of the prior periods were impacted by a number of factors, some related to changes in the economic and competitive environment, while others reflected corporate actions, specific strategies, or changes in accounting practices. The most significant item impacting performance comparisons was the Unizan merger, which closed March 1, 2006. Understanding the impact of this merger, as well as the nature and implications of other significant 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 prior periods. The key factors impacting current reporting period comparisons to prior periods are more fully described in the Significant Factors Influencing Financial Performance Comparisons section, which follows this summary discussion of results.

2006 Second Quarter versus 2005 Second Quarter

Net income for the second quarter of 2006 was $111.6 million, or $0.46 per common share, up 5% and 2%, respectively, from $106.4 million, or $0.45 per common share, in the year-ago quarter. This $5.2 million increase in net income primarily reflected the positive impacts of:

	•		A $20.3 million, or 8%, increase in net interest income. This reflected the benefit of $2.7 billion, or 9%, growth in average earning assets ($1.7 billion, or 7%, in average total loans and leases), partially offset by a two basis point decline in the net interest margin to 3.34% from 3.36% in the year-ago quarter. The Unizan merger added $17.4 million to net interest income with the addition of $2.0 billion of earning assets ($1.7 billion in loans and leases). (See Net Interest Income discussion for details.)

	•		A $6.8 million, or 4%, increase in total non-interest income. This reflected the benefit of higher mortgage banking income, service charges on deposit accounts, trust services income, and other service charges and fees, which was partially offset by declines in operating lease income and other income. The Unizan merger contributed $7.2 million of growth to non-interest income. (See Non-interest Income discussion for details.)

Partially offset by:

	•		$14.9 million increase in provision for income taxes as the effective tax rate increased to 29.0% from 22.3%. The increase in tax provision reflected higher pre-tax income in 2006, and the recognition of the benefit of a federal tax loss carryback in 2005. (See Provision for Income Taxes discussion for details.)

	•		$4.2 million, or 2%, increase in total non-interest expense. This reflected higher personnel, marketing, amortization of intangibles, equipment, and outside data processing and other service expenses, partially offset by declines in operating lease expense and professional services costs. The Unizan merger contributed $18.0 million to the increase in total non-interest expense. (See Non-interest Expense discussion for details.)

	•		$2.9 million, or 22%, increase in provision for credit losses. (See Provision for Credit Losses and the Credit Risk discussions for details.)

The return on average assets (ROA) and return on average equity (ROE) in the 2006 second quarter were 1.25% and 14.9%, respectively. Both were lower than in the year-ago quarter, where the ROA was 1.31% and ROE was 16.3% (see Table 1).

2006 Second Quarter versus 2006 First Quarter

Net income for the second quarter of 2006 was $111.6 million, or $0.46 per common share, up 7% and 2%, respectively, from $104.5 million, or $0.45 per common share, in the prior quarter. This $7.2 million increase in net income primarily reflected the positive impacts of:

	•		An $18.5 million, or 8%, increase in net interest income. This reflected the benefit of $1.8 billion, or 6%, growth in average earning assets ($1.3 billion, or 5%, in average total loans and leases), and a two basis point increase in the net interest margin to 3.34% from 3.32% in the prior quarter. The Unizan merger contributed $11.6 million to the increase in net interest income ($17.4 million over three months during the second quarter compared with $5.8 million over one month during the first quarter). Unizan added $1.3 billion to earning assets ($1.1 billion in total loans and leases) compared with the first quarter. (See Net Interest Income discussion for details.)

	•		$3.8 million, or 19%, decrease in provision for credit losses. (See Provision for Credit Losses and the Credit Risk discussions for details.)

	•		A $3.5 million, or 2%, increase in total non-interest income. This reflected the benefit of higher service charges on deposit accounts, mortgage banking income, other service charges and fees, and trust services income, which was partially offset by declines in operating lease income and other income. The Unizan merger contributed $4.8 million of growth to total non-interest income. (See Non-interest Income discussion for details.)

Partially offset by:

	•		$13.9 million, or 6%, increase in total non-interest expense. This reflected higher personnel, marketing, amortization of intangibles, equipment, and professional services, partially offset by a decline in operating lease expense. The Unizan merger contributed $13.7 million to the increase in total non-interest expense. (See Non-interest Expense discussion for details.)

	•		$4.7 million, or 12%, increase in provision for income taxes, reflecting primarily higher pre-tax income as the effective tax rate increased only slightly to 29.0% from 28.1%. (See Provision for Income Taxes discussion for details.)

The ROA and ROE in the 2006 second quarter were 1.25% and 14.9%, respectively. Both were slightly lower than in the prior quarter, where the ROA was 1.26% and ROE was 15.5% (see Table 1).

2006 First Six Months versus 2005 First Six Months

Net income for the 2006 first six-month period was $216.1 million, or $0.90 per common share, up 6% and 5%, respectively, from $202.9 million, or $0.86 per common share, in the year-ago period. This $13.1 million increase in net income primarily reflected the positive impacts of:

	•		A $28.8 million, or 6%, increase in net interest income. This reflected the benefit of $1.9 billion, or 7%, growth in average earning assets ($1.4 billion, or 6%, in average total loans and leases), partially offset by a one basis point decline in the net interest margin to 3.33% from 3.34% in the year-ago six-month period. The Unizan merger contributed $23.2 million to the increase in net interest income and $1.3 billion to the growth of average earning assets ($1.1 billion in average total loans and leases). (See Net Interest Income discussion for details.)

	•		$15.6 million, or 3%, decline in total non-interest expense. This reflected significant declines in operating lease expense and professional services costs, partially offset by higher personnel, marketing, amortization of intangibles, equipment, and outside data processing and other service expenses. The Unizan merger contributed $27.5 million to total non-interest expense. (See Non-interest Expense discussion for details.)

Partially offset by:

	•		$27.1 million, or 46%, increase in provision for income taxes as the effective tax rate increased to 28.5% from 22.6%. The increase in tax provision reflected higher pre-tax income in 2006, and the recognition of the benefit of a federal tax loss carryback in 2005. (See Provision for Income Taxes discussion for details.)

	•		$2.5 million, or 8%, increase in provision for credit losses. (See Provision for Credit Losses and the Credit Risk discussions for details.)

INSERT Table 1 — Selected Quarterly Income Statement Data.


	2006						2005
(in thousands, except per share amounts)	Second			First			Fourth			Third			Second

Interest income	$	521,903		$	464,787		$	442,476		$	420,858		$	402,326
Interest expense		259,708			221,107			198,800			179,221			160,426

Net interest income		262,195			243,680			243,676			241,637			241,900
Provision for credit losses		15,745			19,540			30,831			17,699			12,895

Net interest income after provision for credit losses		246,450			224,140			212,845			223,938			229,005

Service charges on deposit accounts		47,225			41,222			42,083			44,817			41,516
Trust services		22,676			21,278			20,425			19,671			19,113
Brokerage and insurance income		14,345			15,193			13,101			13,948			13,544
Bank owned life insurance income		10,604			10,242			10,389			10,104			10,139
Other service charges and fees		13,072			11,509			11,488			11,449			11,252
Mortgage banking income (loss)		20,355			17,832			10,909			21,116			(2,376	)
Securities gains (losses)		(35	)		(20	)		(8,770	)		101			(343	)
Gains on sales of automobile loans		532			448			455			502			254
Other income		19,394			22,440			22,900			9,770			24,974

Subtotal before operating lease income		148,168			140,144			122,980			131,478			118,073
Operating lease income		14,851			19,390			24,342			29,262			38,097

Total noninterest income		163,019			159,534			147,322			160,740			156,170

Personnel costs		137,904			131,557			116,111			117,476			124,090
Net occupancy		17,927			17,966			17,940			16,653			17,257
Outside data processing and other services		19,569			19,851			19,693			18,062			18,113
Equipment		18,009			16,503			16,093			15,531			15,637
Professional services		6,292			5,365			7,440			8,323			9,347
Marketing		10,374			7,301			7,145			6,364			6,934
Telecommunications		4,990			4,825			4,453			4,512			4,801
Printing and supplies		3,764			3,074			3,084			3,102			3,293
Amortization of intangibles		2,992			1,075			218			203			204
Other expense		19,734			16,291			19,452			20,003			19,581

Subtotal before operating lease expense		241,555			223,808			211,629			210,229			219,257
Operating lease expense		10,804			14,607			18,726			22,823			28,879

Total noninterest expense		252,359			238,415			230,355			233,052			248,136

Income before income taxes		157,110			145,259			129,812			151,626			137,039
Provision for income taxes		45,506			40,803			29,239			43,052			30,614

Net income	$	111,604		$	104,456		$	100,573		$	108,574		$	106,425


Average common shares - diluted		244,538			234,363			229,718			233,456			235,671

Per common share
Net income — diluted	$	0.46		$	0.45		$	0.44		$	0.47		$	0.45
Cash dividends declared		0.250			0.250			0.215			0.215			0.215

Return on average total assets		1.25	%		1.26	%		1.22	%		1.32	%		1.31	%
Return on average total shareholders’ equity		14.9			15.5			15.5			16.5			16.3
Net interest margin⁽¹⁾		3.34			3.32			3.34			3.31			3.36
Efficiency ratio⁽²⁾		58.1			58.3			57.0			57.4			61.8
Effective tax rate		29.0			28.1			22.5			28.4			22.3

Revenue - - fully taxable equivalent (FTE)
Net interest income	$	262,195		$	243,680		$	243,676		$	241,637		$	241,900
FTE adjustment		3,984			3,836			3,837			3,734			2,961

Net interest income⁽¹⁾		266,179			247,516			247,513			245,371			244,861
Non-interest income		163,019			159,534			147,322			160,740			156,170

Total revenue⁽¹⁾	$	429,198		$	407,050		$	394,835		$	406,111		$	401,031


⁽¹⁾		On a fully taxable equivalent (FTE) basis assuming a 35% tax rate.

⁽²⁾		Noninterest expense less amortization of intangibles divided by the sum of FTE net interest income and noninterest income excluding securities gains (losses).

INSERT Table 2 — Selected Year to Date Income Statement Data.


	Six Months Ended June 30,						Change
(in thousands, except per share amounts)	2006			2005			Amount			Percent

Interest income	$	986,690		$	778,431		$	208,259			26.8	%
Interest expense		480,815			301,333			179,482			59.6

Net interest income		505,875			477,098			28,777			6.0
Provision for credit losses		35,285			32,769			2,516			7.7

Net interest income after provision for credit losses		470,590			444,329			26,261			5.9

Service charges on deposit accounts		88,447			80,934			7,513			9.3
Trust services		43,954			37,309			6,645			17.8
Brokerage and insurance income		29,538			26,570			2,968			11.2
Bank owned life insurance income		20,846			20,243			603			3.0
Other service charges and fees		24,581			21,411			3,170			14.8
Mortgage banking income		38,187			9,685			28,502			N.M.
Securities gains		(55	)		614			(669	)		N.M.
Gains on sales of automobile loans		980			254			726			N.M.
Other income		41,834			42,371			(537	)		(1.3	)

Subtotal before operating lease income		288,312			239,391			48,921			20.4
Operating lease income		34,241			84,829			(50,588	)		(59.6	)

Total non-interest income		322,553			324,220			(1,667	)		(0.5	)

Personnel costs		269,461			248,071			21,390			8.6
Net occupancy		35,893			36,499			(606	)		(1.7	)
Outside data processing and other services		39,420			36,883			2,537			6.9
Equipment		34,512			31,500			3,012			9.6
Professional services		11,657			18,806			(7,149	)		(38.0	)
Marketing		17,675			12,770			4,905			38.4
Telecommunications		9,815			9,683			132			1.4
Printing and supplies		6,838			6,387			451			7.1
Amortization of intangibles		4,067			408			3,659			N.M.
Other expense		36,025			38,579			(2,554	)		(6.6	)

Subtotal before operating lease expense		465,363			439,586			25,777			5.9
Operating lease expense		25,411			66,827			(41,416	)		(62.0	)

Total non-interest expense		490,774			506,413			(15,639	)		(3.1	)

Income before income taxes		302,369			262,136			40,233			15.3
Provision for income taxes		86,309			59,192			27,117			45.8

Net income	$	216,060		$	202,944		$	13,116			6.5	%


Average common shares - diluted		239,451			235,362			4,089			1.7	%

Per common share
Net income per common share diluted	$	0.90		$	0.86		$	0.04			4.7	%
Cash dividends declared		0.500			0.415			0.085			20.5

Return on average total assets		1.26	%		1.26	%		—	%		—	%
Return on average total shareholders’ equity		15.2			15.9			(0.7	)		(4.4	)
Net interest margin ⁽¹⁾		3.33			3.34			(0.01	)		(0.3	)
Efficiency ratio ⁽²⁾		58.2			62.7			(4.5	)		(7.2	)
Effective tax rate		28.5			22.6			5.9			26.1

Revenue - fully taxable equivalent (FTE)
Net interest income	$	505,875		$	477,098		$	28,777			6.0	%
FTE adjustment ⁽¹⁾		7,820			5,822			1,998			34.3

Net interest income		513,695			482,920			30,775			6.4
Non-interest income		322,553			324,220			(1,667	)		(0.5	)

Total revenue	$	836,248		$	807,140		$	29,108			3.6	%

N.M., not a meaningful value.


⁽¹⁾		On a fully taxable equivalent (FTE) basis assuming a 35% tax rate.

⁽²⁾		Noninterest expense less amortization of intangibles divided by the sum of FTE net interest income and noninterest income excluding securities gains.

Significant Factors Influencing Financial Performance Comparisons

Earnings comparisons from the beginning of 2005 through the second quarter of 2006 were impacted by a number of factors, reflecting corporate actions, specific strategies, or changes in accounting practices. Those key factors are summarized below.

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 $1.7 billion of loans, and core deposits of $1.5 billion. This impacted 2006 first and second quarter, and year-to-date reported results compared with pre-merger reporting periods as follows:

	•		Increased certain reported period-end balance sheet and credit quality items (e.g., non-performing loans).

	•		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 merger costs were $1.0 million in the 2006 first quarter and $2.6 million in the 2006 second quarter, resulting in $3.6 million of merger costs, year-to-date.

Given the impact of the merger on reported 2006 results, We believe that it is helpful in better understanding certain underlying performance and trends to analyze them by quantifying the impact of the merger. As such, the following two terms relating to the impact of the Unizan merger on reported results are used in the Discussion of Results of Operations, and when comparing post-merger period results to pre-merger periods:

	•		“Merger-related” refers to amounts and percentage changes representing the impact attributable to the merger.

	•		“Merger costs” represent expenses associated with merger integration activities.

Schedules, reflecting the impact of the Unizan merger on our reported average balance sheet and income statement, can be found in Table 25 – Estimated Impact of Unizan Merger.

Mortgage servicing rights (MSRs) and related hedging. Interest rate levels have generally been rising throughout this period, which has impacted the valuation of MSRs.

	•		Since the second quarter of 2002, we have generally retained the servicing on mortgage loans we originate and sell. MSR values are very sensitive to movements in interest rates as expected future net servicing income depends on the projected outstanding principal balances of the underlying loans, which can be greatly reduced by prepayments. Prepayments usually increase when mortgage interest rates decline and decrease when mortgage interest rates rise. Thus, as interest rates decline, less future income is expected and the value of MSRs is reduced. Prior to 2006, we recognized impairment when the valuation was less than the recorded book value. We recognized temporary impairment due to changes in interest rates through a valuation reserve and recorded a direct write-down of the book value of MSRs for other-than-temporary declines in valuation. Changes and fluctuations in interest rate levels between quarters resulted in some quarters reporting an MSR temporary impairment, with others reporting a recovery of previously recognized MSR temporary impairment. Such swings in MSR valuations have significantly impacted quarterly mortgage banking income trends throughout this period.

	•		Beginning in 2006, we adopted Statement No. 156, which records MSRs at fair value. Under the fair value approach, servicing assets and liabilities are recorded at fair value at each reporting date. Changes in fair value between reporting dates are recorded as an increase or decrease in mortgage banking income, which is reflected in non-interest income in the consolidated statements of income. MSR assets are included in other assets. (See Tables 3, 7, and 8.)

	•		We use trading account assets to offset MSR valuation changes. The valuations of trading securities we used generally reacted to interest rate changes in an opposite direction compared with changes in MSR valuations. As a result, changes in interest rate levels that impacted MSR valuations also resulted in trading gains or losses. As such, in quarters where an MSR impairment was recognized, changes to the fair market value of trading account assets typically resulted in a recognition of trading income, and vice versa. Trading gains or losses are a component of other non-interest income on the income statement.

3.		Automobile leases originated through April 2002 are accounted for as operating leases. Automobile leases originated before May 2002 are accounted for using the operating lease method of accounting because they do not qualify as direct financing leases. Operating leases are carried in other assets with the related rental income, other revenue, and credit recoveries reflected as operating lease income, a component of non-interest income. Under this accounting method, depreciation expenses, as well as other costs and charge-offs, are reflected as operating lease expense, a component of non-interest expense. With no new automobile operating leases originated since April 2002, the operating lease assets have declined rapidly. It is anticipated that the level of operating lease assets and related operating lease income and expense will decline to a point of diminished materiality sometime in 2006. However, until that point is reached, and since operating lease income and expense represented a significant percentage of total non-interest income and expense, respectively, throughout these reporting periods, their downward trend influenced total revenue, total non-interest income, and total non-interest expense trends.

		In contrast, automobile leases originated since April 2002 are accounted for as direct financing leases, an interest earning asset included in total loans and leases with the related income reflected as interest income and included in the calculation of the net interest margin. Credit charge-offs and recoveries are reflected in the allowance for loan and lease losses (ALLL), with related changes in the ALLL reflected in the provision for credit losses. To better understand overall trends in automobile lease exposure, it is helpful to compare trends in the combined total of direct financing leases plus automobile operating leases.

4.		Effective tax rate. The effective tax rate was 28.5% for the six-month period, up 5.9% from the same period in 2005. The effective tax rate in 2005 included the positive impact on net income of a federal tax loss carry-back.

5.		Stock option expensing. Beginning in the 2006 first quarter, we adopted Statement No. 123R, Share-based Payment, which resulted in recognizing the impact of stock-based compensation, primarily in the form of stock option grants, as personnel expense in our income statement. Adoption of stock option expensing added $4.3 million to personnel expense in the 2006 first and second quarters, and totaled $8.5 million year-to-date. (See Note 9 to the unaudited condensed consolidated financial statements.)

6.		Other significant items influencing earnings performance comparisons. Other significant items influencing performance comparisons included:

2006

Second Quarter

	•		$2.6 million pre-tax ($0.01 earnings per share) negative impact from current period Unizan merger costs, which consisted primarily of retention bonuses and occupancy, outside programming services, and marketing expenses.

	•		$2.3 million pre-tax ($0.01 earnings per share) positive impact from equity investment gains.

First Quarter

•

$2.4 million pre-tax ($0.01 earnings per share) negative impact, reflecting a cumulative adjustment to defer annual fees related to home equity loans.

2005

Second Quarter

	•		$3.6 million pre-tax ($0.01 earnings per share) of severance and other expenses associated with the consolidation of certain operations functions, including the closing of an item-processing center in Michigan. These expenses included $2.0 million in severance-related personnel costs, $0.8 million in net occupancy, $0.5 million in equipment expenses, and $0.3 million in other expenses.

	•		$2.1 million pre-tax ($0.01 earnings per share) negative impact from the write-off of an equity investment.

First Quarter

•

$6.4 million pre-tax ($0.02 earnings per share) negative impact from a single, commercial credit charge-off. This resulted in an increase in net charge-offs and provision expense in that quarter.

Table 3 reflects the earnings impact of certain significant items for periods affected by this Discussion of Results of Operations:

Table 3 — Significant Items Influencing Earnings Performance Comparison ⁽¹⁾


	Three Months Ended
	June 30, 2006					March 31, 2006					June 30, 2005
(in millions)	After-tax		EPS			After-tax		EPS			After-tax		EPS

Net income — reported earnings	$	111.6				$	104.5				$	106.4
Earnings per share, after tax			$	0.46				$	0.45				$	0.45
Change from prior quarter — $				0.01					0.01					0.04
Change from prior quarter — %				2.2	%				2.3	%				9.8	%

Change from a year-ago — $			$	0.01				$	0.04				$	(0.02	)
Change from a year-ago — %				2.2	%				9.8	%				(4.3	)%


Significant items - favorable (unfavorable) impact:	Earnings ⁽²⁾			EPS			Earnings ⁽²⁾			EPS			Earnings⁽²⁾			EPS

Unizan merger-related expenses	$	(2.6	)	$	(0.01	)
Equity investment gains		2.3			0.01
MSR mark-to-market net of hedge-related trading activity		—			—			4.6			0.01			—			—
Adjustment to defer home equity annual fees ⁽³⁾		—			—			(2.4	)		(0.01	)		—			—
Net impact of federal tax loss carry back		—			—			—			—			6.6			0.03
MSR recovery of temporary impairment net of hedge-related trading activity		—			—			—			—			(4.0	)		(0.01	)
Severance and consolidation expenses														(3.6	)		(0.01	)
Write-off of equity investment		—			—			—			—			(2.1	)		(0.01	)


	Six Months Ended
	June 30, 2006					June 30, 2005
(in millions)	After-tax		EPS			After-tax		EPS

Net income — reported earnings	$	216.1				$	202.9
Earnings per share, after tax			$	0.90				$	0.86
Change from a year-ago — $				0.04					(0.06	)
Change from a year-ago — %				4.7	%				6.5	%


Significant items - favorable (unfavorable) impact:	Earnings ⁽²⁾			EPS			Earnings ⁽²⁾			EPS

MSR mark-to-market net of hedge-related trading activity	$	6.1		$	0.02		$	—		$	—
Adjustment to defer home equity annual fees		(2.4	)		(0.01	)		—			—
Unizan merger-related expenses		(3.6	)		(0.01	)		—			—
Equity investment gains ⁽³⁾		3.7			0.01			—			—
Net impact of federal tax loss carry back		—			—			13.0			0.06
MSR recovery of temporary impairment net of hedge-related trading activity		—			—			(4.0	)		(0.01	)
Severance and consolidation expenses		—			—			(3.6	)		(0.01	)
Write-off of equity investment		—			—			(2.1	)		(0.01	)
Single C&I charge-off impact, net of allocated reserves		—			—			(6.4	)		(0.02	)
SEC and regulatory-related expenses		—			—			(3.7	)		(0.01	)


⁽¹⁾		See Significant Factors Influencing Financial Performance discussion.

⁽²⁾		Pre-tax unless otherwise noted.

⁽³⁾		After-tax.

Net Interest Income
(This section should be read in conjunction with Significant Factors 1, 3, and 6.)

2006 Second Quarter versus 2005 Second Quarter

Fully taxable equivalent net interest income increased $21.3 million, or 9% ($17.7 million merger-related), from the year-ago quarter, reflecting the favorable impact of a $2.7 billion, or 9%, increase in average earning assets, as the fully taxable equivalent net interest margin declined two basis points to 3.34%. Average total loans and leases increased $1.7 billion, or 7%, nearly all of which was attributable to the Unizan merger. The remaining increase in average total loans and leases was $0.1 billion, essentially unchanged from the year-ago quarter, which primarily reflected growth in commercial loans, residential mortgages, and home equity loans, mostly offset by a decline in total average automobile loans and leases as we continued a program to sell a portion of that production.

Average total commercial loans increased $1.2 billion, or 12% ($0.8 billion merger-related). The $1.2 billion growth reflected a $0.6 billion, or 11%, increase in average middle market C&I loans, a $0.5 billion, or 13%, increase in average commercial real estate loans, and a $0.2 billion, or 10%, increase in average small business loans.

Average residential mortgages increased $0.5 billion, or 13% ($0.4 billion merger-related). Average home equity loans increased $0.2 billion, or 5%, substantially all from the Unizan merger.

Compared with the year-ago quarter, average total automobile loans and leases decreased $0.4 billion, or 9%, with the Unizan merger having no significant impact. The decrease reflected the combination of two factors: (1) the continuation of historically low production levels over this period from low consumer demand and competitive pricing, and (2) the sale of automobile loans as we continued a program of selling a portion of current loan production. Average operating lease assets declined $0.3 billion, or 63%, as this portfolio continued to run off. Total automobile loan and lease exposure at quarter end was 16%, down from 19% a year ago.

Average total investment securities increased $1.1 billion from the 2005 second quarter, attributed, in part, to the securities purchased in the 2006 first quarter related to Unizan.

Average total core deposits in the 2006 second quarter increased $1.9 billion, or 11% ($1.5 billion merger-related), from the year-ago quarter. Most of the $1.9 billion increase reflected higher average certificates of deposit less than $100,000, which increased $1.7 billion. The Unizan merger added $0.6 billion of certificates of deposit less than $100,000, with the remaining $1.1 billion of growth resulting from customer demand for higher, fixed rate deposit products. Average savings and other domestic time deposits declined $0.1 billion. Outflows from these accounts and into higher rate products, such as certificates of deposit less than $100,000, were greater than the $0.5 billion of savings account balances acquired in the Unizan merger. Average non-interest bearing and interest bearing demand deposits rose $0.2 billion and $0.1 billion, respectively. The Unizan merger added $0.2 billion of non-interest bearing demand deposits and $0.2 billion of interest bearing demand deposits.

2006 Second Quarter versus 2006 First Quarter

Compared with the 2006 first quarter, fully taxable equivalent net interest income increased $18.7 million, or 8% ($11.8 million merger-related). This reflected a 6% increase in average total earnings assets, the benefit of one additional day in the current quarter, as well as a two basis point increase in the net interest margin to 3.34% from 3.32%. The prior quarter’s net interest margin was negatively impacted by about 3 basis points related to an adjustment for annual home equity loan fees.

Average total loans and leases increased $1.3 billion, or 5% ($1.1 billion merger-related), from the 2006 first quarter.

Average total commercial loans increased $0.8 billion, or 7% ($0.5 billion merger-related), from the 2006 first quarter. The $0.8 billion increase reflected a $0.3 billion, or 6%, increase in average middle market C&I loans, a $0.3 billion, or 16%, increase in average small business loans, and a $0.2 billion, or 4%, increase in average commercial real estate loans.

Average residential mortgages increased $0.3 billion, or 8%, and average home equity loans increased $0.2 billion, or 4%. Substantially all of the growth in these two categories of loans was merger-related. The growth rates in average residential mortgages and home equity loans were negatively impacted by a planned decline in broker-originated production, as well as credit underwriting and pricing discipline.

Compared with the 2006 first quarter, average total automobile loans and leases declined 2%, with the Unizan merger having no significant impact. The decline reflected a combination of factors including low demand for leases, as well as sales of a portion of automobile loan and lease production. Average direct financing leases declined $0.1 billion, or 6%. Though direct financing lease production increased 48% from the prior quarter, the absolute level of production over the last several quarters has remained at historically low levels due to continued low consumer demand and competitive pricing. In contrast, average automobile loans increased 3%. Automobile loan production increased 12% from the prior quarter and represented the second highest level of quarterly production in the last nine quarters. Average operating lease assets declined slightly as this portfolio continued to run off.

Average investment securities increased $0.4 billion from the 2006 first quarter, primarily merger-related.

Average total core deposits in the 2006 second quarter increased $1.0 billion, or 5%, from the prior quarter, all of which was attributable to Unizan. Average certificates of deposit less than $100,000 increased $0.6 billion, reflecting $0.4 billion merger-related and a shift of customer preferences for certificates of deposit less than $100,000 and out of savings and other time deposits. This shift reflected the same factors impacting comparisons to the year-ago quarter noted above. Average interest bearing and non-interest bearing demand deposits each increased $0.2 billion, or 3% and 5%, respectively, primarily merger-related, but also from initiatives targeted at growing these deposits.

Table 4 — Consolidated Quarterly Average Balance Sheets


	Average Balances															Change
Fully taxable equivalent basis	2006						2005									2Q06 vs 2Q05
(in millions)	Second			First			Fourth			Third			Second			Amount			Percent

Assets
Interest bearing deposits in banks	$	62		$	48		$	51		$	54		$	54		$	8			14.8	%
Trading account securities		100			66			119			274			236			(136	)		(57.6	)
Federal funds sold and securities purchased under resale agreements		285			201			103			142			225			60			26.7
Loans held for sale		287			274			361			427			276			11			4.0
Investment securities:
Taxable		4,494			4,138			3,802			3,523			3,589			905			25.2
Tax-exempt		556			548			540			537			411			145			35.3

Total investment securities		5,050			4,686			4,342			4,060			4,000			1,050			26.3
Loans and leases:⁽¹⁾
Commercial:⁽²⁾
Middle market commercial and industrial		5,458			5,132			4,946			4,708			4,901			557			11.4
Middle market commercial real estate:
Construction		1,243			1,454			1,675			1,720			1,678			(435	)		(25.9	)
Commercial		2,799			2,423			1,923			1,922			1,905			894			46.9

Middle market commercial real estate		4,042			3,877			3,598			3,642			3,583			459			12.8
Small business		2,456			2,121			2,230			2,251			2,230			226			10.1

Total commercial		11,956			11,130			10,774			10,601			10,714			1,242			11.6

Consumer:
Automobile loans		2,044			1,994			2,018			2,078			2,069			(25	)		(1.2	)
Automobile leases		2,095			2,221			2,337			2,424			2,468			(373	)		(15.1	)

Automobile loans and leases		4,139			4,215			4,355			4,502			4,537			(398	)		(8.8	)
Home equity		4,872			4,694			4,653			4,681			4,636			236			5.1
Residential mortgage		4,629			4,306			4,165			4,157			4,080			549			13.5
Other loans		605			586			521			507			491			114			23.2

Total consumer		14,245			13,801			13,694			13,847			13,744			501			3.6

Total loans and leases		26,201			24,931			24,468			24,448			24,458			1,743			7.1
Allowance for loan and lease losses		(293	)		(283	)		(262	)		(256	)		(270	)		(23	)		(8.5	)

Net loans and leases		25,908			24,648			24,206			24,192			24,188			1,720			7.1

Total earning assets		31,985			30,206			29,444			29,405			29,249			2,736			9.4

Operating lease assets		152			200			245			309			409			(257	)		(62.8	)
Cash and due from banks		806			789			742			867			865			(59	)		(6.8	)
Intangible assets		638			362			218			217			218			420			N.M.
All other assets		2,402			2,215			2,227			2,197			2,149			253			11.8

Total Assets	$	35,690		$	33,489		$	32,614		$	32,739		$	32,620		$	3,070			9.4	%


Liabilities and Shareholders’ Equity
Deposits:
Demand deposits — non-interest bearing	$	3,594		$	3,436		$	3,444		$	3,406		$	3,352		$	242			7.2	%
Demand deposits — interest bearing		7,778			7,562			7,496			7,539			7,677			101			1.3
Savings and other domestic time deposits		3,106			3,095			2,984			3,095			3,230			(124	)		(3.8	)
Certificates of deposit less than $100,000		4,430			3,849			3,421			3,157			2,720			1,710			62.9

Total core deposits		18,908			17,942			17,345			17,197			16,979			1,929			11.4
Domestic time deposits of $100,000 or more		1,739			1,478			1,397			1,271			1,248			491			39.3
Brokered deposits and negotiable CDs		3,263			3,143			3,210			3,286			3,249			14			0.4
Deposits in foreign offices		474			465			490			462			434			40			9.2

Total deposits		24,384			23,028			22,442			22,216			21,910			2,474			11.3
Short-term borrowings		2,042			1,669			1,472			1,559			1,301			741			57.0
Federal Home Loan Bank advances		1,557			1,453			1,156			935			1,136			421			37.1
Subordinated notes and other long-term debt		3,428			3,346			3,687			3,960			4,100			(672	)		(16.4	)

Total interest bearing liabilities		27,817			26,060			25,313			25,264			25,095			2,722			10.8

All other liabilities		1,284			1,264			1,283			1,458			1,554			(270	)		(17.4	)
Shareholders’ equity		2,995			2,729			2,574			2,611			2,619			376			14.4

Total Liabilities and Shareholders’ Equity	$	35,690		$	33,489		$	32,614		$	32,739		$	32,620		$	3,070			9.4	%


⁽¹⁾		For purposes of this analysis, non-accrual loans are reflected in the average balances of loans.

⁽²⁾		The middle market C&I and CRE loan balances in the first quarter of 2006 contain Unizan loan balances that were subject to reclassification when these loans were converted to Huntington’s loan systems.

Table 5 — Consolidated Quarterly Net Interest Margin Analysis


	Average Rates⁽²⁾
	2006						2005
Fully taxable equivalent basis ⁽¹⁾	Second			First			Fourth			Third			Second

Assets
Interest bearing deposits in banks		4.04	%		3.78	%		3.20	%		2.13	%		1.47	%
Trading account securities		5.56			4.49			4.53			3.95			3.94
Federal funds sold and securities purchased under resale agreements		4.75			4.30			3.78			3.41			2.76
Loans held for sale		6.23			5.92			5.68			5.43			6.04
Investment securities:
Taxable		5.32			5.00			4.70			4.37			4.13
Tax-exempt		6.83			6.71			6.77			6.62			6.76

Total investment securities		5.49			5.20			4.96			4.67			4.40
Loans and leases:⁽³⁾
Commercial:
Middle market commercial and industrial		7.26			6.80			6.28			5.87			5.65
Middle market commercial real estate:
Construction		8.01			7.55			7.27			6.58			6.04
Commercial		7.26			6.78			6.46			5.96			5.53

Middle market commercial real estate		7.49			7.07			6.84			6.25			5.77
Small business		7.10			6.67			6.43			6.18			6.01

Total commercial		7.30			6.87			6.50			6.07			5.76

Consumer:
Automobile loans		6.48			6.40			6.26			6.44			6.57
Automobile leases		5.01			4.97			4.98			4.94			4.91

Automobile loans and leases		5.74			5.65			5.57			5.63			5.67
Home equity		7.72			7.10			7.03			6.60			6.24
Residential mortgage		5.39			5.34			5.31			5.23			5.18
Other loans		6.83			6.39			5.98			5.92			6.22

Total consumer		6.35			6.08			6.00			5.85			5.74

Total loans and leases		6.79			6.43			6.22			5.94			5.75

Total earning assets		6.55	%		6.21	%		6.01	%		5.72	%		5.52	%


Liabilities and Shareholders’ Equity
Deposits:
Demand deposits — non-interest bearing		—	%		—	%		—	%		—	%		—	%
Demand deposits — interest bearing		2.62			2.44			2.12			1.87			1.64
Savings and other domestic time deposits		1.59			1.49			1.44			1.39			1.34
Certificates of deposit less than $100,000		4.05			3.83			3.70			3.58			3.49

Total core deposits		2.83			2.61			2.36			2.15			1.94
Domestic time deposits of $100,000 or more		4.67			4.33			3.90			3.60			3.27
Brokered deposits and negotiable CDs		5.12			4.69			4.20			3.66			3.25
Deposits in foreign offices		2.68			2.62			2.66			2.28			1.95

Total deposits		3.34			3.07			2.79			2.52			2.26
Short-term borrowings		4.12			3.57			3.11			2.74			2.16
Federal Home Loan Bank advances		4.34			3.99			3.37			3.08			3.02
Subordinated notes and other long-term debt		5.67			5.22			4.72			4.20			3.91

Total interest bearing liabilities		3.74	%		3.43	%		3.12	%		2.82	%		2.56	%

Net interest rate spread		2.81	%		2.78	%		2.89	%		2.90	%		2.96	%
Impact of non-interest bearing funds on margin		0.53			0.54			0.45			0.41			0.40

Net interest margin		3.34	%		3.32	%		3.34	%		3.31	%		3.36	%


⁽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.

2006 First Six Months versus 2005 First Six Months

Fully taxable equivalent net interest income increased $30.8 million, or 6% ($23.6 million merger-related), from the year-ago six-month period. Earning assets grew $1.9 billion, or 7%, and the fully taxable equivalent net interest margin declined one basis points to 3.33%. Average total loans and leases increased $1.4 billion, or 6% ($1.1 billion merger-related). This primarily reflected growth in commercial loans, residential mortgages, and home equity loans, partly offset by a decline in total average automobile loans and leases as we continued to sell a portion of that production.

Average total commercial loans increased $1.0 billion, or 9% ($0.5 billion merger-related), from the year-ago six-month period. The $1.0 billion growth reflected a $0.5 billion, or 10%, increase in average middle market C&I loans, a $0.4 billion, or 11%, increase in average commercial real estate loans, and a $0.1 billion, or 4%, increase in average small business loans.

Average residential mortgages increased $0.5 billion, or 12% ($0.3 billion merger-related). Average home equity loans increased $0.2 billion, or 4%, ($0.1 billion merger-related).

Compared with the year-ago six-month period, average total automobile loans and leases decreased $0.3 billion, or 7%, with Unizan having no material impact. The decrease reflected the combination of two factors: (1) historically low production levels over this period due to low consumer demand and competitive pricing, and (2) sales of automobile loans as we continued selling a portion of current loan production. Average operating lease assets declined $0.3 billion, or 62%, as this portfolio continued to run off. Total automobile loan and lease exposure at quarter end was 16% of total loans and leases and operating lease assets, down from 19% a year ago.

Average total investment securities increased $0.7 billion from the 2005 first six-month period, attributed in part to the securities purchased in the 2006 first quarter related to Unizan.

Average total core deposits in the 2006 first six-month period increased $1.4 billion, or 8% ($1.0 billion merger-related), from the comparable year-ago period. Most of the $1.4 billion increase in average core deposits reflected a $1.6 billion increase ($0.4 billion merger-related) in average certificates of deposit less than $100,000, with the remaining $1.2 billion of growth resulting from customer demand for higher, fixed rate deposit products. Average savings and other domestic time deposits declined $0.2 billion, or 5%. Outflows from these accounts and into higher rate products, such as certificates of deposit less than $100,000, were greater than the $0.3 billion impact from savings account balances acquired in the Unizan merger. Average non-interest bearing demand deposits were up $0.2 billion, or 5%. Average interest-bearing demand deposits declined $0.1 billion, or 2%, despite a $0.2 billion impact of average interest-bearing demand deposits acquired in the Unizan merger.

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)	2006			2005			Amount			Percent			2006			2005

Assets
Interest bearing deposits in banks	$	55		$	54		$	1			1.9	%		3.93	%		1.67	%
Trading account securities		83			218			(135	)		(61.9	)		5.33			4.03
Federal funds sold and securities purchased under resale agreements		243			349			(106	)		(30.4	)		4.56			2.49
Loans held for sale		281			240			41			17.1			6.08			5.83
Investment securities:
Taxable		4,317			3,759			558			14.8			5.17			3.99
Tax-exempt		552			410			142			34.6			6.77			6.75

Total investment securities		4,869			4,169			700			16.8			5.35			4.26
Loans and leases:⁽³⁾
Commercial:
Middle market commercial and industrial		5,300			4,806			494			10.3			7.03			5.34
Middle market commercial real estate:
Construction		1,348			1,659			(311	)		(18.7	)		7.76			5.79
Commercial		2,612			1,894			718			37.9			7.04			5.38

Middle market commercial real estate		3,960			3,553									7.28			5.57
Small business		2,290			2,207			83			3.8			6.90			5.91

Total commercial		11,550			10,566			984			9.3			7.09			5.54

Consumer:
Automobile loans		2,019			2,038			(19	)		(0.9	)		6.44			6.70
Automobile leases		2,157			2,465			(308	)		(12.5	)		4.99			4.91

Automobile loans and leases		4,176			4,503			(327	)		(7.3	)		5.69			5.72
Home equity		4,784			4,603			181			3.9			7.41			6.01
Residential mortgage		4,468			4,000			468			11.7			5.37			5.16
Other loans		596			486			110			22.6			6.61			6.32

Total consumer		14,024			13,592			432			3.2			6.22			5.67

Total loans and leases		25,574			24,158			1,416			5.9			6.61			5.62

Allowance for loan and lease losses		(288	)		(276	)		(12	)		4.3

Net loans and leases		25,286			23,882			1,404			5.9

Total earning assets		31,105			29,188			1,917			6.6			6.38	%		5.37	%

Operating lease assets		176			469			(293	)		(62.5	)
Cash and due from banks		798			887			(89	)		(10.0	)
Intangible assets		500			218			282			N.M.
All other assets		2,309			2,115			194			9.2

Total Assets	$	34,600		$	32,601		$	1,999			6.1	%


Liabilities and Shareholders’ Equity
Deposits:
Demand deposits — non-interest bearing	$	3,515		$	3,333		$	182			5.5	%		—	%		—	%
Demand deposits — interest bearing		7,671			7,800			(129	)		(1.7	)		2.54			1.54
Savings and other domestic time deposits		3,101			3,274			(173	)		(5.3	)		1.54			1.30
Certificates of deposit less than $100,000		4,141			2,609			1,532			58.7			3.95			3.46

Total core deposits		18,428			17,016			1,412			8.3			2.72			1.85
Domestic time deposits of $100,000 or more		1,609			1,249			360			28.8			4.51			3.10
Brokered deposits and negotiable CDs		3,203			2,987			216			7.2			4.91			3.05
Deposits in foreign offices		469			438			31			7.1			2.65			1.69

Total deposits		23,709			21,690			2,019			9.3			3.21			2.13
Short-term borrowings		1,856			1,240			616			49.7			3.87			1.91
Federal Home Loan Bank advances		1,505			1,166			339			29.1			4.17			2.96
Subordinated notes and other long-term debt		3,392			4,308			(916	)		(21.3	)		5.44			3.64

Total interest bearing liabilities		26,947			25,071			1,876			7.5			3.59			2.42

All other liabilities		1,275			1,624			(349	)		(21.5	)
Shareholders’ equity		2,863			2,573			290			11.3

Total Liabilities and Shareholders’ Equity	$	34,600		$	32,601		$	1,999			6.1	%

Net interest rate spread														2.79			2.95
Impact of non-interest bearing funds on margin														0.54			0.39

Net interest margin														3.33	%		3.34	%


⁽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.

Provision for Credit Losses

(This section should be read in conjunction with Significant Factors 1, 3, and 6, and the Credit Risk section.)

The provision for credit losses is the expense necessary to maintain the ALLL and the allowance for unfunded loan commitments and letters of credit (AULC) at 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 2006 second quarter was $15.7 million, up $2.8 million from the year-ago quarter but down $3.8 million from the 2006 first quarter. For the first six months of 2006, the provision for credit losses was $35.3 million, up $2.5 million from the comparable year-ago period.

Non-Interest Income

(This section should be read in conjunction with Significant Factors 1, 2, 3, and 6.)

Table 7 reflects non-interest income detail for each of the past five quarters and for the first six months of 2006 and 2005.

Table 7 — Non-Interest Income


	2006						2005								2Q06 vs 2Q05
(in thousands)	Second			First			Fourth			Third		Second			Amount			Percent

Service charges on deposit accounts	$	47,225		$	41,222		$	42,083		$	44,817	$	41,516		$	5,709			13.8	%
Trust services		22,676			21,278			20,425			19,671		19,113			3,563			18.6
Brokerage and insurance income		14,345			15,193			13,101			13,948		13,544			801			5.9
Bank owned life insurance income		10,604			10,242			10,389			10,104		10,139			465			4.6
Other service charges and fees		13,072			11,509			11,488			11,449		11,252			1,820			16.2
Mortgage banking income (loss)		20,355			17,832			10,909			21,116		(2,376	)		22,731			N.M.
Securities gains (losses)		(35	)		(20	)		(8,770	)		101		(343	)		308			89.8
Gains on sales of automobile loans		532			448			455			502		254			278			N.M.
Other income		19,394			22,440			22,900			9,770		24,974			(5,580	)		(22.3	)

Sub-total before operating lease income		148,168			140,144			122,980			131,478		118,073			30,095			25.5
Operating lease income		14,851			19,390			24,342			29,262		38,097			(23,246	)		(61.0	)

Total non-interest income	$	163,019		$	159,534		$	147,322		$	160,740	$	156,170		$	6,849			4.4	%


	Six Months Ended June 30,					YTD 2006 vs 2005
(in thousands)	2006			2005		Amount			Percent

Service charges on deposit accounts	$	88,447		$	80,934	$	7,513			9.3	%
Trust services		43,954			37,309		6,645			17.8
Brokerage and insurance income		29,538			26,570		2,968			11.2
Bank owned life insurance income		20,846			20,243		603			3.0
Other service charges and fees		24,581			21,411		3,170			14.8
Mortgage banking income		38,187			9,685		28,502			N.M.
Securities gains (losses)		(55	)		614		(669	)		N.M.
Gains on sales of automobile loans		980			254		726			N.M.
Other income		41,834			42,371		(537	)		(1.3	)

Sub-total before operating lease income		288,312			239,391		48,921			20.4
Operating lease income		34,241			84,829		(50,588	)		(59.6	)

Total non-interest income	$	322,553		$	324,220	$	(1,667	)		(0.5)	%

N.M., not a meaningful value.

Table 8 details mortgage banking income and the net impact of MSR hedging activity. We record MSR valuation changes in mortgage banking income, whereas MSR hedge-related trading activity was recorded in other non-interest income, as well as in net interest income. Striking a mortgage banking income sub-total before MSR valuation adjustments

Table 8 — Mortgage Banking Income and Net Impact of MSR Hedging


	2006						2005									2Q06 vs 2Q05
(in thousands)	Second			First			Fourth			Third			Second			Amount			Percent

Mortgage Banking Income
Origination fees	$	2,177		$	1,977		$	1,979		$	3,037		$	3,066		$	(889	)		(29.0	)%
Secondary marketing		4,914			2,022			3,346			3,408			1,749			3,165			N.M.
Servicing fees		5,995			5,925			5,791			5,532			5,464			531			9.7
Amortization of capitalized servicing⁽⁴⁾		(3,293	)		(3,532	)		(3,785	)		(4,626	)		(5,187	)		1,894			36.5
Other mortgage banking income		2,280			2,227			3,193			3,308			2,763			(483	)		(17.5	)

Sub-total		12,073			8,619			10,524			10,659			7,855			4,218			53.7
MSR valuation adjustment^{(3) (4)}		8,281			9,213			385			10,457			(10,231	)		18,512			N.M.

Total mortgage banking income (loss)	$	20,354		$	17,832		$	10,909		$	21,116		$	(2,376	)	$	22,730			N.M.	%


Capitalized mortgage servicing rights⁽¹⁾	$	136,244		$	123,257		$	91,259		$	85,940		$	71,150		$	65,094			91.5	%
MSR allowance⁽¹⁾		—			—			(404	)		(789	)		(11,246	)		11,246			N.M.
Total mortgages serviced for others^{(1) (3)}		7,725,000			7,585,000			7,276,000			7,081,000			6,951,000			774,000			11.1
MSR % of investor servicing portfolio		1.76	%		1.63	%		1.25	%		1.21	%		1.02	%		0.74	%		72.5

Net Impact of MSR Hedging

MSR valuation adjustment⁽³⁾	$	8,281		$	9,213		$	385		$	10,457		$	(10,231	)	$	18,512			N.M.	%
Net trading gains (losses) related to MSR hedging ⁽²⁾		(6,739	)		(4,638	)		(2,091	)		(12,831	)		5,727			(12,466	)		N.M.
Net interest income related to MSR hedging		—			—			109			233			512			512	)		N.M.

Net impact of MSR hedging	$	1,542		$	4,575		$	(1,597	)	$	(2,141	)	$	(3,992	)	$	5,534			N.M.	%


	Six Months Ended June 30,						YTD 2006 vs 2005
(in thousands)	2006			2005			Amount			Percent

Mortgage Banking Income
Origination fees	$	4,154		$	5,765		$	(1,611	)		(27.9	)%
Secondary marketing		6,936			4,232			2,704			63.9
Servicing fees		11,920			10,858			1,062			9.8
Amortization of capitalized servicing⁽⁴⁾		(6,825	)		(9,948	)		3,123			(31.4	)
Other mortgage banking income		4,507			5,249			(742	)		(14.1	)

Sub-total		20,692			16,156			4,536			28.1
MSR valuation adjustment^{(3) (4)}		17,494			(6,471	)		23,965			N.M.

Total mortgage banking income (loss)	$	38,186		$	9,685		$	28,501			N.M.	%


Capitalized mortgage servicing rights⁽¹⁾	$	136,244		$	71,150		$	65,094			91.5	%
MSR allowance⁽¹⁾		—			(11,246	)		11,246			N.M.
Total mortgages serviced for others^{(1) (3)}		7,725,000			6,951,00			0 774,000			11.1
MSR % of investor servicing portfolio		1.76	%		1.02	%		0.74	%		72.5

Net Impact of MSR Hedging

MSR valuation adjustment⁽³⁾	$	17,494		$	(6,471	)	$	23,965			N.M.	%
Net trading gains (losses) related to MSR hedging ⁽²⁾		(11,377	)		1,545			(12,922	)		N.M.
Net interest income related to MSR hedging		—			1,346			(1,346	)		N.M.

Net impact of MSR hedging	$	6,117		$	(3,580	)	$	9,697			N.M.	%

N.M., not a meaningful value.


⁽¹⁾		At period end.

⁽²⁾		Included in other non-interest income.

⁽³⁾		The first quarter of 2006 reflects the adoption of Statement No. 156, which records MSRs at fair value. Prior periods reflect temporary impairment or recovery, based on accounting for MSRs at the lower of cost or market.

⁽⁴⁾		The change in fair value for the period presented in footnote 5 included both the MSR valuation adjustment and amortization of capitalized servicing.

2006 Second Quarter versus 2005 Second Quarter

Non-interest income increased $6.8 million, or 4%, from the year-ago quarter, despite a $23.2 million decline in operating lease income. That portfolio continued to run off since no automobile operating leases have been originated since April 2002. Non-interest income before operating lease income increased $30.1 million, or 25%, of which $7.2 million was merger-related. The drivers of the $30.1 million increase included:

	•		$22.7 million increase ($0.3 million merger-related) in mortgage banking income, reflecting an $18.5 million positive impact of MSR valuation adjustments as well as higher secondary marketing income in the current quarter.

	•		$5.7 million, or 14% ($1.6 million merger-related), increase in service charges on deposit accounts, reflecting a $4.7 million, or 18%, increase in personal service charges, primarily NSF/OD, and a $1.0 million, or 6%, increase in commercial service charge income.

	•		$3.6 million, or 19% ($1.7 million merger-related), increase in trust services income, reflecting (1) a $2.0 million increase in higher personal trust income, mostly merger-related, as managed assets increased 19%, (2) a $0.9 million increase in Huntington Fund fees reflecting 17% managed asset growth, and (3) a $0.6 million increase in institutional trust income due to higher servicing fees with less than one-third of the growth being merger-related.

	•		$1.8 million, or 16% ($0.3 million merger-related) increase in other service charges and fees, reflecting a $1.4 million, or 18%, increase in fees generated by higher debit card volume.

	•		$0.8 million, or 6% ($0.5 million merger-related), increase in brokerage and insurance income, reflecting higher brokerage income including a $1.3 million, or 21%, increase in annuity fee income as annuity sales volume increased 16%.

Partially offset by:

•

$5.6 million, or 22%, decline in other income, reflecting a $12.5 million negative impact in MSR hedge-related trading activities as the current quarter included a $6.7 million trading loss compared with a $5.7 million trading gain in the year-ago quarter. This negative impact was partially offset by a $3.0 million positive impact from higher equity investment gains, as well as a $2.1 million merger-related increase.

2006 Second Quarter versus 2006 First Quarter

Non-interest income increased $3.5 million, or 2%, from the 2006 first quarter. However, excluding the impact of a $4.5 million decline in operating lease income as that portfolio continued to run off, non-interest income before operating lease income increased $8.0 million, or 6% ($4.8 million merger-related). Contributing to the $8.0 million increase was:

	•		$6.0 million, or 15% ($1.1 million merger-related), increase in service charges on deposit accounts. This reflected a $4.7 million, or 18%, increase in personal service charges, primarily NSF/OD, and a $1.3 million, or 8%, increase in commercial service charges.

	•		$2.5 million, or 14% ($0.2 million merger-related), increase in mortgage banking income, reflecting a $2.9 million increase in secondary marketing income.

	•		$1.6 million, or 14% ($0.2 million merger-related), increase in other service charges and fees reflecting an increase in debit card fees.

	•		$1.4 million, or 7% ($1.1 million merger-related), increase in trust services income, reflecting (1) $0.8 million increase in personal trust income, all merger-related, (2) $0.3 million increase in Huntington Fund fees due to 3% growth in managed assets, and (3) $0.2 million increase in institutional trust servicing fees, primarily merger-related.

Partially offset by:

•

$3.0 million, or 14%, decline in other income, primarily reflecting the negative impact of a $2.1 million increase in MSR hedge-related trading losses, $1.5 million decline in other capital market-related income, and losses from low income housing tax credit investments in the current quarter, which were only partially offset by the benefit from a $1.4 million merger-related increase.

•

$0.8 million, or 6%, decline in brokerage and insurance income despite a $0.3 million positive merger-related impact, due primarily to lower insurance income, reflecting lower sales of an automobile loan insurance product.

2006 First Six Months versus 2005 First Six Months

Non-interest income declined $1.7 million from the year-ago six-month period, reflecting a $50.6 million decline in operating lease income. Non-interest income before operating lease income increased $48.9 million, or 20% ($9.6 million merger-related). The drivers of the $48.9 million increase included:

	•		$28.5 million increase ($0.3 million merger-related) in mortgage banking income, reflecting a $17.5 million positive impact of MSR valuation adjustments for the first six months of 2006, and a $6.5 million MSR temporary impairment in the year-ago period before hedge-related trading activity, as well as the positive impact of lower amortization of capitalized servicing and higher secondary marketing income.

	•		$7.5 million, or 9% ($2.1 million merger-related), increase in service charges on deposit accounts, reflecting a $7.1 million, or 14%, increase in personal service charges, primarily NSF/OD and volume related.

	•		$6.6 million, or 18% ($2.2 million merger-related), increase in trust services income, reflecting (1) a $3.3 million increase in higher personal trust income, (2) a $1.9 million increase in Huntington Fund fees, and (3) a $1.2 million increase in institutional trust income.

	•		$3.2 million, or 15% ($0.4 million merger-related), increase in other service charges and fees, reflecting a $2.6 million, or 17%, increase in fees generated by higher debit card volume.

	•		$3.0 million, or 11% ($0.6 million merger-related), increase in brokerage and insurance income, reflecting higher brokerage income including a $2.5 million, or 13%, increase in annuity fee income.

Non-Interest Expense

(This section should be read in conjunction with Significant Factors 1, 3, 5, and 6.)

Table 9 reflects non-interest expense detail for each of the last five quarters and for the first six months of 2006 and 2005.

Table 9 — Non-Interest Expense


	2006				2005						2Q06 vs 2Q05
(in thousands)	Second		First		Fourth		Third		Second		Amount			Percent

Salaries	$	107,249	$	101,458	$	91,858	$	93,209	$	98,283	$	8,96			6 9.1	%
Benefits		30,655		30,099		24,253		24,267		25,807		4,84			8 18.8

Personnel costs		137,904		131,557		116,111		117,476		124,090		13,814			11.1	%
Net occupancy		17,927		17,966		17,940		16,653		17,257		670			3.9
Outside data processing and other services		19,569		19,851		19,693		18,062		18,113		1,456			8.0
Equipment		18,009		16,503		16,093		15,531		15,637		2,372			15.2
Professional services		6,292		5,365		7,440		8,323		9,347		(3,055	)		(32.7	)
Marketing		10,374		7,301		7,145		6,364		6,934		3,440			49.6
Telecommunications		4,990		4,825		4,453		4,512		4,801		189			3.9
Printing and supplies		3,764		3,074		3,084		3,102		3,293		471			14.3
Amortization of intangibles		2,992		1,075		218		203		204		2,788			N.M.
Other expense		19,734		16,291		19,452		20,003		19,581		153			0.8

Sub-total before operating lease expense		241,555		223,808		211,629		210,229		219,257		22,298			10.2
Operating lease expense		10,804		14,607		18,726		22,823		28,879		(18,075	)		(62.6	)

Total non-interest expense	$	252,359	$	238,415	$	230,355	$	233,052	$	248,136	$	4,223			1.7	%


	Six Months Ended June 30,				YTD 2006 vs 2005
(in thousands)	2006		2005		Amount			Percent

Salaries	$	208,707	$	194,522	$	14,185			7.3	%
Benefits		60,754		53,549		7,205			13.5

Personnel costs		269,461		248,071		21,390			8.6
Net occupancy		35,893		36,499		(606	)		(1.7	)
Outside data processing and other services		39,420		36,883		2,537			6.9
Equipment		34,512		31,500		3,012			9.6
Professional services		11,657		18,806		(7,149	)		(38.0	)
Marketing		17,675		12,770		4,905			38.4
Telecommunications		9,815		9,683		132			1.4
Printing and supplies		6,838		6,387		451			7.1
Amortization of intangibles		4,067		408		3,659			N.M.
Other expense		36,025		38,579		(2,554	)		(6.6	)

Sub-total before operating lease expense		465,363		439,586		25,777			5.9
Operating lease expense		25,411		66,827		(41,416	)		(62.0	)

Total non-interest expense		490,774		506,413	$	(15,639	)		(3.1	)%

N.M., not a meaningful value.

2006 Second Quarter versus 2005 Second Quarter

Non-interest expense increased $4.2 million, or 2%, from the year-ago quarter, despite an $18.1 million decline in operating lease expense as that portfolio continued to run off. Non-interest expense before operating lease expense increased $22.3 million, or 10%, from the year-ago quarter, with $20.6 million attributable to Unizan ($18.0 merger-related plus $2.6 million of merger costs). The primary drivers of the $22.3 million increase were:

•

$13.8 million, or 11%, increase in personnel expense with Unizan contributing $8.4 million of the increase ($7.7

			million merger-related plus $0.7 million of merger costs). The remaining increase of $5.3 million reflected an increase of $4.3 million due to the expensing of stock options, which began in 2006, and the annual merit increases for exempt employees, partially offset by personnel expense synergies resulting from the Unizan merger.

	•		$3.4 million, or 50%, higher marketing expense with Unizan contributing $0.9 million of the increase ($0.3 million merger-related plus $0.6 million of merger costs), due primarily to television commercial advertising, including up-front development costs incurred during the quarter.

	•		$2.8 million increase in the amortization of intangibles, all merger-related.

	•		$2.4 million, or 15%, increase in equipment expense with Unizan contributing $0.6 million of the increase, primarily merger-related, reflecting higher depreciation expense.

	•		$1.5 million, or 8%, increase in outside data processing and other services with Unizan contributing $1.2 million of the increase ($0.5 million merger-related plus $0.7 million of merger costs), reflecting higher debit card processing expense.

Partially offset by:

•

$3.1 million, or 33%, decline in professional services. Though Unizan added $1.6 million to current period expense ($1.5 million merger-related plus $0.1 million of merger costs), this was more than offset by lower consulting expense as the year-ago quarter included SEC and regulatory-related expenses, as well as other consulting costs.

2006 Second Quarter versus 2006 First Quarter

Non-interest expense increased $13.9 million, or 6%, from the 2006 first quarter despite a $3.8 million decline in operating lease expense as that portfolio continued to run off. Non-interest expense before operating lease expense increased $17.7 million, or 8%, with $13.6 million attributable to Unizan ($12.0 million merger-related and $1.6 million of merger-costs). The primary drivers of the $17.7 million increase included:

	•		$6.3 million, or 5%, increase in personnel costs with Unizan contributing $5.7 million of the increase ($5.2 million merger-related plus $0.5 million of merger costs). The remaining increase of $0.6 million reflected an increase due to annual merit increases for exempt employees effective March 1, partially offset by personnel expense synergies resulting from the Unizan merger.

	•		$3.4 million, or 21%, increase in other expense with Unizan contributing $2.1 million of the increase, primarily merger-related.

	•		$3.1 million, or 42%, higher marketing expense with Unizan contributing $0.6 million of the increase ($0.2 million merger-related plus $0.4 million of merger costs), due to television commercial costs.

	•		$1.9 million increase in amortization of intangibles, all merger-related.

	•		$1.5 million, or 9%, increase in equipment expense with Unizan contributing $0.4 million of the increase, primarily merger-related, reflecting higher depreciation expense associated with the upgrade of a number of operating and administrative systems.

2006 First Six Months versus 2005 First Six Months

Non-interest expense decreased $15.6 million, or 3%, from the year-ago six-month period, reflecting a $41.4 million decline in operating lease expense as that portfolio continued to run off. Non-interest expense before operating lease expense increased $25.8 million, or 6%, with $27.5 million attributable to Unizan ($23.9 million merger-related plus $3.7 million of merger costs). The primary drivers of the $25.8 million increase were:

•

$21.4 million, or 9%, increase in personnel expense with Unizan contributing $11.2 million of the increase ($10.3 million merger-related plus $0.9 million of merger costs). The remaining increase of $10.2 million reflected an increase of $8.5 million due to the expensing of stock options, which began in 2006, and the annual merit increases for exempt employees, partially offset by personnel expense synergies resulting from the Unizan merger.

	•		$4.9 million, or 38%, higher marketing expense with Unizan contributing $1.1 million of the increase ($0.4 million merger-related plus $0.7 million of merger costs), due primarily to 2006 second quarter television commercial advertising, including up-front development costs incurred in the period.

	•		$3.7 million increase in the amortization of intangibles, all merger-related.

	•		$3.0 million, or 10%, increase in equipment expense with Unizan contributing $0.7 million of the increase, primarily merger-related, reflecting higher depreciation expense.

	•		$2.5 million, or 7%, increase in outside data processing and other services with Unizan contributing $2.0 million of the increase ($0.7 million merger-related plus $1.3 million of merger costs), reflecting outside contract programming and debit card processing expense.

Partially offset by:

•

$7.1 million, or 38%, decline in professional services. Though Unizan added $2.1 million to 2006 six-month expense ($2.0 million merger-related plus $0.1 million of merger costs), this was more than offset by lower consulting expense as the year-ago period included $3.7 million of SEC and regulatory-related expenses, as well as a $3.6 million decline in other consulting and collections costs.

•

$2.6 million, or 7%, decline in other expenses despite the addition of $4.1 million of merger-related expenses. Reductions in other expense were recorded in lease residual value insurance (due to lower volumes), minority interest expense, OREO expenses, and franchise taxes.

Operating Lease Assets

(This section should be read in conjunction with Significant Factor 3 and Lease Residual Risk section.)

Operating lease assets primarily represent automobile leases originated before May 2002. This operating lease portfolio is running off over time since all automobile lease originations after April 2002 have been recorded as direct financing leases and are reported in the automobile loan and lease category in earning assets. As a result, the non-interest income and non-interest expense associated with the operating lease portfolio has declined.

Operating lease assets performance for each of the last five quarters and for the first six months of 2006 and 2005 was as follows:

Table 10 — Operating Lease Performance


	2006						2005									2Q06 vs 2Q05
(in thousands)	Second			First			Fourth			Third			Second			Amount			Percent

Balance Sheet:
Average operating lease assets outstanding	$	151,527		$	199,998		$	245,346		$	308,952		$	408,798		$	(257,271	)		(62.9	)%


Income Statement:
Net rental income	$	13,386		$	17,515		$	21,674		$	26,729		$	34,562		$	(21,176	)		(61.3	)%
Fees		669			732			1,482			1,419			1,773			(1,104	)		(62.3	)
Recoveries — early terminations		796			1,143			1,186			1,114			1,762			(966	)		(54.8	)

Total operating lease income		14,851			19,390			24,342			29,262			38,097			(23,246	)		(61.0	)


Depreciation and residual losses at termination		10,229			13,437			17,223			20,856			26,560			(16,331	)		(61.5	)
Losses — early terminations		575			1,170			1,503			1,967			2,319			(1,744	)		(75.2	)

Total operating lease expense		10,804			14,607			18,726			22,823			28,879			(18,075	)		(62.6	)

Net earnings contribution	$	4,047		$	4,783		$	5,616		$	6,439		$	9,218		$	(5,171	)		(56.1	)%

Earnings ratios ⁽¹⁾
Net rental income		35.3	%		35.0	%		35.3	%		34.6	%		33.8	%		1.5	%		4.4	%
Depreciation and residual losses at termination		27.0			26.9			28.1			27.0			26.0			1.0			3.8


	Six Months Ended June 30,						YTD 2006 vs 2005
(in thousands)	2006			2005			Amount			Percent

Balance Sheet:
Average operating lease assets outstanding	$	175,629		$	468,688		$	(293,059	)		(62.5	)%


Income Statement:
Net rental income	$	30,901		$	78,116		$	(47,215	)		(60.4	)%
Fees		1,401			3,630			(2,229	)		(61.4	)
Recoveries — early termin tions		1,939			3,083			(1,144	)		(37.1	)

Total operating lease income		34,241			84,829			(50,588	)		(59.6	)


Depreciation and residual losses at termination		23,666			61,263			(37,597	)		(61.4	)
Losses — early terminations		1,745			5,564			(3,819	)		(68.6	)

Total operating lease expense		25,411			66,827			(41,416	)		(62.0	)


Net earnings contribution	$	8,830		$	18,002		$	(9,172	)		(50.9	)%

Earnings ratios ⁽¹⁾
Net rental income		35.2	%		33.3	%		1.9	%		5.7	%
Depreciation and residual losses at termination		26.9			26.1			0.8			3.1


⁽¹⁾		As a percent of average operating lease assets, annualized.

2006 Second Quarter versus 2005 Second Quarter and 2006 First Quarter

Average operating lease assets in the 2006 second quarter were $0.2 billion, down $0.3 billion, or 63%, from the year-ago quarter and down 24% from the 2006 first quarter. This reflected the continued run-off of this portfolio as no new automobile operating leases have been originated since April 2002, and operating lease asset balances will continue to decline through both depreciation and lease terminations. (For a discussion of operating lease accounting, residual value loss determination, and related residual value insurance, see Note 1, Significant Accounting Policies and the Lease Residual Risk section of the Company’s 2005 Form 10-K.)

Reflecting the continued run-off of automobile operating lease assets, the net earnings contribution from operating lease assets was $4.0 million in the 2006 second quarter, down $5.2 million, or 56%, from the year-ago quarter and down $0.7 million, or 15%, from the 2006 first quarter.

Operating lease income, which totaled $14.9 million in the 2006 second quarter, represented 9% of total non-interest income in the quarter. Operating lease income was down $23.2 million, or 61%, from the year-ago quarter and $4.5 million, or 23%, from the 2006 first quarter, reflecting the declines in average operating lease assets. Net rental income was down 61% and 24%, respectively, from the year-ago and 2006 first quarters. Fees declined 62% from the year-ago quarter and 9% from the prior quarter. Recoveries from early terminations decreased 55% from the year-ago quarter and 30% from the 2006 first quarter.

Operating lease expense totaled $10.8 million and represented 4% of total non-interest expense in the current quarter. Operating lease expense was down $18.1 million, or 63%, from the year-ago quarter and down $3.8 million, or 26%, from the 2006 first quarter. Losses on early terminations, which are included in total operating lease expense, declined 75% from the year-ago quarter and 51% from the prior quarter.

2006 First Six Months versus 2005 First Six Months

Average operating lease assets in the 2006 first six-month period were $0.2 billion, down $0.3 billion, or 62% from the comparable year-ago period as this portfolio continued to run-off. Reflecting this decline in average operating lease assets, the net earnings contribution from operating lease assets was $8.8 million in the 2006 first six-month period, down $9.2 million, or 51%, from the comparable year-ago period.

Operating lease income, which totaled $34.2 million for the 2006 first six-month period, represented 11% of total non-interest income, and was down $50.6 million, or 60%, from the comparable year-ago period. Net rental income was down $47.2 million, or 60%. Fees declined $2.2 million, or 61%, from the comparable year-ago period. Recoveries from early terminations were down 37% from the year-ago period. Operating lease expense totaled $25.4 million, down $41.4 million, or 62%, from the comparable year-ago six-month period.

Provision for Income Taxes

(This section should be read in conjunction with Significant Factor 4.)

The provision for income taxes in the 2006 second quarter was $45.5 million and represented an effective tax rate on income before taxes of 29.0%. The provision for income taxes increased $14.9 million from the year-ago quarter, primarily due to an increase in pre-tax earnings and the recognition of the effect of federal tax refunds on income tax expense in the 2005 second quarter. The effective tax rate in the year-ago quarter was 22.3%, and included the after tax positive impact on net income due to a federal tax loss carryback.

In the ordinary course of business, we operate in various taxing jurisdictions and are subject to income and non-income taxes. The effective tax rate is based in part on our interpretation of the relevant current tax laws. We believe the aggregate liabilities related to taxes are appropriately reflected in the consolidated financial statements. We review the appropriate tax treatment of all transactions taking into consideration statutory, judicial, and regulatory guidance in the context of our tax positions. In addition, we rely on various tax opinions, recent tax audits, and historical experience.

The Internal Revenue Service is currently examining our federal tax returns for the years 2002 and 2003 and the 2003 federal income tax return for Unizan. In addition, we are subject to ongoing tax examinations in various jurisdictions. We believe that the resolution of these examinations will not have a significant adverse impact on our consolidated financial position or results of operations.

RISK MANAGEMENT AND CAPITAL

Risk identification and monitoring are key elements in overall risk management. We believe our primary risk exposures are credit, market, liquidity, and operational risk. Credit risk is the risk of loss due to adverse changes in the borrower’s ability to meet their financial obligations under agreed upon terms. Market risk represents the risk of loss due to changes in the market value of assets and liabilities due to changes in interest rates, exchange rates, residual values, and equity prices. Liquidity risk arises from the possibility that funds may not be available to satisfy current or future commitments based on external macro market issues, investor perception of financial strength, and events unrelated to the company such as war, terrorism, or financial institution market specific issues. Operational risk arises from the inherent day-to-day operations of the company that could result in losses due to human error, inadequate or failed internal systems and controls, and external events.

We follow a formal policy to identify, measure, and document the key risks facing the company, how those risks can be controlled or mitigated, and how we monitor the controls to ensure that they are effective. Our chief risk officer is responsible for ensuring that appropriate systems of controls are in place for managing and monitoring operational risk across the company. Potential risk concerns are shared with the board of directors, as appropriate. Our internal audit department performs ongoing independent reviews of the risk management process and ensures the adequacy of documentation. The results of these reviews are reported regularly to the audit committee of the board of directors.

Some of the more significant processes used to manage and control credit, market, liquidity, and operational risks are described in the following paragraphs.

Credit Risk

Credit risk is the risk of loss due to adverse changes in a borrower’s ability to meet its financial obligations under agreed upon terms. We are subject to credit risk in lending, trading, and investment activities. The nature and degree of credit risk is a function of the types of transactions, the structure of those transactions, and the parties involved. The majority of our credit risk is associated with lending activities, as the acceptance and management of credit risk is central to profitable lending. Credit risk is incidental to trading activities and represents a limited portion of the total risks associated with the investment portfolio. Credit risk is mitigated through a combination of credit policies and processes and portfolio diversification.

The maximum level of credit exposure to individual commercial borrowers is limited by policy guidelines based on the risk of default associated with the credit facilities extended to each borrower or related group of borrowers. All authority to grant commitments is delegated through the independent credit administration function and is monitored and regularly updated in a centralized database. Concentration risk is managed via limits on loan type, geography, industry, loan quality factors, and country limits. We have focused on extending credit to commercial customers with existing or expandable relationships within our primary markets.

The checks and balances in the credit process and the independence of the credit administration and risk management functions are designed to accurately assess the level of credit risk being accepted, facilitate the early recognition of credit problems when they do occur, and provide for effective problem asset management and resolution.

Credit Exposure Mix

(This section should be read in conjunction with Significant Factors 3 and 6.)

An overall corporate objective is to avoid undue portfolio concentrations. As shown in Table 11, at June 30, 2006, total credit exposure was $26.5 billion. Of this amount, $14.3 billion, or 54%, represented total consumer loans and leases, $12.0 billion, or 45%, represented total commercial loans and leases, and $0.1 billion, or less than 1%, represented operating lease assets.

Table 11 — Credit Exposure Composition


	2006								2005
(in thousands)	June 30,				March 31,				December 31,				September 30,				June 30,
	*(Unaudited)*				(Unaudited)								(Unaudited)				(Unaudited)
By Type
Commercial:
Middle market commercial and industrial	$	5,595,454	21.1	%	$	5,288,710	20.1	%	$	5,084,244	20.6	%	$	4,856,608	19.6	%	$	4,947,640	19.9	%
Middle market commercial real estate:
Construction		1,173,454	4.4			1,366,890	5.2			1,521,897	6.2			1,770,543	7.1			1,692,748	6.8
Commercial		2,731,684	10.3			3,046,368	11.6			2,015,498	8.2			1,933,610	7.8			1,948,195	7.8

Middle market commercial real estate		3,905,138	14.7			4,413,258	16.8			3,537,395	14.4			3,704,153	14.9			3,640,943	14.6
Small business		2,531,176	9.6			2,116,063	8.1			2,223,740	9.1			2,112,171	8.5			2,136,685	8.7

Total commercial		12,031,768	45.4			11,818,031	45.0			10,845,379	44.1			10,672,932	43.0			10,725,268	43.2

Consumer:
Automobile loans		2,059,836	7.8			2,053,777	7.8			1,985,304	8.0			2,063,285	8.3			2,045,771	8.2
Automobile leases		2,042,215	7.7			2,154,883	8.2			2,289,015	9.3			2,381,004	9.6			2,458,432	9.9
Home equity		4,888,958	18.5			4,816,196	18.3			4,638,841	18.8			4,684,904	18.9			4,683,577	18.8
Residential mortgage		4,739,814	17.9			4,604,705	17.5			4,193,139	17.0			4,180,350	16.9			4,152,203	16.7
Other loans		591,990	2.2			697,997	2.5			520,488	1.9			513,812	2.2			501,897	1.8

Total consumer		14,322,813	54.1			14,327,558	54.3			13,626,787	55.0			13,823,355	55.9			13,841,880	55.4

Total loans and direct financing leases	$	26,354,581	99.5		$	26,145,589	99.3		$	24,472,166	99.1		$	24,496,287	98.9		$	24,567,148	98.6


Operating lease assets		131,943	0.5			174,839	0.7			229,077	0.9			274,190	1.1			353,678	1.4

Total credit exposure	$	26,486,524	100.0	%	$	26,320,428	100.0	%	$	24,701,243	100.0	%	$	24,770,477	100.0	%	$	24,920,826	100.0	%



Total automobile exposure ⁽¹⁾	$	4,233,994	16.0	%	$	4,383,499	16.7	%	$	4,503,396	18.2	%	$	4,718,479	19.0	%	$	4,857,881	19.5	%


By Business Segment ⁽²⁾
Regional Banking:
Central Ohio	$	3,598,342	13.6	%	$	3,360,201	12.8	%	$	3,150,394	12.8	%	$	3,233,382	13.1	%	$	3,154,443	12.7	%
Northern Ohio		2,660,450	10.0			2,552,570	9.7			2,522,854	10.2			2,580,925	10.4			2,533,670	10.2
Southern Ohio / Kentucky		2,195,013	8.3			2,121,870	8.1			2,037,190	8.2			2,059,649	8.3			2,100,446	8.4
Eastern Ohio^{(4) (5)}		1,416,505	5.3			1,825,985	6.9			369,870	1.5			372,124	1.5			383,366	1.5
West Michigan		2,397,525	9.1			2,372,563	9.0			2,363,162	9.6			2,369,800	9.6			2,386,311	9.6
East Michigan		1,597,741	6.0			1,536,284	5.8			1,573,413	6.4			1,530,081	6.2			1,495,277	6.0
West Virginia		1,053,464	4.0			968,333	3.7			970,953	3.9			948,847	3.8			918,612	3.7
Indiana		953,776	3.6			977,589	3.7			1,025,807	4.2			958,119	3.9			1,037,983	4.2
Mortgage and equipment leasing groups		3,637,546	13.8			3,525,564	13.4			3,533,535	14.2			3,504,796	14.1			3,447,249	13.8

Regional Banking		19,510,362	73.7			19,240,959	73.1			17,547,178	71.0			17,557,723	70.9			17,457,357	70.1
Dealer Sales⁽³⁾		5,167,300	19.5			5,347,051	20.3			5,429,997	22.0			5,492,235	22.2			5,761,321	23.1
Private Financial and Capital Markets Group		1,808,862	6.8			1,732,418	6.6			1,724,068	7.0			1,720,519	6.9			1,702,148	6.8

Treasury / Other		—	—			—	—			—	—			—	—			—	—

Total credit exposure	$	26,486,524	100.0	%	$	26,320,428	100.0	%	$	24,701,243	100.0	%	$	24,770,477	100.0	%	$	24,920,826	100.0	%


⁽¹⁾		Sum of automobile loans and leases and automobile operating lease assets.

⁽²⁾		Prior period amounts have been reclassified to conform to the current period business segment structure.

⁽³⁾		Includes operating lease inventory.

⁽⁴⁾		Periods prior to 2006 include certain banking offices previously reported in Northern Ohio.

⁽⁵⁾		The decline from the first quarter of 2006 is primarily the result of the Unizan system conversion and the classification of certain commercial loans.

Commercial Credit

Commercial credit approvals are based on the financial strength of the borrower, assessment of the borrower’s management capabilities, industry sector trends, type of exposure, transaction structure, and the general economic outlook. While these are the primary factors considered, there are a number of other factors that may be considered in the decision process. There are two processes for approving credit risk exposures. The first involves a centralized loan approval process for the standard products and structures utilized in small business lending. In this centralized decision environment, individual credit authority is granted to certain individuals on a regional basis to preserve our local decision-making focus. The second, and more prevalent approach, involves individual approval of exposures. These approvals are consistent with the authority delegated to officers located in the geographic regions who are experienced in the industries and loan structures over which they have responsibility.

All C&I and CRE credit extensions are assigned internal risk ratings reflecting the borrower’s probability-of-default and loss-in-event-of-default. This two-dimensional rating methodology, which has 192 individual loan grades, provides granularity in the portfolio management process. The probability-of-default is rated on a scale of 1-12 and is applied at the borrower level. The loss-in-event-of-default is rated on a 1-16 scale and is associated with each individual credit exposure based on the type of credit extension and the underlying collateral.

In commercial lending, ongoing credit management is dependent on the type and nature of the loan. In general, quarterly monitoring is normal for all significant exposures. The internal risk ratings are revised and updated with each periodic monitoring event. There is also extensive macro portfolio management analysis on an ongoing basis to continually update default probabilities and to estimate future losses.

In addition to the initial credit analysis initiated by the portfolio manager during the underwriting process, the loan review group performs independent credit reviews. The loan review group reviews individual loans and credit processes and conducts a portfolio review at each of the regions on a 15-month cycle, and the loan review group validates the risk grades on a minimum of 50% of the portfolio exposure.

Borrower exposures may be designated as “watch list” accounts when warranted by individual company performance, or by industry and environmental factors. Such accounts are subjected to additional quarterly reviews by the business line Management, the loan review group, and credit administration in order to adequately assess the borrower’s credit status and to take appropriate action.

A specialized credit workout group manages problem credits and handles commercial recoveries, workouts, and problem loan sales, as well as the day-to-day management of relationships rated substandard or lower. The group is responsible for developing an action plan, assessing the risk rating, and determining the adequacy of the reserve, the accrual status, and the ultimate collectibility of the credits managed.

Consumer Credit

Consumer credit approvals are based on, among other factors, the financial strength of the borrower, type of exposure, and the transaction structure. Consumer credit decisions are generally made in a centralized environment utilizing decision models. There is also individual credit authority granted to certain individuals on a regional basis to preserve our local decision-making focus. Each credit extension is assigned a specific probability-of-default and loss-in-event-of-default. The probability-of-default is generally a function of the borrower’s credit bureau score, while the loss-in-event-of-default is related to the type of collateral and the loan-to-value ratio associated with the credit extension.

In consumer lending, credit risk is managed from a loan type and vintage performance analysis. All portfolio segments are continuously monitored for changes in delinquency trends and other asset quality indicators. We make extensive use of portfolio assessment models to continuously monitor the quality of the portfolio and identify under-performing segments. This information is then incorporated into future origination strategies. The independent risk management group has a consumer process review component to ensure the effectiveness and efficiency of the consumer credit processes.

Home equity loans and lines consist of both first and second position collateral with underwriting criteria based on minimum FICO credit scores, debt/income ratios, and loan-to-value ratios. We offer closed-end, home equity loans with a fixed rate and level monthly payments and a variable-rate, interest-only home equity line of credit. At June 30, 2006, we had $1.4 billion of home equity loans and $3.5 billion of home equity lines of credit. The average loan-to-value ratio of our home equity portfolio (both loans and lines) was 80% at June 30, 2006. We do not originate home equity loans or lines that (a) allow negative amortization, (b) have a loan-to-value ratio at origination greater than 100%, or (c) are “option ARMs.” Home equity loans are generally fixed-rate with periodic principal and interest payments. We originated $179 million of home equity loans in the second quarter 2006 with a weighted average loan-to-value ratio of 64% and a weighted average FICO score of 739. 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 2006, we originated $437 million of home equity lines. The lines of credit originated during the quarter had a weighted average loan-to-value ratio of 75% and a weighted average FICO score of 742.

At June 30, 2006, we had $4.7 billion of residential real estate loans. Adjustable-rate mortgages, primarily mortgages that have a fixed-rate for the first 3 to 5 years and then adjust annually, comprised 65% of this portfolio. We do not originate residential mortgage loans that (a) allow negative amortization, (b) have a loan-to-value ratio at origination greater than 100%, or (c) are “option ARMs,” i.e., can be adjustable rate at the option of the customer. Interest-only loans comprised $0.9 billion of residential real estate loans at June 30, 2006. 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 Factor 1.)

NPAs consist of loans and leases that are no longer accruing interest, loans and leases that have been renegotiated to below market rates based upon financial difficulties of the borrower, and real estate acquired through foreclosure. C&I, CRE, and small business loans are generally placed on non-accrual status when collection of principal or interest is in doubt or when the loan is 90-days past due. When interest accruals are suspended, accrued interest income is reversed with current year accruals charged to earnings and prior-year amounts generally charged-off as a credit loss.

Consumer loans and leases, excluding residential mortgages and home equity lines and leases, are not placed on non-accrual status but are charged-off in accordance with regulatory statutes, which is generally no more than 120-days past due. Residential mortgages and home equity loans and lines, while highly secured, are placed on non-accrual status within 180-days past due as to principal and 210-days past due as to interest, regardless of collateral. 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 12 reflects period-end NPAs and past due loans and leases detail for each of the last five quarters.

Table 12 — Non-Performing Assets and Past Due Loans and Leases


	2006						2005
(in thousands)	June 30,			March 31,			December 31,			September 30,			June 30,
Non-accrual loans and leases:
Middle market commercial and industrial	$	45,713		$	45,723		$	28,888		$	25,431		$	26,856
Middle market commercial real estate		24,970			18,243			15,763			13,073			15,331
Small business		27,328			28,389			28,931			26,098			19,788
Residential mortgage		22,786			29,376			17,613			16,402			14,137
Home equity		14,466			13,778			10,720			8,705			7,748

Total non-performing loans and leases		135,263			135,509			101,915			89,709			83,860

Other real estate, net:
Residential		34,743			17,481			14,214			11,182			10,758
Commercial		1,062			1,903			1,026			909			2,800

Total other real estate, net		35,805			19,384			15,240			12,091			13,558

Total non-performing assets	$	171,068		$	154,893		$	117,155		$	101,800		$	97,418


Non-performing loans and leases guaranteed by the U.S. government⁽¹⁾	$	30,710		$	18,256		$	7,324		$	6,812		$	5,892

Non-performing loans and leases as a % of total loans and leases		0.51	%		0.52	%		0.42	%		0.37	%		0.34	%

Non-performing assets as a % of total loans and leases and other real estate		0.65			0.59			0.48			0.42			0.40

Accruing loans and leases past due 90 days or more⁽¹⁾	$	48,829		$	52,297		$	56,138		$	50,780		$	53,371

Accruing loans and leases past due 90 days or more as a percent of total loans and leases		0.19	%		0.20	%		0.23	%		0.21	%		0.22	%


⁽¹⁾		Beginning in 2Q-2006, OREO includes balances for foreclosures on loans serviced for GNMA, that were reported in 90 day past due loans and leases in prior periods. These balances are fully guaranteed by the US Government.

NPAs were $171.1 million at June 30, 2006, and represented 0.65% of related assets, up $73.7 million from $97.4 million, or 0.40% of related assets, at the end of the year-ago quarter, and up $16.2 million from $154.9 million, or 0.59% of related assets, at March 31, 2006. The increase from March 31, 2006, reflected a $16.4 million increase in other real estate owned (OREO) and included $12.6 million due to a reclassification of foreclosed mortgage loans fully guaranteed by the U.S. government from over 90-day delinquent but still accruing loans. We service mortgage loans for GNMA. When loans sold to GNMA meet delinquency parameters specified by GNMA, we may repurchase them and begin foreclosure. In accordance with Financial Accounting Standards Board Statement (FAS) No. 140, such loans that are eligible for repurchase are recorded as loans on the balance sheet. When those loans are foreclosed, such loans are then recorded as OREO. This change in the reporting for GNMA-guaranteed OREO also accounted for the $12.5 million increase in total NPAs guaranteed by the U.S. government, from $18.3 million at the end of the 2006 first quarter to $30.7 million.

NPLs, which exclude OREO, increased $51.4 million from the year-earlier period to $135.3 million at June 30, 2006, with $33.8 million representing NPLs acquired in the Unizan merger. NPLs declined slightly from March 31, 2006. NPLs expressed as a percent of total loans and leases were 0.51% at June 30, 2006, up from 0.34% a year earlier, but down slightly from 0.52% at March 31, 2006.

The over 90-day delinquent, but still accruing, ratio was 0.19% at June 30, 2006, down from 0.22% at the end of the year-ago quarter, and from 0.20% at March 31, 2006, with these declines reflecting the reclassification of GNMA-guaranteed foreclosed OREO noted above. Over the last five quarters, the 90-day delinquency ratio has been relatively stable and remained at a low relative level compared with the last five-year period.

Non-performing asset activity for each of the past five quarters ended June 30, 2006, and for the first six months of 2006 and 2005 was as follows:

Table 13 — Non-Performing Assets Activity


	2006						2005
(in thousands)	Second			First			Fourth			Third			Second
Non-performing assets, beginning of period	$	154,893		$	117,155		$	101,800		$	97,418		$	73,303
New non-performing assets⁽¹⁾		52,498			53,768			52,553			37,570			47,420
Acquired non-performing assets		—			33,843			—			—			—
Returns to accruing status		(12,143	)		(14,310	)		(3,228	)		(231	)		(250	)
Loan and lease losses		(6,826	)		(13,314	)		(9,063	)		(5,897	)		(6,578	)
Payments		(12,892	)		(13,195	)		(21,329	)		(21,203	)		(11,925	)
Sales		(4,462	)		(9,054	)		(3,578	)		(5,857	)		(4,552	)

Non-performing assets, end of period	$	171,068		$	154,893		$	117,155		$	101,800		$	97,418


	Six Months Ended June 30,
(in thousands)	2006			2005

Non-performing assets, beginning of period	$	117,155		$	108,568
New non-performing assets⁽¹⁾		106,266			81,027
Acquired non-performing assets		33,843			—
Returns to accruing status		(26,453	)		(4,088	)
Loan and lease losses		(20,140	)		(23,859	)
Payments		(26,087	)		(22,329	)
Sales		(13,516	)		(41,901	)

Non-performing assets, end of period	$	171,068		$	97,418


⁽¹⁾		Beginning in 2Q-2006, OREO includes balances for foreclosures on loans serviced for GNMA, that were reported in 90 day past due loans and leases in prior periods. These balances are fully guaranteed by the US Government.

Allowances for Credit Losses (ACL)

(This section should be read in conjunction with Significant Factors 1 and 6.)

We maintain two reserves, both of which are available to absorb probable credit losses: the allowance for loan and lease losses (ALLL) and the allowance for unfunded loan commitments and letters of credit (AULC). When summed together, these reserves constitute the total ACL. Our credit administration group is responsible for developing the methodology and determining the adequacy of the ACL.

The ALLL represents the estimate of probable losses inherent in the loan portfolio at the balance sheet date. Additions to the ALLL result from recording provision expense for loan losses or recoveries, while reductions reflect charge-offs, net of recoveries, or the sale of loans. The AULC is determined by applying the transaction reserve process to the unfunded portion of the portfolio adjusted by an applicable funding percentage.

We have an established process to determine the adequacy of the ACL that relies on a number of analytical tools and benchmarks. No single statistic or measurement, in itself, determines the adequacy of the allowance. For determination purposes, the allowance is comprised of two components: the transaction reserve and the economic reserve.

Transaction Reserve

The transaction reserve component of the ACL includes both (a) an estimate of loss based on characteristics of each commercial and consumer loan or lease in the portfolio and (b) an estimate of loss based on an impairment review of each loan greater than $500,000 that is considered to be impaired.

For middle market C&I, middle market CRE, and small business loans, the estimate of loss based on characteristics of each loan made through the use of a standardized loan grading system that is applied on an individual loan level and updated on a continuous basis. The reserve factors applied to these portfolios were developed based on internal credit migration models that track historical movements of loans between loan ratings over time and a combination of long-term average loss experience of our own portfolio and external industry data.

In the case of more homogeneous portfolios, such as consumer loans and leases, and residential mortgage loans, the determination of the transaction component is conducted at an aggregate, or pooled, level. For such portfolios, the development of the reserve factors includes the use of forecasting models to measure inherent loss in these portfolios.

We analyze each middle market C&I, middle market CRE, or small business loan over $500,000 for impairment when the loan is non-performing or has a grade of substandard or lower. The impairment tests are done in accordance with applicable accounting standards and regulations. For loans that are determined to be impaired, an estimate of loss is made for the amount of the impairment.

Models and analyses are updated frequently to capture the recent behavioral characteristics of the subject portfolios, as well as any changes in the loss mitigation or credit origination strategies. Adjustments to the reserve factors are made as needed based on observed results of the portfolio analytics.

Economic Reserve

Changes in the economic environment are a significant judgmental factor we consider in determining the appropriate level of the ACL. The economic reserve incorporates our determination of the impact of risks associated with the general economic environment on the portfolio. The economic reserve is designed to address economic uncertainties and is determined based on a variety of economic factors that are correlated to the historical performance of the loan portfolio. Because of this more quantitative approach to recognizing risks in the general economy, the economic reserve may fluctuate from period-to-period.

The methodology to determine the economic reserve is specifically tied to economic indices that have a high correlation to our historic charge-off variability. The indices currently in the model consist of the Real Consumer Spending, Consumer Confidence, ISM Manufacturing Index, and Non-Agriculture Job Creation in our core states of Ohio, Michigan, West Virginia, and Indiana. The indices and time frame may be adjusted as actual portfolio performance changes over time. The indices were changed during the first quarter of 2006. The changes did not have a material impact in the calculation. We have the capability to judgmentally adjust the calculated economic reserve amount by a maximum of +/– 20% to reflect, among other factors, differences in local versus national economic conditions. This adjustment capability is deemed necessary given the continuing uncertainty of forecasting economic environment changes.

This methodology allows for a more meaningful discussion of our view of the current economic conditions and the potential impact on credit losses. The continued use of quantitative methodologies for the transaction reserve and the introduction of the quantitative methodology for the economic component may have the impact of more period-to-period fluctuation in the absolute and relative level of the reserve than exhibited in prior-period results.

The June 30, 2006, ALLL was $287.5 million, $32.7 million higher than $254.8 million a year earlier, and $3.7 million higher than $283.8 million at March 31, 2006. Expressed as a percent of period-end loans and leases, the ALLL ratio at June 30, 2006, was 1.09%, up from 1.04% a year ago, but unchanged from March 31, 2006.

The ALLL as a percent of NPLs was 213% at June 30, 2006, down from 304% a year ago, but up from 209% at March 31, 2006. The ALLL as a percent of NPAs was 168% at June 30, 2006, down from 262% a year ago, and from

183% at March 31, 2006. At June 30, 2006, the AULC was $38.9 million, up from $37.5 million at the end of the year-ago quarter, but down slightly from March 31, 2006.

On a combined basis, the ACL as a percent of total loans and leases at June 30, 2006, was 1.24%, up from 1.19% a year ago, but unchanged from March 31, 2006. The ACL as a percent of NPAs was 191% at June 30, 2006, down from 300% a year earlier and 209% at March 31, 2006.

Table 14 reflects activity in the ALLL and AULC for each of the last five quarters.

Table 14 — Quarterly Credit Reserves Analysis


	2006							2005
(in thousands)	Second			First				Fourth			Third			Second
Allowance for loan and lease losses, beginning of period	$	283,839		$	268,347			$	253,943		$	254,784		$	264,390
Acquired allowance for loan and lease losses⁽¹⁾		1,498			22,187				—			—			—
Loan and lease losses		(24,325	)		(33,405	)			(27,072	)		(25,830	)		(25,733	)
Recoveries of loans previously charged off		10,373			9,189				9,504			7,877			9,469


Net loan and lease losses		(13,952	)		(24,216	)			(17,568	)		(17,953	)		(16,264	)

Provision for loan and lease losses		16,132			17,521				31,972			17,112			13,247
Economic reserve transfer		—			—				—			—			(6,253	)
Allowance of assets sold and securitized		—			—				—			—			(336	)

Allowance for loan and lease losses, end of period	$	287,517		$	283,839			$	268,347		$	253,943		$	254,784


Allowance for unfunded loan commitments and letters of credit, beginning of period	$	39,301		$	36,957			$	38,098		$	37,511		$	31,610

Acquired AULC		—			325				—			—			—
Provision for unfunded loan commitments and letters of credit losses		(387	)		2,019				(1,141	)		587			(352	)
Economic reserve transfer		—			—				—			—			6,253

Allowance for unfunded loan commitments and letters of credit, end of period	$	38,914		$	39,301			$	36,957		$	38,098		$	37,511

Total allowances for credit losses	$	326,431		$	323,140			$	305,304		$	292,041		$	292,295


Allowance for loan and lease losses (ALLL) as % of:
Transaction reserve		0.89	%		0.88	%			0.89	%		0.84	%		0.82	%
Economic reserve		0.20			0.21		&nb


Part I.	Financial Information

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets at June 30, 2006, December 31, 2005, and June 30, 2005	3

	Condensed Consolidated Statements of Income for the three months and six months ended June 30, 2006 and 2005	4

	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the six months ended June 30, 2006 and 2005	5

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2006 and 2005	6

	Notes to Unaudited Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	97

Item 4.	Controls and Procedures	97

Part II.	Other Information

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	97

Item 4.	Submission of Matters to a Vote of Security Holders	97

Item 6.	Exhibits	98

Signatures		99
EX-10(E)
EX-31.1
EX-31.2
EX-32.1
EX-32.2