Exhibit 13.1
 
SELECTED FINANCIAL DATA HUNTINGTON BANCSHARES INCORPORATED
 
Table 1 — Selected Financial Data(1)
                                         
    Year Ended December 31,  
(in thousands of dollars, except per share amounts)   2007     2006     2005     2004     2003  
Interest income
  $ 2,742,963     $ 2,070,519     $ 1,641,765     $ 1,347,315     $ 1,305,756  
Interest expense
    1,441,451       1,051,342       679,354       435,941       456,770  
 
Net interest income
    1,301,512       1,019,177       962,411       911,374       848,986  
Provision for credit losses
    643,628       65,191       81,299       55,062       163,993  
 
Net interest income after provision for credit losses
    657,884       953,986       881,112       856,312       684,993  
 
Service charges on deposit accounts
    254,193       185,713       167,834       171,115       167,840  
Automobile operating lease income
    7,810       43,115       133,015       285,431       489,698  
Securities (losses) gains
    (29,738 )     (73,191 )     (8,055 )     15,763       5,258  
Other non-interest income
    444,338       405,432       339,488       346,289       406,357  
 
Total non-interest income
    676,603       561,069       632,282       818,598       1,069,153  
 
Personnel costs
    686,828       541,228       481,658       485,806       447,263  
Automobile operating lease expense
    5,161       31,286       103,850       235,080       393,270  
Other non-interest expense
    619,855       428,480       384,312       401,358       389,626  
 
Total non-interest expense
    1,311,844       1,000,994       969,820       1,122,244       1,230,159  
 
Income before income taxes
    22,643       514,061       543,574       552,666       523,987  
(Benefit) provision for income taxes
    (52,526 )     52,840       131,483       153,741       138,294  
 
Income before cumulative effect of change in accounting principle
    75,169       461,221       412,091       398,925       385,693  
Cumulative effect of change in accounting principle, net of tax(2)
                            (13,330 )
 
Net income
  $ 75,169     $ 461,221     $ 412,091     $ 398,925     $ 372,363  
 
Income before cumulative effect of change in accounting principle per common share — basic
    $0.25       $1.95       $1.79       $1.74       $1.68  
Net income per common share — basic
    0.25       1.95       1.79       1.74       1.62  
Income before cumulative effect of change in accounting principle per common share — diluted
    0.25       1.92       1.77       1.71       1.67  
Net income per common share — diluted
    0.25       1.92       1.77       1.71       1.61  
Cash dividends declared per common share
    1.060       1.000       0.845       0.750       0.670  
                                         
Balance sheet highlights
                                       
 
Total assets (period end)
  $ 54,697,468     $ 35,329,019     $ 32,764,805     $ 32,565,497     $ 30,519,326  
Total long-term debt (period end)(3)
    6,954,909       4,512,618       4,597,437       6,326,885       6,807,979  
Total shareholders’ equity (period end)
    5,949,140       3,014,326       2,557,501       2,537,638       2,275,002  
Average long-term debt(3)
    5,714,572       4,942,671       5,168,959       6,650,367       5,816,660  
Average shareholders’ equity
    4,631,912       2,945,597       2,582,721       2,374,137       2,196,348  
Average total assets
    44,711,676       35,111,236       32,639,011       31,432,746       28,971,701  
                                         
Key ratios and statistics
                                       
 
Margin analysis — as a % of average earnings assets
                                       
Interest income(4)
    7.02 %     6.63 %     5.65 %     4.89 %     5.35 %
Interest expense
    3.66       3.34       2.32       1.56       1.86  
 
Net interest margin(4)
    3.36 %     3.29 %     3.33 %     3.33 %     3.49 %
 
                                         
Return on average total assets
    0.17 %     1.31 %     1.26 %     1.27 %     1.29 %
Return on average total shareholders’ equity
    1.6       15.7       16.0       16.8       17.0  
Return on average tangible shareholders’ equity(5)
    3.9       19.5       17.4       18.5       18.8  
Efficiency ratio(6)
    62.5       59.4       60.0       65.0       63.9  
Dividend payout ratio
    N.M.       52.1       47.7       43.9       41.6  
Average shareholders’ equity to average assets
    10.36       8.39       7.91       7.55       7.58  
Effective tax rate
    N.M.       10.3       24.2       27.8       26.4  
Tangible equity to tangible assets (period end)(7)
    5.08       6.93       7.19       7.18       6.80  
Tier 1 leverage ratio (period end)
    6.77       8.00       8.34       8.42       7.98  
Tier 1 risk-based capital ratio (period end)
    7.51       8.93       9.13       9.08       8.53  
Total risk-based capital ratio (period end)
    10.85       12.79       12.42       12.48       11.95  
                                         
Other data
                                       
 
Full-time equivalent employees (period end)
    11,925       8,081       7,602       7,812       7,983  
Domestic banking offices (period end)
    625       381       344       342       338  
 
N.M., not a meaningful value.
 
(1)  Comparisons for presented periods are impacted by a number of factors. Refer to the “Significant Factors Influencing Financial Performance Comparisons” for additional discussion regarding these key factors.
 
(2)  Due to the adoption of FASB Interpretation No. 46 “Consolidation of Variable Interest Entities.
 
(3)  Includes Federal Home Loan Bank advances, subordinated notes, and other long-term debt.
 
(4)  On a fully taxable equivalent (FTE) basis assuming a 35% tax rate.
 
(5)  Net income less expense for amortization of intangibles (net of tax) for the period divided by average tangible common shareholders’ equity. Average tangible common shareholders’ equity equals average total common shareholders’ equity less other intangible assets and goodwill. Other intangible assets are net of deferred tax.
 
(6)  Non-interest expense less amortization of intangibles divided by the sum of FTE net interest income and non-interest income excluding securities gains.
 
(7)  Tangible common shareholders’ equity divided by tangible assets (total assets less goodwill and other intangible assets). Other intangible assets are net of deferred tax.


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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION HUNTINGTON BANCSHARES INCORPORATED
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, including our bank subsidiary, The Huntington National Bank (the Bank), organized in 1866, we provide full-service commercial and consumer banking services, mortgage banking services, automobile financing, equipment leasing, investment management, trust services, brokerage services, reinsurance of private mortgage insurance, reinsurance of credit life and disability insurance, retail and commercial insurance-agency services, and other financial products and services. Our banking offices are located in Ohio, Michigan, Pennsylvania, Indiana, West Virginia, and Kentucky. Selected financial service activities are also conducted in other states including: Dealer Sales offices in Arizona, Florida, Georgia, Nevada, New Jersey, New York, North Carolina, South Carolina, and Tennessee; Private Financial and Capital Markets Group offices in Florida; and Mortgage Banking offices in Maryland and New Jersey. Sky Insurance offers retail and commercial insurance agency services in Ohio, Pennsylvania, and Indiana. International banking services are available through the headquarters office in Columbus and a limited purpose office located in both the Cayman Islands and Hong Kong.
 
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) 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.
 
Our discussion is divided into key segments:
 
  –  Introduction — Provides overview comments on important matters including risk factors, acquisitions, and other items. These are essential for understanding our performance and prospects.
 
  –  Discussion of Results of Operations — Reviews financial performance from a consolidated company perspective. It also includes a Significant Items Influencing Financial Performance Comparisons section that summarizes key issues helpful for understanding performance trends including our acquisition of Sky Financial Group, Inc. (Sky Financial) and our relationship with Franklin Credit Management Corporation (Franklin). Key consolidated balance sheet and income statement trends are also discussed in this section.
 
  –  Risk Management and Capital — Discusses credit, market, liquidity, and operational risks, including how these are managed, as well as performance trends. It also includes a discussion of liquidity policies, how we fund ourselves, and related performance. In addition, there is a discussion of guarantees and/or commitments made for items such as standby letters of credit and commitments to sell loans, and a discussion that reviews the adequacy of capital, including regulatory capital requirements.
 
  –  Lines of Business Discussion — Provides an overview of financial performance for each of our major lines of business and provides additional discussion of trends underlying consolidated financial performance.
 
  –  Results for the Fourth Quarter — Provides a discussion of results for the 2007 fourth quarter compared with the year-ago quarter.
 
A reading of each section is important to understand fully the nature of our financial performance and prospects.
 
Forward-Looking Statements
 
This report, including MD&A, contains certain forward-looking statements, including certain plans, expectations, goals, and projections, and including statements about the benefits of our merger with Sky Financial, which are subject to numerous assumptions, risks, and uncertainties. Statements that do not describe historical or current facts, including statements about beliefs and expectations, are forward-looking statements. The forward-looking statements are intended to be subject to the safe harbor provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
 
Actual results could differ materially from those contained or implied by such statements for a variety of factors including: (1) deterioration in the loan portfolio could be worse than expected due to a number of factors such as the underlying value of the collateral could prove less valuable than otherwise assumed and assumed cash flows may be worse than expected; (2) merger benefits including expense efficiencies and revenue synergies may not be fully realized and/or within the expected timeframes; (3) merger disruptions may make it more difficult to maintain relationships with clients, associates, or suppliers; (4) changes in economic conditions; (5) movements in interest rates; (6) competitive pressures on product pricing and services; (7) success and timing of other business strategies; (8) the nature, extent, and timing of governmental actions and reforms; and (9) extended disruption of vital infrastructure. Additional factors that could cause results to differ materially from those described above can be


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MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
 
found in Huntington’s 2007 Annual Report on Form 10-K, and documents subsequently filed by us with the Securities and Exchange Commission.
 
All forward-looking statements speak only as of the date they are made and are based on information available at that time. 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 except as required by federal securities laws. As forward-looking statements involve significant risks and uncertainties, readers of this document are cautioned against placing undue reliance on such statements.
 
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 counterparties will be unable to perform their contractual obligations, (2) market risk, which is the risk that changes in market rates and prices will adversely affect our financial condition or results of operation, (3) liquidity risk, which is the risk that we, or the Bank, will have insufficient cash or access to cash to meet operating needs, and (4) operational risk, which is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. Please refer to the “Risk Management and Capital” section for additional information regarding risk factors. Additionally, more information on risk is set forth under the heading “Risk Factors” included in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2007, and subsequent filings with the SEC.
 
Critical Accounting Policies and Use of Significant Estimates
 
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of financial statements in conformity with GAAP requires us to establish critical accounting policies and make accounting estimates, assumptions, and judgments that affect amounts recorded and reported in our financial statements. Note 1 of the Notes to Consolidated Financial Statements included in 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. The most significant accounting estimates and their related application are discussed below. This analysis is included to emphasize that estimates are used in connection with the critical and other accounting policies and to illustrate the potential effect on the financial statements if the actual amount were different from the estimated amount.
 
–  Total Allowances for Credit Losses — The allowance for credit losses (ACL) is the sum of the allowance for loan and lease losses (ALLL) and the allowance for unfunded loan commitments and letters of credit (AULC). At December 31, 2007, the ACL was $645.0 million. The amount of the ACL was determined by judgments regarding the quality of the loan portfolio and loan commitments. All known relevant internal and external factors that affected loan collectibility were considered. The ACL represents the estimate of the level of reserves appropriate to absorb inherent credit losses in the loan and lease portfolio, as well as unfunded loan commitments. We believe the process for determining the ACL considers all of the potential factors that could result in credit losses. However, the process includes judgmental and quantitative elements that may be subject to significant change. To the extent actual outcomes differ from our estimates, additional provision for credit losses could be required, which could adversely affect earnings or financial performance in future periods. At December 31, 2007, the ACL as a percent of total loans and leases was 1.61%. Based on the balances at December 31, 2007, a 10 basis point increase in this ratio to 1.71% would require $40.0 million in additional reserves (funded by additional provision for credit losses), which would have negatively impacted 2007 net income by approximately $26.0 million, or $0.09 per share.
 
Additionally, we established a specific reserve of $115.3 million associated with our loans to Franklin. To estimate the specific allowance associated with our loans to Franklin, we used estimates of probability-of-default and the loss-given-default for each of Franklin’s three portfolios of loans: acquired first-priority lien residential mortgage loans, acquired second-priority lien residential mortgage loans and originated first-priority lien loans. We used estimates of probability-of-default and the loss-given-default that resulted in an estimated loss of approximately 25% of the $2.1 billion unpaid principal balances of loans that support our loans to Franklin. We estimate that if the probability-of-default from this scenario were increased by 10% for each


14


 

MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
 
portfolio and, additionally, the loss-given-default increased for each portfolio, that the provision for credit losses would have increased by approximately $102 million. Our relationship with Franklin is discussed in greater detail in the “Significant Items” section of this report.
 
–  Fair Value Measurements — The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The majority of assets reported at fair value are based on quoted market prices or on internally developed models that utilize independently sourced market parameters, including interest rate yield curves, option volatilities, and currency rates.
 
Many of our assets are carried at fair value, including securities, derivatives, mortgage servicing rights (MSRs), and trading assets. Additionally, a smaller portion is carried at the lower of fair value or cost, including loans held-for-sale, while another portion is evaluated for impairment using fair value measurements. At December 31, 2007, approximately $6.2 billion of our assets were recorded at either fair value or at the lower of fair value or cost. In addition to the above mentioned ongoing fair value measurements, fair value is also the unit of measure for recording business combinations. On the date of the Sky Financial acquisition, July 1, 2007, all of Sky Financial’s assets and liabilities, including identifiable intangible assets, were recorded at their estimated fair value. The excess of purchase price over the fair value of net assets acquired was recorded as goodwill. Please refer to Note 3 of the Notes to Consolidated Financial Statements for additional information regarding the purchase, and related goodwill, of Sky Financial.
 
We estimate the fair value of a financial instrument using a variety of valuation methods. Where financial instruments are actively traded and have quoted market prices, quoted market prices are used for fair value. When observable market prices do not exist, we estimate fair value. Our valuation methods consider factors such as liquidity and concentration concerns and, for the derivatives portfolio, counterparty credit risk. Other factors such as model assumptions, market dislocations, and unexpected correlations can affect estimates of fair value. Imprecision in estimating these factors can impact the amount of revenue or loss.
 
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. We test the goodwill of each reporting unit for impairment annually, as of October 1, or more frequently if events or circumstances indicate possible impairment. We estimate the fair value of each reporting unit using a combination of a discounted cash flow analysis based on internal forecasts and market-based valuation multiples for comparable businesses. We identified no impairment during the three years ended December 31, 2007. For additional information regarding goodwill and the carrying values by lines of business, please refer to Note 8 of the Notes to the Consolidated Financial Statements.
 
Mortgage Servicing Rights (MSRs)
MSRs and certain other servicing rights 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, we estimate the fair value of the MSRs on a monthly basis using a third-party valuation model. Fair value is estimated based upon discounted net cash flows calculated from a combination of loan level data and market assumptions. The valuation model combines loans based on common characteristics that impact servicing cash flows (e.g., investor, remittance cycle, interest rate, product type, etc.) in order to project net cash flows. Market valuation assumptions include prepayment speeds, discount rate, and servicing costs. Valuation assumptions are periodically reviewed against available market data (e.g., broker surveys) for reasonableness and adjusted if deemed appropriate.
 
The recorded MSR asset balance is adjusted to estimated fair value based upon the final month-end valuation, which utilizes the month-end rate curve and prepayment assumptions. Note 6 of the Notes to Consolidated Financial Statements contains an analysis of the impact to the fair value of MSRs resulting from changes in the estimates used by management.
 
Trading Securities and Securities Available-for-sale
Substantially all of our securities are valued based on quoted market prices. However, certain securities are less actively traded and do not always have quoted market prices. The determination of their fair value, therefore, requires judgment, as this determination may require benchmarking to similar instruments or analyzing default and recovery rates. Examples include certain collateralized mortgage and debt obligations and high-yield debt securities.
 
Derivatives
Our derivative positions are valued using internally and externally developed models based on observable market parameters (parameters that are actively quoted and can be validated to external sources) or model values where quoted market prices do not exist, including industry-pricing services.


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MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
 
Loans Held-for-sale
Loans held-for-sale are carried at the lower of (a) historical amortized cost or (b) fair value. The fair value of loans held-for-sale is generally based on observable market prices of similar instruments. If market prices are not available, fair value is determined using internally developed models based on the estimated cash flows, adjusted for credit risk. The adjusted cash flows are discounted using a rate that is appropriate for each maturity and incorporates the effects of interest rate changes. At December 31, 2007, loans held-for-sale included $73 million acquired from Sky Financial. The value of the Sky Financial impaired commercial loans held-for-sale is primarily determined by analyzing the underlying collateral of the loan and the external market prices of similar assets.
 
Other Investments - Equity Investments
We make certain equity investments through investments in equity funds (holding both private and publicly traded equity securities), directly in companies as a minority interest investor, and directly in companies in conjunction with our mezzanine lending activities. We measure these equity investments at fair value, with adjustments to the fair value recognized as a component of other non-interest income. For additional information regarding equity investments, please refer to “Price Risk” in the “Risk Management and Capital” section of this report.
 
–  Income Taxes — The calculation of our provision for federal income taxes is complex and requires the use of estimates and judgments. We have two accruals for income taxes: Our income tax receivable represents the estimated amount currently due from the federal government, net of any reserve for potential audit issues, and is reported as a component of “accrued income and other assets” in our consolidated balance sheet; our deferred federal income tax liability represents the estimated impact of temporary differences between how we recognize our assets and liabilities under GAAP, how such assets and liabilities are recognized under the federal tax code, and is reported as a component of “accrued expenses and other liabilities” in our consolidated balance sheet.
 
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.
 
From time to time, we engage in business transactions that may have an effect on our tax liabilities. Where appropriate, we have obtained opinions of outside experts and have assessed the relative merits and risks of the appropriate tax treatment of business transactions taking into account statutory, judicial, and regulatory guidance in the context of the tax position. However, changes to our estimates of accrued taxes can occur due to changes in tax rates, implementation of new business strategies, resolution of issues with taxing authorities regarding previously taken tax positions and newly enacted statutory, judicial, and regulatory guidance. Such changes can affect the amount of our accrued taxes and can be material to our financial position and/or results of operations. The potential impact of our operating results for any of these changes cannot be reasonably estimated. For additional information regarding income taxes, please refer to Note 17 of the Notes to the Consolidated Financial Statements.
 
Recent Accounting Pronouncements and Developments
 
Note 2 to the Consolidated Financial Statements discusses new accounting policies adopted during 2007 and the expected impact of accounting policies recently issued but not yet required to be adopted. To the extent the adoption of new accounting standards materially affect financial condition, results of operations, or liquidity, the impacts are discussed in the applicable section of this MD&A and the Notes to the Consolidated Financial Statements.
 
Acquisitions
 
Sky Financial Group, Inc. (Sky Financial)
 
The merger with Sky Financial was completed on July 1, 2007. At the time of acquisition, Sky Financial had assets of $16.8 billion, including $13.3 billion of loans, and total deposits of $12.9 billion. The impact of this acquisition was included in our consolidated results for the last six months of 2007. Additionally, in September of 2007, Sky Bank and Sky Trust, National Association (Sky Trust), merged into the Bank and systems integration was completed. As a result, performance comparisons between 2007 and 2006 are affected.
 
As a result of this acquisition, we have a significant loan relationship with Franklin. This relationship is discussed in greater detail in the “Significant Items” section of this report.


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MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
 
Unizan Financial Corp.
 
The merger with Unizan Financial Corp. (Unizan) was completed on March 1, 2006. At the time of acquisition, Unizan had assets of $2.5 billion, including $1.6 billion of loans and core deposits of $1.5 billion. The impact of this acquisition was included in our consolidated results for the last ten months of 2006. As a result, performance comparisons between 2006 and 2005 are affected.
 
Impact Methodology
 
For both the Sky Financial and Unizan acquisitions, comparisons of the reported results are impacted as follows:
 
  –  Increased the absolute level of reported average balance sheet, revenue, expense, and the absolute level of certain credit quality results.
 
  –  Increased the absolute level of reported non-interest expense items because of costs incurred as part of merger integration activities, most notably employee retention bonuses, outside programming services related to systems conversions, occupancy expenses, and marketing expenses related to customer retention initiatives. These net merger costs were $85.1 million for 2007, $3.7 million for 2006, and $0.7 million for 2005.
 
Given the significant impact of the mergers on reported results, we believe that an understanding of the impacts of each merger is necessary to understand better underlying performance trends. When comparing post-merger period results to premerger periods, we use the following terms when discussing financial performance:
 
  –  “Merger-related” refers to amounts and percentage changes representing the impact attributable to the merger.
 
  –  “Merger costs” represent non-interest expenses primarily associated with merger integration activities, including severance expense for key executive personnel.
 
  –  “Non-merger-related” refers to performance not attributable to the merger, and includes “merger efficiencies”, which represent non-interest expense reductions realized as a result of the merger.
 
After completion of our mergers, we combine the acquired companies’ operations with ours, and do not monitor the subsequent individual results of the acquired companies. As a result, the following methodologies were implemented to estimate the approximate effect of the mergers used to determine “merger-related” impacts.
 
Balance Sheet Items
 
Sky Financial
 
For average loans and leases, as well as total average deposits, Sky Financial’s balances as of June 30, 2007, adjusted for purchase accounting adjustments, and transfers of loans to loans held-for-sale, were used in the comparison. To estimate the impact on 2007 average balances, it was assumed that the June 30, 2007 balances, as adjusted, remained constant over time.
 
Unizan
 
For average loans and leases, as well as core average deposits, balances as of the acquisition date were pro-rated to the post-merger period being used in the comparison. For example, to estimate the impact on 2006 first quarter average balances, one-third of the closing date balance was used as those balances were in reported results for only one month of the quarter. Quarterly estimated impacts for the 2006 second, third, and fourth quarter results were developed using this same pro-rata methodology. Full-year 2006 estimated results represent the annual average of each quarter’s estimate. This methodology assumes acquired balances will remain constant over time.
 
Income Statement Items
 
Sky Financial
 
Sky Financial’s actual results for the first six months of 2007, adjusted for the impact of unusual items and purchase accounting adjustments, were determined. This six-month adjusted amount was multiplied by two to estimate an annual impact. This methodology does not adjust for any market related changes, or seasonal factors in Sky Financial’s 2007 six-month results. Nor does it consider any revenue or expense synergies realized since the merger date. The one exception to this methodology of holding the estimated annual impact constant relates to the amortization of intangibles expense where the amount is known and is therefore used.


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MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
 
Unizan
 
Unizan’s actual full year 2005 results were used for pro-rating the impact on post-merger periods. For example, to estimate the 2006 first quarter impact of the merger on personnel costs, one-twelfth of Unizan’s full-year 2005 personnel costs was used. Full quarter and year-to-date estimated impacts for subsequent periods were developed using this same pro-rata methodology. This results in an approximate impact since the methodology does not adjust for any unusual items or seasonal factors in Unizan’s 2005 reported results, or synergies realized since the merger date. The one exception to this methodology relates to the amortization of intangibles expense where the amount is known and is therefore used.
 
Certain tables and comments contained within our discussion and analysis provide detail of changes to reported results to quantify the estimated impact of the Sky Financial merger using this methodology.


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MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
 
Table 3 — Selected Annual Income Statements(1)
                                                                         
    Year Ended December 31,  
          Change from 2006           Change from 2005                    
(in thousands, except per share amounts)   2007     Amount     %     2006     Amount     %     2005     2004     2003  
Interest income
  $ 2,742,963     $ 672,444       32.5 %   $ 2,070,519     $ 428,754       26.1 %   $ 1,641,765     $ 1,347,315     $ 1,305,756  
Interest expense
    1,441,451       390,109       37.1       1,051,342       371,988       54.8       679,354       435,941       456,770  
 
Net interest income
    1,301,512       282,335       27.7       1,019,177       56,766       5.9       962,411       911,374       848,986  
Provision for credit losses
    643,628       578,437       N.M.       65,191       (16,108 )     (19.8 )     81,299       55,062       163,993  
 
Net interest income after provision for credit losses
    657,884       (296,102 )     (31.0 )     953,986       72,874       8.3       881,112       856,312       684,993  
 
Service charges on deposit accounts
    254,193       68,480       36.9       185,713       17,879       10.7       167,834       171,115       167,840  
Trust services
    121,418       31,463       35.0       89,955       12,550       16.2       77,405       67,410       61,649  
Brokerage and insurance income
    92,375       33,540       57.0       58,835       5,216       9.7       53,619       54,799       57,844  
Other service charges and fees
    71,067       19,713       38.4       51,354       7,006       15.8       44,348       41,574       41,446  
Bank owned life insurance income
    49,855       6,080       13.9       43,775       3,039       7.5       40,736       42,297       43,028  
Mortgage banking
    29,804       (11,687 )     (28.2 )     41,491       13,158       46.4       28,333       26,786       58,180  
Securities (losses) gains
    (29,738 )     43,453       (59.4 )     (73,191 )     (65,136 )     N.M.       (8,055 )     15,763       5,258  
Automobile operating lease income
    7,810       (35,305 )     (81.9 )     43,115       (89,900 )     (67.6 )     133,015       285,431       489,698  
Other
    79,819       (40,203 )     (33.5 )     120,022       24,975       26.3       95,047       113,423       144,210  
 
Total non-interest income
    676,603       115,534       20.6       561,069       (71,213 )     (11.3 )     632,282       818,598       1,069,153  
 
Personnel costs
    686,828       145,600       26.9       541,228       59,570       12.4       481,658       485,806       447,263  
Outside data processing and other services
    127,245       48,466       61.5       78,779       4,141       5.5       74,638       72,115       66,118  
Net occupancy
    99,373       28,092       39.4       71,281       189       0.3       71,092       75,941       62,481  
Equipment
    81,482       11,570       16.5       69,912       6,788       10.8       63,124       63,342       65,921  
Amortization of intangibles
    45,151       35,189       N.M.       9,962       9,133       N.M.       829       817       816  
Marketing
    46,043       14,315       45.1       31,728       5,449       20.7       26,279       24,600       25,648  
Professional services
    40,320       13,267       49.0       27,053       (7,516 )     (21.7 )     34,569       36,876       42,448  
Telecommunications
    24,502       5,250       27.3       19,252       604       3.2       18,648       19,787       21,979  
Printing and supplies
    18,251       4,387       31.6       13,864       1,291       10.3       12,573       12,463       13,009  
Automobile operating lease expense
    5,161       (26,125 )     (83.5 )     31,286       (72,564 )     (69.9 )     103,850       235,080       393,270  
Other
    137,488       30,839       28.9       106,649       24,089       29.2       82,560       95,417       91,206  
 
Total non-interest expense
    1,311,844       310,850       31.1       1,000,994       31,174       3.2       969,820       1,122,244       1,230,159  
 
Income before income taxes
    22,643       (491,418 )     (95.6 )     514,061       (29,513 )     (5.4 )     543,574       552,666       523,987  
(Benefit) provision for income taxes
    (52,526 )     (105,366 )     N.M.       52,840       (78,643 )     (59.8 )     131,483       153,741       138,294  
 
Income before cumulative effect of change in accounting principle
    75,169       (386,052 )     (83.7 )     461,221       49,130       11.9       412,091       398,925       385,693  
Cumulative effect of change in accounting principle, net of tax(2)
                                                    (13,330 )
 
Net income
  $ 75,169     $ (386,052 )     (83.7 )%   $ 461,221     $ 49,130       11.9 %   $ 412,091     $ 398,925     $ 372,363  
 
Average common shares — basic
    300,908       64,209       27.1 %     236,699       6,557       2.8 %     230,142       229,913       229,401  
Average common shares — diluted
    303,455       63,535       26.5       239,920       6,445       2.8       233,475       233,856       231,582  
                                                                         
Per common share:
                                                                       
Income before cumulative effect of change in accounting principle — basic
  $ 0.25     $ (1.70 )     (87.2 )%   $ 1.95     $ 0.16       8.9 %   $ 1.79     $ 1.74     $ 1.68  
Net income — basic
    0.25       (1.70 )     (87.2 )     1.95       0.16       8.9       1.79       1.74       1.62  
Income before cumulative effect of change in accounting principle — diluted
    0.25       (1.67 )     (87.0 )     1.92       0.15       8.5       1.77       1.71       1.67  
Net income — diluted
    0.25       (1.67 )     (87.0 )     1.92       0.15       8.5       1.77       1.71       1.61  
Cash dividends declared
    1.060       0.06       6.0       1.000       0.16       18.3       0.845       0.750       0.670  
                                                                 
Revenue — fully taxable equivalent (FTE)
                                                               
Net interest income
  $ 1,301,512     $ 282,335       27.7 %   $ 1,019,177     $ 56,766       5.9 %   $ 962,411     $ 911,374     $ 848,986  
FTE adjustment
    19,249       3,224       20.1       16,025       2,632       19.7       13,393       11,653       9,684  
 
Net interest income(3)
    1,320,761       285,559       27.6       1,035,202       59,398       6.1       975,804       923,027       858,670  
Non-interest income
    676,603       115,534       20.6       561,069       (71,213 )     (11.3 )     632,282       818,598       1,069,153  
 
Total revenue(3)
  $ 1,997,364     $ 401,093       25.1 %   $ 1,596,271     $ (11,815 )     (0.7 )%   $ 1,608,086     $ 1,741,625     $ 1,927,823  
 
N.M., not a meaningful value.
 
(1)  Comparisons for presented periods are impacted by a number of factors. Refer to the “Significant Factors Influencing Financial Performance Comparisons” for additional discussion regarding these key factors.
 
(2)  Due to adoption of FASB Interpretation No. 46 for variable interest entities.
 
(3)  On a fully taxable equivalent (FTE) basis assuming a 35% tax rate.


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MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
 
DISCUSSION OF RESULTS OF OPERATIONS
 
This section provides a review of financial performance from a consolidated perspective. It also includes a Significant Items Influencing Financial Performance Comparisons section that summarizes key issues important for a complete understanding of performance trends. Key consolidated balance sheet and income statement trends are discussed in this section. All earnings per share data are reported on a diluted basis. For additional insight on financial performance, please read this section in conjunction with the Lines of Business Discussion.
 
Summary
 
2007 versus 2006
 
We reported 2007 net income of $75.2 million and earnings per common share of $0.25. These results compared unfavorably with net income of $461.2 million and earnings per common share of $1.92 in 2006. Comparisons with the prior year were significantly impacted by: (a) our acquisition of Sky Financial, which closed on July 1, 2007, as well as the credit deterioration of the Franklin relationship that was also acquired with Sky Financial, (b) a 2006 reduction in the provision for income taxes as a result of the favorable resolution to certain federal income tax audits and (c) balance sheet restructuring charges taken in 2006 (see “Significant Items”). The Sky Financial acquisition solidified our position in Ohio, greatly expanded our presence in the central Indiana market, and established western Pennsylvania as a new market.
 
While the acquisition of Sky Financial had a positive impact to 2007 in many areas, the credit deterioration of the Franklin relationship late in 2007, acquired as part of the Sky Financial merger, was the largest setback to 2007 performance. A negative impact of $423.6 million pretax ($275.4 million after-tax, or $0.91 per common share based upon the annual average outstanding diluted common shares) related to this relationship. Although disappointing, and while we can give no further assurances, this charge represents our best estimate of the inherent loss within this credit relationship.
 
Other factors negatively impacting our 2007 performance included: (a) the need to build non-Franklin-related allowance for loan losses due to the continued weakness in the residential real estate development markets and (b) the volatility of the financial markets resulting in net market-related losses.
 
Despite the factors discussed above, 2007 showed positive signs. Expense control was a major highlight for the year. Non-merger-related expenses declined $47.5 million, or 4%, and represented the realization of most of the merger efficiencies that were targeted from the acquisition. Also, commercial loans showed good non-merger-related growth, and there was also strong non-merger-related growth in several key non-interest income activities, including deposit service charges, trust services, and other service charges.
 
Net interest income for 2007 increased $282.3 million, or 28%, from 2006. The current year included six months of net interest income attributable to the acquisition of Sky Financial, which added $13.3 billion of loans and $12.9 billion of deposits at July 1, 2007. As stated earlier, we saw good non-merger-related growth in total average commercial loans. However, total average automobile loans and leases continued to decline, as expected, due to lower consumer demand and competitive pricing. Additionally, the non-merger-related declines in total average residential mortgages, as well as the lack of growth in non-merger-related total average home equity loans, reflected the continued softness in the real estate markets. Growth in non-merger-related average total deposits was good in 2007, driven by strong growth in interest-bearing demand deposits. Our net interest margin increased seven basis points to 3.36% from 3.29% in 2006.
 
In addition to the Franklin credit deterioration discussed previously, credit quality generally weakened in 2007 compared with 2006. The ALLL increased to 1.44% in 2007 from 1.04% in the prior year. The ALLL coverage of nonaccruing loans (NALs) decreased to 181% at December 31, 2007, from 189% at December 31, 2006. Nonperforming assets (NPAs) also increased from the prior year, including the NPAs acquired from Sky Financial. The deterioration of all of these measures reflected the continued economic weakness in our Midwest markets, most notably among our borrowers in eastern Michigan and northern Ohio, and within the residential real estate development portfolio.
 
2006 versus 2005
 
2006 net income was $461.2 million, or $1.92 per common share, up 12% and 8%, respectively, compared with $412.1 million, or $1.77 per common share, in 2005. The $49.1 million increase in net income primarily reflected:
 
  –  $78.6 million decline in provision for income taxes as the effective tax rate for 2006 was 10.3%, down from 24.2% in 2005. The lower 2006 provision for income taxes reflected the favorable impact of an $84.5 million reduction related to the resolution of a federal income tax audit covering tax years 2002 and 2003 that resulted in the release of federal income tax


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MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
 
  reserves, as well as the recognition of federal tax loss carry backs. The 2005 effective tax rate of 24.2% was favorably impacted by a combination of factors including the benefit of a federal tax loss carry back, partially offset by the net impact of repatriating foreign earnings.
 
  –  $56.8 million, or 6%, increase in net interest income, reflecting a 7% increase in average earning assets, as the net interest margin of 3.29% declined 4 basis points from 3.33% in the prior year. The increase in average earning assets reflected 7% growth in average total loans and leases, including 12% growth in average total commercial loans and 3% growth in average total consumer loans, and a 15% increase in average investment securities. Growth in earning assets was positively impacted by the acquisition of Unizan on March 1, 2006.
 
  –  $16.1 million decline in provision for credit losses, reflecting overall net improvement in our credit risk performance as reflected in a decline in our allowance for credit losses as a percent of period end loans and leases to 1.04% at December 31, 2006, from 1.10% at the end of 2005.
 
Partially offset by:
 
  –  $71.2 million, or 11%, decline in non-interest income. Contributing to the decrease was an $89.9 million expected decline in operating lease income, and a $65.1 million increase in securities losses, reflecting the impact of a balance sheet restructuring in late 2006. Partially offsetting these negative factors were increases in several other components of non-interest income, primarily due to the Unizan acquisition.
 
  –  $31.2 million, or 3%, increase in non-interest expense, reflecting increases in several components of non-interest expense, primarily related to the acquisition of Unizan.
 
Compared with 2005, the ROA for 2006 was 1.31%, up from 1.26%, and the ROE was 15.7%, down slightly from 16.0%.
 
2006 net income was impacted by a number of significant items, the largest of which were (1) the acquisition of Unizan on March 1, 2006, (2) a reduction in the provision for income taxes, and (3) a balance sheet restructuring, undertaken to utilize the excess capital resulting from the reduction of the provision for income taxes (See “Significant Items”).
 
Basis of Presentation
 
Significant Items
 
Certain components of the income statement are naturally subject to more volatility than others. As a result, readers of this report may view such items differently in their assessment of “underlying” or “core” earnings performance compared with their expectations and/or any implications resulting from them on their assessment of future performance trends.
 
Therefore, we believe the disclosure of certain “Significant Items” affecting current and prior period results aids readers of this report in better understanding corporate performance so that they can ascertain for themselves what, if any, items they may wish to include or exclude from their analysis of performance, within the context of determining how that performance differed from their expectations, as well as how, if at all, to adjust their estimates of future performance accordingly.
 
To this end, we have adopted a practice of listing as “Significant Items” in our external disclosure documents, including earnings press releases, investor presentations, reports on Forms 10-Q and 10-K, individual and/or particularly volatile items that impact the current period results by $0.01 per share or more. Such “Significant Items” generally fall within the categories discussed below:
 
Timing Differences
 
Parts of our regular business activities are naturally volatile, including capital markets income and sales of loans. While such items may generally be expected to occur within a full year reporting period, they may vary significantly from period to period. Such items are also typically a component of an income statement line item and not, therefore, readily discernable. By specifically disclosing such items, analysts/investors can better assess how, if at all, to adjust their estimates of future performance.
 
Other Items
 
From time to time, an event or transaction might significantly impact revenues or expenses in a particular reporting period that are judged to be one-time, short-term in nature, and/or materially outside typically expected performance. Examples would be (1) merger costs as they typically impact expenses for only a few quarters during the period of transition; e.g., restructuring charges, asset valuation adjustments, etc.; (2) changes in an accounting principle; (3) one-time tax assessments/refunds; (4) a large gain/loss on the sale of an asset; (5) outsized commercial loan net charge-offs related to fraud; etc. In addition, for the periods covered by this report, the impact of the Franklin restructuring is deemed to be a significant item due to its unusually large size


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MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
 
and because it was acquired in the Sky Financial merger and thus it is not representative of our typical underwriting criteria. By disclosing such items, analysts/investors can better assess how, if at all, to adjust their estimates of future performance.
 
Provision for Credit Losses
 
While the provision for credit losses may vary significantly among periods, and often exceeds $0.01 per share, we typically exclude it from the list of “Significant Items” unless, in our view, there is a significant, specific credit (or multiple significant, specific credits) affecting comparability among periods. In determining whether any portion of the provision for credit losses should be included as a significant item, we consider, among other things, that the provision is a major income statement caption rather than a component of another caption and, therefore, the period-to-period variance can be readily determined. We also consider the additional historical volatility of the provision for credit losses.
 
Other Exclusions
 
“Significant Items” for any particular period are not intended to be a complete list of items that may significantly impact future periods. A number of factors, including those described in Huntington’s 2007 Annual Report on Form 10-K and other factors described from time to time in Huntington’s other filings with the SEC, could also significantly impact future periods.
 
Significant Items Influencing Financial Performance Comparisons
 
Earnings comparisons among the three years ended December 31, 2007 were impacted by a number of significant items summarized below.
 
  1.  Sky Financial Acquisition. — The merger with Sky Financial was completed on July 1, 2007. At the time of acquisition, Sky Financial had assets of $16.8 billion, including $13.3 billion of loans, and total deposits of $12.9 billion. Sky Financial results are reflected in our consolidated results for six months of 2007. The impacts on the 2007 reported results compared with premerger reporting periods are as follows:
 
  –  Increased the absolute level of reported average balance sheet, revenue, expense, and credit quality results (e.g., net charge-offs).
 
  –  Increased reported non-interest expense items as a result of costs incurred as part of merger integration activities, most notably employee retention bonuses, outside programming services related to systems conversions, and marketing expenses related to customer retention initiatives. These net merger costs were $85.1 million in 2007. This included $13.4 million severance expense relating to the retirement of Sky Financial’s former chairman, president, and chief executive officer, who was appointed Huntington’s president and chief operating officer at the time of the acquisition, but subsequently retired on December 31, 2007.
 
  2.  Franklin Relationship Restructuring. — Performance for 2007 included a $423.6 million ($275.4 million after-tax, or $0.91 per common share based upon the annual average outstanding diluted common shares) negative impact related to our Franklin relationship acquired in the Sky Financial acquisition. On December 28, 2007, the loans associated with Franklin were restructured, resulting in a $405.8 million provision for credit losses and a $17.9 million reduction of net interest income. The net interest income reduction reflected the placement of the Franklin loans on nonaccrual status from November 16, 2007, until December 28, 2007.
 
At December 31, 2007, following the troubled debt restructuring of our loans to Franklin, we had $1.2 billion of loans to Franklin (net of amounts charged off). An additional $0.3 billion of loans were held by other banks. These other participating banks have no recourse to Huntington. Franklin is a specialty consumer finance company primarily engaged in the servicing and resolution of performing, reperforming, and nonperforming residential mortgage loans. Franklin’s portfolio consists of loans secured by 1-4 family residential real estate that generally fall outside the underwriting standards of Fannie Mae and Freddie Mac and involve elevated credit risk as a result of the nature or absence of income documentation, limited credit histories, higher levels of consumer debt or past credit difficulties. Franklin purchased these loan portfolios at a discount to the unpaid principal balance and originated loans with interest rates and fees calculated to provide a rate of return adjusted to reflect the elevated credit risk inherent in these types of loans. Franklin originated nonprime loans through its wholly-owned subsidiary, Tribeca Lending Corp., and has generally held for investment the loans acquired and a significant portion of the loans originated. Franklin does not have significant exposure to repurchase


22


 

MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
 
loans sold to others as substantially all of its loans have been retained. The following table details our loan relationship with Franklin after the restructuring on December 28, 2007:
 
Table 2 — Commercial Loans to Franklin
 
                                         
                      Participated
       
(in thousands of dollars)   Franklin     Tribeca     Subtotal     to others     Total  
 
Variable rate, term loan (Facility A)
  $ 600,000     $ 400,000     $ 1,000,000     $ (175,303 )   $ 824,697  
Variable rate, subordinated term loan (Facility B)
    318,937       91,133       410,070       (73,994 )     336,076  
Fixed rate, junior subordinated term loan (Facility C)
    125,000             125,000       (8,224 )     116,776  
Line of credit facility(1)
    1,033             1,033             1,033  
Other variable rate term loans
    4,327       44,537       48,864       (22,269 )     26,595  
                                         
Subtotal
    1,049,297       535,670       1,584,967     $ (279,790 )   $ 1,305,177  
                                         
Participated to others
    (194,045 )     (85,745 )     (279,790 )                
                                         
Total principal owed to Huntington
    855,252       449,925       1,305,177                  
Amounts charged off
    (116,776 )           (116,776 )                
                                         
Total book value of loans
  $ 738,476     $ 449,925     $ 1,188,401                  
                                         
 
(1) The line of credit facility was not included in the restructuring.
 
The restructuring resulted in a total debt forgiveness of $300 million, of which Huntington forgave $280 million, which was recorded as a charge-off in 2007. In addition, we charged off our portion of the fixed-rate term loan of $117 million in 2007. These two loan charge-offs were reduced by the unamortized discount associated with the loan and by other amounts received from Franklin.
 
  3.  Unizan Acquisition. — The merger with Unizan was completed on March 1, 2006. At the time of acquisition, Unizan had assets of $2.5 billion, including $1.6 billion of loans and core deposits of $1.5 billion. Unizan results were included in our consolidated results for ten months of 2006. As a result, performance comparisons between 2006 and 2005 are affected. Significant activity related to the Unizan acquisition is indicated in the “Results of Operations” section.
 
  4.  Balance Sheet Restructuring. — In 2006, we utilized the excess capital resulting from the favorable resolution to certain federal income tax audits to restructure certain under-performing components of the balance sheet. Our actions included the review of $2.1 billion of securities for potential sale, the refinancing of a portion of our FHLB funding, and the sale of approximately $100 million of mortgage loans. The review of securities for sale resulted in an initial impairment of $57.3 million, which was recorded as a securities loss. The completion of this review resulted in an additional $9.0 million of securities losses, as well as $6.8 million of other-than-temporary impairment on certain sub-prime mortgage backed securities not included in the initial review. Total securities losses as a result of these actions totaled $73.1 million. The refinancing of FHLB funding and the sale of mortgage loans resulted in total charges of $4.4 million, resulting in total balance sheet restructuring costs of $77.5 million ($0.21 per common share).
 
  5.  Mortgage Servicing Rights (MSRs) and Related Hedging. — Included in net market-related losses are net losses or gains from our MSRs and the related hedging. Additional information regarding MSRs is located under the “Market Risk” heading of the “Risk Management and Capital” section. Net income included the following net impact of MSR hedging activity (see Table 10):
 
                                       
                          Per
 
    Net interest
  Non-interest
    Pretax
    Net
    common
 
(amounts in thousands except per common share)   income   income     income     income     share  
2007
  $ 5,797   $ (24,784 )   $ (18,987 )   $ (12,342 )   $ (0.04 )
2006
    36     3,586 (1)     3,622       2,354       0.01  
2005
    1,688     (9,006 )     (7,318 )     (4,757 )     (0.02 )
 
(1) Includes $5.1 million related to the positive impact of adopting SFAS No 156.
 
  6.  Other Net Market-Related Losses.  — Other net market-related losses include losses and gains related to the following market-driven activities: gains and losses from public equity investing included in other non-interest income, net securities gains and losses, net gains and losses from the sale of loans held-for-sale, and the impact from the extinguishment of debt.


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MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
 
  Total net market-related losses also include the net impact of MSRs and related hedging (see item 5 above). Net income included the following impact from other net market-related losses:
 
                                                       
    Securities
          Loss on
                    Per
 
    gains/
    Public equity
    loans
    Debt
  Pretax
    Net
    common
 
(amounts in thousands except per common share)   (losses)     investments     held-for-sale     extinguishment   income     income     share  
2007
  $ (30,486 )   $ (20,009 )   $ (34,003 )   $ 8,058   $ (76,440 )   $ (49,686 )   $ (0.16 )
2006
    (55 )     7,436                 7,381       4,798       0.02  
2005
    715                       715       465        
 
  7.  Visa® Indemnification. — Performance for 2007 included an accrual of $24.9 million ($16.2 million after-tax, or $0.05 per common share) for estimated indemnification losses arising from third-party litigation against Visa®. Management expects that the value of our future ownership in Visa®, currently not reflected in the financial statements, will ultimately more than offset this accrual. However, no assurance can be given that the proceeds received, if any, resulting from this future ownership would be sufficient to cover the accrued indemnity liabilities.
 
  8.  Effective Tax Rate. — Various items impacted the effective tax rates for 2007, 2006, and 2005. For 2007, our effective tax rate was favorably impacted by lower net income and the impact of tax exempt income, bank owned life insurance, asset securitization activities, and general business credits from investments in low income housing and historic property partnerships. For 2006, impacts included the effects of an $84.5 million ($0.35 per common share) reduction of provision for income taxes from the release of tax reserves as a result of the resolution of the federal income tax audit for 2002 and 2003, and the recognition of a federal tax loss carry back. For 2005, the effective tax rate benefited $26.9 million ($0.12 per common share) from the positive impact of a federal tax loss carry back, partially offset by a net $5.0 million after tax ($0.02 per common share) increase from the repatriation of foreign earnings.
 
  9.  Other Significant Items Influencing Earnings Performance Comparisons.  — In addition to the items discussed separately in this section, a number of other items impacted financial results. These included:
 
2007
 
  –  $10.8 million pretax negative impact primarily due to increases to litigation reserves on existing cases.
 
2006
 
  –  $10.0 million pretax contribution to the Huntington Foundation.
 
  –  $5.5 million pretax increase in automobile lease residual value losses. This increase reflected higher relative losses on certain vehicles sold at auction, most notably high-line imports and larger sport utility vehicles.
 
  –  $4.8 million in severance and consolidation pretax expenses. This reflected fourth quarter severance-related expenses associated with a reduction of 75 Regional Banking staff positions, as well as costs associated with the retirements of a vice chairman and an executive vice president.
 
  –  $3.7 million of Unizan pretax merger costs, primarily associated with systems conversion expenses.
 
  –  $3.3 million pretax gain on the sale of MasterCard® stock.
 
  –  $3.2 million pretax negative impact associated with the write-down of equity method investments.
 
  –  $2.3 million pretax unfavorable impact due to a cumulative adjustment to defer home equity annual fees.
 
2005
 
  –  $8.8 million pretax investment securities losses, resulting from the decision to reduce exposure to certain unsecured federal agency securities.
 
  –  $5.1 million of pretax severance and consolidation expenses associated with the consolidation of certain operations functions, including the closing of an item-processing center in Michigan.
 
  –  $3.7 million pretax expense associated with the closed SEC investigation and regulatory-related written agreements.
 
  –  $2.6 million pretax write-offs of equity investments.


24


 

MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
 
 
Table 4 reflects the earnings impact of the above-mentioned significant items for periods affected by this Discussion of Results of Operations:
 
Table 4 — Significant Items Influencing Earnings Performance Comparison(1)
 
                                                 
    2007     2006     2005  
(in thousands of dollars)   After-tax     EPS     After-tax     EPS     After-tax     EPS  
Net income — GAAP
  $ 75,169             $ 461,221             $ 412,091          
Earnings per share, after tax
          $ 0.25             $ 1.92             $ 1.77  
Change from prior year — $
            (1.67 )             0.15               0.06  
Change from prior year — %
            (87.0 )%             8.5 %             3.5 %
                                                 
                                                 
                                                 
Significant items — favorable (unfavorable) impact:     Earnings(2)       EPS(3)       Earnings(2)       EPS(3)       Earnings(2)       EPS(3)  
 
Franklin Credit relationship restructuring
  $ (423,645 )   $ (0.91 )   $     $     $     $  
Net market-related (losses) gains
    (95,427 )     (0.20 )     5,860       0.02       (6,603 )     (0.02 )
Merger costs
    (85,084 )     (0.18 )     (3,749 )     (0.01 )                
Visa® anti-trust indemnification
    (24,870 )     (0.05 )                        
Litigation losses
    (10,767 )     (0.02 )                        
Reduction to federal income tax expense(4)
                84,541       0.35              
MSR FAS 156 accounting change
                5,143       0.01              
Gain on sale of MasterCard® stock
                3,341       0.01              
Balance sheet restructuring
                (77,525 )     (0.21 )     (8,770 )     (0.02 )
Huntington Foundation contribution
                (10,000 )     (0.03 )            
Automobile lease residual value losses
                (5,549 )     (0.01 )            
Severance and consolidation expenses
                (4,750 )     (0.01 )     (5,064 )     (0.01 )
Accounting adjustment for certain equity investments
                (3,240 )     (0.01 )            
Adjustment to defer home equity annual fees
                (2,254 )     (0.01 )            
Net impact of federal tax loss carry back(4)
                            26,936       0.12  
Net impact of repatriating foreign earnings(4)
                            (5,040 )     (0.02 )
SEC and regulatory related expenses
                            (3,715 )     (0.01 )
Write-off of equity investments
                            (2,598 )     (0.01 )
 
(1) See Significant Factors Influencing Financial Performance discussion.
 
(2) Pre-tax unless otherwise noted.
 
(3) Based upon the annual average outstanding diluted common shares.
 
(4) After-tax.
 
Net Interest Income / Average Balance Sheet
 
(This section should be read in conjunction with Significant Items 1, 2, 3, 4, and 5.)
 
Our primary source of revenue is net interest income, which is the difference between interest income from earning assets (primarily loans, direct financing leases, and securities), and interest expense of funding sources (primarily interest bearing deposits and borrowings). Earning asset balances and related funding, as well as changes in the levels of interest rates, impact net interest income. The difference between the average yield on earning assets and the average rate paid for interest-bearing liabilities is the net interest spread. Non-interest bearing sources of funds, such as demand deposits and shareholders’ equity, also support earning assets. The impact of the non-interest bearing sources of funds, often referred to as “free” funds, is captured in the net interest margin, which is calculated as net interest income divided by average earning assets. Given the “free” nature of non-interest bearing sources of funds, the net interest margin is generally higher than the net interest spread. Both the net interest spread and net interest margin are presented on a fully-taxable equivalent basis, which means that tax-free interest income has been adjusted to a pre-tax equivalent income, assuming a 35% tax rate.


25


 

MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
 
Table 5 shows changes in fully-taxable equivalent interest income, interest expense, and net interest income due to volume and rate variances for major categories of earning assets and interest bearing liabilities.
 
Table 5 — Change in Net Interest Income Due to Changes in Average Volume and Interest Rates(1)
 
                                                 
    2007     2006  
    Increase (Decrease) From
    Increase (Decrease) From
 
    Previous Year Due To     Previous Year Due To  
Fully-taxable equivalent basis(2)
        Yield/
                Yield/
       
(in millions of dollars)   Volume     Rate     Total     Volume     Rate     Total  
Loans and direct financing leases
  $ 519.8     $ 97.8     $ 617.6     $ 100.7     $ 247.1     $ 347.8  
Securities
    (27.7 )     23.2       (4.5)       30.3       49.8       80.1  
Other earning assets
    60.2       2.4       62.6       (4.4 )     7.8       3.4  
 
Total interest income from earning assets
    552.3       123.4       675.7       126.6       304.7       431.3  
 
Deposits
    281.2       28.0       309.2       52.7       217.6       270.3  
Short-term borrowings
    18.3       2.3       20.6       12.6       25.3       37.9  
Federal Home Loan Bank advances
    32.2       10.4       42.6       9.5       15.8       25.3  
Subordinated notes and other long-term debt, including capital securities
    6.6       11.1       17.7       (21.5 )     59.9       38.4  
 
Total interest expense of interest-bearing liabilities
    338.3       51.8       390.1       53.3       318.6       371.9  
 
Net interest income
  $ 214.0     $ 71.6     $ 285.6     $ 73.3     $ (13.9 )   $ 59.4  
 
 
(1)  The change in interest rates due to both rate and volume has been allocated between the factors in proportion to the relationship of the absolute dollar amounts of the change in each.
 
(2)  Calculated assuming a 35% tax rate.
 
2007 versus 2006
 
Fully-taxable equivalent net interest income for 2007 increased $285.6 million, or 28%, from 2006. This reflected the favorable impact of a $7.9 billion, or 25%, increase in average earning assets, of which $7.3 billion represented an increase in average loans and leases, as well as the benefit of an increase in the fully-taxable net interest margin of seven basis points to 3.36%. The increase to average earning assets, and to average loans and leases, was primarily merger-related.
 
The following table details the estimated merger-related impacts on our reported loans and deposits:
 
Table 6 — Average Loans/Leases and Deposits — Estimated Merger-Related Impacts
 
                                                         
    Twelve Months Ended
                               
    December 31,     Change           Non-merger Related  
            Merger
     
(in millions)   2007     2006     Amount     %     Related     Amount     %(1)  
Loans/Leases
                                                       
Total commercial
  $ 17,443     $ 11,865     $ 5,578       47.0 %   $ 4,373     $ 1,205       7.4 %
Automobile loans and leases
    4,118       4,088       30       0.7       216       (186 )     (4.3 )
Home equity
    6,173       4,970       1,203       24.2       1,193       10       0.2  
Residential mortgage
    4,939       4,581       358       7.8       556       (198 )     (3.9 )
Other consumer
    529       439       90       20.5       72       18       3.5  
 
Total consumer
    15,759       14,078       1,681       11.9       2,037       (356 )     (2.2 )
 
Total loans
  $ 33,202     $ 25,943     $ 7,259       28.0 %   $ 6,410     $ 849       2.6 %
 
Deposits
                                                       
Demand deposits — non-interest bearing
  $ 4,438     $ 3,530     $ 908       25.7 %   $ 915     $ (7 )     (0.2 )%
Demand deposits — interest bearing
    3,129       2,138       991       46.4       730       261       9.1  
Money market deposits
    6,173       5,604       569       10.2       498       71       1.2  
Savings and other domestic time deposits
    3,895       2,992       903       30.2       1,297       (394 )     (9.2 )
Core certificates of deposit
    8,057       5,050       3,007       59.5       2,315       692       9.4  
 
Total core deposits
    25,692       19,314       6,378       33.0       5,755       623       2.5  
Other deposits
    5,374       4,870       504       10.3       672       (168 )     (3.0 )
 
Total deposits
  $ 31,066     $ 24,184     $ 6,882       28.5 %   $ 6,427     $ 455       1.5 %
 
 
(1) Calculated as non-merger related / (prior period + merger-related)


26


 

MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
 
The $0.8 billion, or 3%, non-merger-related increase in total average loans compared with the prior year primarily reflected a $1.2 billion, or 7%, increase in average total commercial loans. This increase was the result of strong growth in both middle-market commercial and industrial (C&I) loans and small business loans across substantially all regions. This was partially offset by a $0.4 billion, or 2%, decrease in average total consumer loans reflecting declines in automobile loans and leases and residential mortgages. These declines reflect weaker demand, a softer economy, as well as the continued impact of competitive pricing.
 
Average other earning assets increased $0.6 billion, primarily reflecting the increase in average trading account securities. The increase in these assets reflected a change in our strategy to use trading account securities to hedge the change in fair value of our mortgage servicing rights.
 
The $0.5 billion, or 1%, increase in total non-merger related average deposits primarily reflected a $0.6 billion, or 2%, increase in average total core deposits as interest bearing demand deposits grew $0.3 billion, or 9%. While there was also strong growth in core certificates of deposit, this was partially offset by the decline in savings and other domestic deposits, as customers transferred funds from lower rate to higher rate accounts. In 2007, we reduced our dependence on non-core funds (total liabilities less core deposits and accrued expenses and other liabilities) to 30% of total assets, down from 33% in 2006.
 
2006 versus 2005
 
Fully-taxable equivalent net interest income increased $59.4 million, or 6% ($59.0 million Unizan merger-related), from 2005, reflecting the favorable impact of a $2.1 billion, or 7%, increase in average earning assets, as the fully-taxable equivalent net interest margin declined 4 basis points to 3.29%. Average total loans and leases increased $1.6 billion, or 7% ($1.4 billion Unizan merger-related).
 
Average total commercial loans increased $1.2 billion, or 12% ($0.7 billion Unizan merger-related) from 2005. This growth reflected a $0.7 billion, or 15%, increase in average middle-market C&I loans, a $0.4 billion, or 12%, increase in average middle-market commercial real estate loans (CRE), 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 Unizan merger-related). Average home equity loans increased $0.2 billion, or 5%, but would have increased less than 1% were it not for the Unizan merger.
 
Average total investment securities increased $0.6 million, or 15%, from 2005.
 
Average total core deposits in 2006 increased $1.8 billion, or 10% ($1.3 billion Unizan merger-related), from 2005. Most of the increase reflected higher average core certificates of deposit, which increased $1.7 billion ($0.5 billion Unizan merger-related) resulting from continued customer demand for higher, fixed rate deposit products. Average interest bearing demand deposits increased $0.2 billion, primarily all merger-related, and average non-interest bearing deposits increased $0.2 billion ($0.1 billion merger-related). Average savings and other domestic time deposits declined $0.2 billion, despite $0.4 billion of increase related to the Unizan merger.
 
Table 7 shows average annual balance sheets and fully-taxable equivalent net interest margin analysis for the last five years. It details average balances for total assets and liabilities, as well as shareholders’ equity, and their various components, most notably loans and leases, deposits, and borrowings. It also shows the corresponding interest income or interest expense associated with each earning asset and interest bearing liability category along with the average rate with the difference resulting in the net interest spread. The net interest spread plus the positive impact from the non-interest bearing funds represents the net interest margin.


27


 

MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
 
Table 7 — Consolidated Average Balance Sheet and Net Interest Margin Analysis
 
                                                                         
    Average Balances  
                            Change from
                   
          Change from 2006           2005                    
Fully-taxable equivalent basis(1)
                                     
(in millions of dollars)   2007     Amount     %     2006     Amount     %     2005     2004     2003  
Assets
                                                                       
Interest bearing deposits in banks
  $ 260     $ 207       N.M. %   $ 53     $       %   $ 53     $ 66     $ 37  
Trading account securities
    642       550       N.M.       92       (115 )     (55.6 )     207       105       14  
Federal funds sold and securities purchased under resale agreement
    591       270       84.1       321       59       22.5       262       319       87  
Loans held for sale
    362       87       31.6       275       (43 )     (13.5 )     318       243       564  
Investment securities:
                                                                       
Taxable
    3,653       (544 )     (13.0 )     4,197       514       14.0       3,683       4,425       3,533  
Tax-exempt
    646       76       13.3       570       95       20.0       475       412       334  
 
Total investment securities
    4,299       (468 )     (9.8 )     4,767       609       14.6       4,158       4,837       3,867  
Loans and leases:(3)
Commercial:
                                                                       
Middle market commercial and industrial(4)
    8,252       2,694       48.5       5,558       741       15.4       4,817       4,456       4,633  
Construction(4)
    1,511       261       20.9       1,250       (428 )     (25.5 )     1,678       1,420       1,219  
Commercial(4)
    4,267       1,516       55.1       2,751       843       44.2       1,908       1,922       1,800  
 
Middle market commercial real estate
    5,778       1,777       44.4       4,001       415       11.6       3,586       3,342       3,019  
Small business commercial and industrial and commercial real estate(4)
    3,413       1,107       48.0       2,306       82       3.7       2,224       2,003       1,787  
 
Total commercial
    17,443       5,578       47.0       11,865       1,238       11.6       10,627       9,801       9,439  
 
Consumer:
                                                                       
Automobile loans
    2,633       576       28.0       2,057       14       0.7       2,043       2,285       3,260  
Automobile leases
    1,485       (546 )     (26.9 )     2,031       (391 )     (16.1 )     2,422       2,192       1,423  
 
Automobile loans and leases
    4,118       30       0.7       4,088       (377 )     (8.4 )     4,465       4,477       4,683  
Home equity
    6,173       1,203       24.2       4,970       218       4.6       4,752       4,244       3,400  
Residential mortgage
    4,939       358       7.8       4,581       500       12.3       4,081       3,212       2,076  
Other loans
    529       90       20.5       439       54       14.0       385       393       426  
 
Total consumer
    15,759       1,681       11.9       14,078       395       2.9       13,683       12,326       10,585  
 
Total loans and leases
    33,202       7,259       28.0       25,943       1,633       6.7       24,310       22,127       20,024  
Allowance for loan and lease losses
    (382 )     (95 )     33.1       (287 )     (19 )     7.1       (268 )     (298 )     (330 )
 
Net loans and leases
    32,820       7,164       27.9       25,656       1,614       6.7       24,042       21,829       19,694  
 
Total earning assets
    39,356       7,905       25.1       31,451       2,143       7.3       29,308       27,697       24,593  
 
Automobile operating lease assets
          (93 )     N.M.       93       (258 )     (73.5 )     351       891       1,697  
Cash and due from banks
    930       105       12.7       825       (20 )     (2.4 )     845       843       774  
Intangible assets
    2,019       1,452       N.M.       567       349       N.M.       218       216       218  
All other assets
    2,789       326       13.2       2,463       278       12.7       2,185       2,084       2,020  
 
Total Assets
  $ 44,712     $ 9,600       27.3 %   $ 35,112     $ 2,473       7.6 %   $ 32,639     $ 31,433     $ 28,972  
 
Liabilities and Shareholders’ Equity
                                                                       
Deposits:
                                                                       
Demand deposits — non-interest bearing
  $ 4,438     $ 908       25.7 %   $ 3,530     $ 151       4.5 %   $ 3,379     $ 3,230     $ 3,080  
Demand deposits — interest bearing
    3,129       991       46.4       2,138       218       11.4       1,920       1,953       1,822  
Money market deposits
    6,173       569       10.2       5,604       (134 )     (2.3 )     5,738       5,254       4,371  
Savings and other domestic time deposits
    3,895       903       30.2       2,992       (163 )     (5.2 )     3,155       3,431       3,462  
Core certificates of deposit
    8,057       3,007       59.5       5,050       1,716       51.5       3,334       2,689       3,115  
 
Total core deposits
    25,692       6,378       33.0       19,314       1,788       10.2       17,526       16,557       15,850  
Other domestic time deposits of $100,000 or more
    1,494       381       34.2       1,113       203       22.3       910       593       389  
Brokered time deposits and negotiable CDs
    3,239       (3 )     (0.1 )     3,242       123       3.9       3,119       1,837       1,419  
Deposits in foreign offices
    641       126       24.5       515       58       12.7       457       508       500  
 
Total deposits
    31,066       6,882       28.5       24,184       2,172       9.9       22,012       19,495       18,158  
Short-term borrowings
    2,245       445       24.7       1,800       421       30.5       1,379       1,410       1,600  
Federal Home Loan Bank advances
    2,027       658       48.1       1,369       264       23.9       1,105       1,271       1,258  
Subordinated notes and other long-term debt
    3,688       114       3.2       3,574       (490 )     (12.1 )     4,064       5,379       4,559  
 
Total interest bearing liabilities
    34,588       7,191       26.2       27,397       2,216       8.8       25,181       24,325       22,495  
 
All other liabilities
    1,054       (185 )     (14.9 )     1,239       (257 )     (17.2 )     1,496       1,504       1,201  
Shareholders’ equity
    4,632       1,686       57.2       2,946       363       14.1       2,583       2,374       2,196  
 
Total Liabilities and Shareholders’ Equity
  $ 44,712     $ 9,600       27.3 %   $ 35,112     $ 2,473       7.6 %   $ 32,639     $ 31,433     $ 28,972  
                                                                         
Net interest income
                                                                       
                                                                         
Net interest rate spread
                                                                       
Impact of non-interest bearing funds on margin
                                                                       
 
Net Interest Margin
                                                                       
                                                                         
 
N.M., not a meaningful value.
(1)  Fully-taxable equivalent (FTE) yields are calculated assuming a 35% tax rate.
(2)  Loan and lease and deposit average rates include impact of applicable derivatives and non-deferrable fees.
(3)  For purposes of this analysis, non-accrual loans are reflected in the average balances of loans.
(4)  2006 reflects a net reclassification of average balances and related interest income from small business commercial and industrial and commercial real estate to middle market commercial and industrial and middle market commercial real estate.


28


 

MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
 
 
 
                                                                             
Interest Income/Expense     Average Rate(2)  
2007     2006     2005     2004     2003     2007     2006     2005     2004     2003  
                                                                             
$ 12.5     $ 3.2     $ 1.1     $ 0.7     $ 0.6       4.80 %     6.00 %     2.16 %     1.05 %     1.53 %
  37.5       3.8       8.5       4.4       0.6       5.84       4.19       4.08       4.15       4.02  
  29.9       16.1       6.0       5.5       1.6       5.05       5.00       2.27       1.73       1.80  
  20.6       16.8       17.9       13.0       30.0       5.69       6.10       5.64       5.35       5.32  
                                                                             
  221.9       229.4       158.7       171.7       159.6       6.07       5.47       4.31       3.88       4.52  
  43.4       38.5       31.9       28.8       23.5       6.72       6.75       6.71       6.98       7.04  
                                                                             
  265.3       267.9       190.6       200.5       183.1       6.17       5.62       4.58       4.14       4.73  
                                                                             
                                                                             
  614.2       413.1       279.0       196.5       223.5       7.44       7.43       5.79       4.41       4.82  
  117.4       100.9       107.8       64.2       51.3       7.77       8.08       6.43       4.52       4.21  
  318.2       205.1       113.2       88.0       89.4       7.46       7.46       5.93       4.58       4.97  
                                                                             
  435.6       306.0       221.0       152.2       140.7       7.54       7.65       6.16       4.55       4.66  
  256.4       163.0       137.5       110.3       105.6       7.51       7.07       6.18       5.50       5.91  
                                                                             
  1,306.2       882.1       637.5       459.0       469.8       7.49       7.43       6.00       4.68       5.00  
                                                                             
                                                                             
  188.7       135.1       133.3       165.1       242.1       7.17       6.57       6.52       7.22       7.43  
  80.3       102.9       119.6       109.6       72.8       5.41       5.07       4.94       5.00       5.12  
                                                                             
  269.0       238.0       252.9       274.7       314.9       6.53       5.82       5.66       6.14       6.73  
  479.8       369.7       288.6       208.6       166.4       7.77       7.44       6.07       4.92       4.89  
  285.9       249.1       212.9       163.0       112.2       5.79       5.44       5.22       5.07       5.40  
  55.5       39.8       39.2       29.5       36.4       10.51       9.07       10.23       7.51       8.55  
                                                                             
  1,090.2       896.6       793.6       675.8       629.9       6.92       6.37       5.80       5.48       5.95  
                                                                             
  2,396.4       1,778.7       1,431.1       1,134.8       1,099.7       7.22       6.86       5.89       5.13       5.50  
                                                                             
                                                                             
                                                                             
                                                                             
  2,762.2       2,086.5       1,655.2       1,358.9       1,315.6       7.02       6.63       5.65       4.89       5.35  
                                                                             
                                                                             
                                                                             
                                                                             
                                                                             
                                                                             
                                                                             
                                                                             
                                                                             
                                                         
  40.3       19.3       10.6       8.3       10.0       1.29       0.90       0.55       0.42       0.55  
  232.5       193.1       124.9       65.8       63.0       3.77       3.45       2.18       1.25       1.44  
  90.7       50.2       42.9       44.1       67.7       2.33       1.68       1.36       1.28       1.96  
  391.3       214.8       118.7       90.4       114.3       4.86       4.25       3.56       3.36       3.67  
                                                                             
  754.8       477.4       297.1       208.6       255.0       3.55       3.02       2.10       1.56       2.00  
  75.7       55.6       30.8       11.3       4.6       5.07       4.99       3.39       1.90       1.17  
  175.4       169.1       109.4       33.1       24.1       5.41       5.22       3.51       1.80       1.70  
  20.5       15.1       9.6       4.1       4.6       3.19       2.93       2.10       0.82       0.92  
                                                                             
  1,026.4       717.2       446.9       257.1       288.3       3.85       3.47       2.40       1.58       1.91  
  92.8       72.2       34.3       13.0       15.7       4.13       4.01       2.49       0.93       0.98  
  102.6       60.0       34.7       33.3       24.4       5.06       4.38       3.13       2.62       1.94  
  219.6       201.9       163.5       132.5       128.5       5.96       5.65       4.02       2.46       2.82  
                                                                             
  1,441.4       1,051.3       679.4       435.9       456.9       4.17       3.84       2.70       1.79       2.03  
                                                                             
                                                                             
                                                                             
                                                                             
                                                                             
$ 1,320.8     $ 1,035.2     $ 975.8     $ 923.0     $ 858.7                                          
 
                                          2.85       2.79       2.95       3.10       3.32  
                                          0.51       0.50       0.38       0.23       0.17  
                                                                             
                                          3.36 %     3.29 %     3.33 %     3.33 %     3.49 %1


29


 

MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
 
Provision for Credit Losses
 
(This section should be read in conjunction with Significant Items 1, 2, 3, and the Credit Risk section.)
 
The provision for credit losses is the expense necessary to maintain the ALLL and the AULC at levels adequate to absorb our estimate of probable inherent credit losses in the loan and lease portfolio and the portfolio of unfunded loan commitments.
 
The provision for credit losses in 2007 was $643.6 million, up from $65.2 million in 2006, primarily reflecting a $405.8 million increase in the 2007 fourth-quarter provision related to Franklin. The remainder of the increase reflected the continued weakness in our Midwest markets, most notably among our borrowers in eastern Michigan and northern Ohio, and within the residential real estate development portfolio.
 
The provision for credit losses in 2006 was $65.2 million, down $16.1 million from 2005. The decrease reflected a decline in the transaction component of the ALLL at year-end compared with that at the end of 2005, due to a general improvement in the underlying risk of the loan portfolio. These improvements were reflected in the decline in the ALLL as a percent of period-end total loans and leases to 1.04% at December 31, 2006, from 1.10% in 2005.
 
Non-Interest Income
 
(This section should be read in conjunction with Significant Items 1, 3, 4, 5, 6, and 9.)
 
Table 8 reflects non-interest income for the three years ended December 31, 2007:
 
Table 8 — Non-Interest Income
 
                                                         
    Twelve Months Ended December 31,  
          Change from 2006           Change from 2005        
(in thousands of dollars)   2007     Amount     %     2006     Amount     %     2005  
Service charges on deposit accounts
  $ 254,193     $ 68,480       36.9 %   $ 185,713     $ 17,879       10.7 %   $ 167,834  
Trust services
    121,418       31,463       35.0       89,955       12,550       16.2       77,405  
Brokerage and insurance income
    92,375       33,540       57.0       58,835       5,216       9.7       53,619  
Other service charges and fees
    71,067       19,713       38.4       51,354       7,006       15.8       44,348  
Bank owned life insurance income
    49,855       6,080       13.9       43,775       3,039       7.5       40,736  
Mortgage banking
    29,804       (11,687 )     (28.2 )     41,491       13,158       46.4       28,333  
Securities losses
    (29,738 )     43,453       (59.4 )     (73,191 )     (65,136 )     N.M.       (8,055 )
Other income
    79,819       (40,203 )     (33.5 )     120,022       24,975       26.3       95,047  
 
Sub-total before automobile operating lease income
    668,793       150,839       29.1       517,954       18,687       3.7       499,267  
Automobile operating lease income
    7,810       (35,305 )     (81.9 )     43,115       (89,900 )     (67.6 )     133,015  
 
Total non-interest income
  $ 676,603     $ 115,534       20.6 %   $ 561,069     $ (71,213 )     (11.3 )%   $ 632,282  
                                                         
N.M., not a meaningful value.


30


 

MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
 
 
2007 versus 2006
 
Non-interest income increased $115.5 million, or 21%, from a year ago. The $137.4 million of merger-related non-interest income drove the increase, as non-merger-related non-interest income declined. The following table details the estimated merger-related impact on our reported non-interest income:
 
Table 9 — Non-Interest Income — Estimated Merger-Related Impact
 
                                                         
    Twelve Months Ended
                               
    December 31,     Change           Non-merger Related  
              Merger
     
(in thousands)   2007     2006     Amount     %     Related     Amount     %(1)  
Service charges on deposit accounts
  $ 254,193     $ 185,713     $ 68,480       36.9 %   $ 48,220     $ 20,260       8.7 %
Trust services
    121,418       89,955       31,463       35.0       14,018       17,445       16.8  
Brokerage and insurance income
    92,375       58,835       33,540       57.0       34,122       (582 )     (0.6 )
Other service charges and fees
    71,067       51,354       19,713       38.4       11,600       8,113       12.9  
Bank owned life insurance income
    49,855       43,775       6,080       13.9       3,614       2,466       5.2  
Mortgage banking income
    29,804       41,491       (11,687 )     (28.2 )     12,512       (24,199 )     (44.8 )
Securities losses
    (29,738 )     (73,191 )     43,453       (59.4 )     566       42,887       (59.1 )
Other income
    79,819       120,022       (40,203 )     (33.5 )     12,780       (52,983 )     (39.9 )
                                                         
Sub-total before automobile operating lease income
    668,793       517,954       150,839       29.1       137,432       13,407       2.0  
Automobile operating lease income
    7,810       43,115       (35,305 )     (81.9 )           (35,305 )     (81.9 )
 
Total non-interest income
  $ 676,603     $ 561,069     $ 115,534       20.6 %   $ 137,432     $ (21,898 )     (3.1 )%
                                                         
(1)  Calculated as non-merger related/(prior period + merger-related)
 
The $21.9 million, or 3%, decrease non-merger-related decline primarily reflected:
 
  –  $53.0 million, or 40%, decline in other income. This decline primarily reflected: (a) $34.0 million loss in 2007 on loans held-for-sale, and (b) $20.0 million of public equity investment losses in 2007 compared with $7.4 million of such gains in 2006.
 
  –  $35.3 million, or 82%, decline in automobile operating lease income.
 
  –  $24.2 million, or 45%, decrease in mortgage banking income primarily reflecting a $28.4 million net negative impact between periods related to MSR valuation, net of hedge-related trading activity (see Table 10).
 
Partially offset by:
 
  –  $42.9 million less in investment securities losses. Virtually all of the losses in 2006 related to the balance sheet restructuring (see “Significant Items”) and 2007 losses primarily related to the securities impairment losses recognized on certain investment securities.
 
  –  $20.3 million, or 9%, increase in service charges on deposit accounts, primarily reflecting higher personal and commercial service charge income.
 
  –  $17.4 million, or 17%, increase in trust services income. This increase reflected: (a) $9.7 million of revenues associated with the acquisition of Unified Fund Services, and (b) $4.8 million increase in Huntington Fund fees due to growth in Huntington Funds’ managed assets.
 
  –  $8.1 million, or 13%, increase in other service charges and fees primarily reflecting increased debit card fees due to higher volume.
 
2006 versus 2005
 
Non-interest income in 2006 decreased $71.2 million, or 11%, from 2005, including an $89.9 million decline in automobile operating lease income. Non-interest income before automobile operating lease income increased $18.7 million, or 4% ($23.9 million Unizan merger-related), reflecting:
 
  –  $23.1 million increase in other income ($7.1 million Unizan merger-related), primarily reflecting $7.0 million in higher equity investment gains, a $5.7 million increase in equipment operating lease income, a $3.3 million gain on sale of MasterCard® stock, and a $2.6 million increase in corporate derivative sales.
 
  –  $17.9 million, or 11% ($5.3 million Unizan merger-related), increase in service charges on deposit accounts, reflecting a $14.3 million, or 13%, increase in personal service charges, primarily non-sufficient fund/overdraft fees, and a $3.6 million, or 6%, increase in commercial service charge income.


31


 

MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
 
  –  $13.2 million, or 46%, increase in mortgage banking income, primarily reflecting a $12.6 million positive impact between years related to MSR valuation, net of hedge-related trading activity.
 
  –  $12.6 million, or 16% ($5.5 million merger-related), increase in trust services income, primarily reflecting (a) $6.5 million, or 18%, increase in personal trust income, mostly Unizan merger-related, and (b) $3.7 million, or 14%, increase in fees from Huntington Funds, reflecting 11% fund asset growth.
 
  –  $7.0 million, or 16% ($1.0 million Unizan merger-related), increase in other service charges and fees, primarily reflecting a $5.3 million, or 17%, increase in fees generated by higher debit card volume.
 
Partially offset by:
 
  –  $65.1 million increase in investment securities losses, reflecting the $73.2 million of investment securities impairment and losses during 2006 as the balance sheet restructuring was completed.
 
Table 10 — Mortgage Banking Income
 
                                                         
    Twelve Months Ended December 31,  
          Change from 2006           Change from 2005        
(In thousands of dollars)   2007     Amount     %     2006     Amount     %     2005  
Mortgage Banking Income
                                                       
Origination and secondary marketing
  $ 25,965     $ 7,748       42.5 %   $ 18,217     $ (6,717 )     (26.9 )%   $ 24,934  
Servicing fees
    36,012       11,353       46.0       24,659       2,478       11.2       22,181  
Amortization of capitalized servicing(1)
    (20,587 )     (5,443 )     35.9       (15,144 )     3,215       (17.5 )     (18,359 )
Other mortgage banking income
    13,198       3,025       29.7       10,173       1,590       18.5       8,583  
                                                         
Sub-total
    54,588       16,683       44.0       37,905       566       1.5       37,339  
MSR valuation adjustment(1)
    (16,131 )     (21,002 )     N.M.       4,871       500       11.4       4,371  
Net trading losses related to MSR hedging
    (8,653 )     (7,368 )     N.M.       (1,285 )     12,092       (90.4 )     (13,377 )
                                                         
Total mortgage banking income
  $ 29,804     $ (11,687 )     (28.2 )%   $ 41,491     $ 13,158       46.4 %   $ 28,333  
                                                         
                                                         
Capitalized mortgage servicing rights(2)
  $ 207,894     $ 76,790       58.6 %   $ 131,104     $ 39,845       43.7 %   $ 91,259  
MSR allowance(2)
          ——                   404       N.M.       (404 )
Total mortgages serviced for others (in millions) (2)
    15,088       6,836       82.8       8,252       976       13.4       7,276  
 
Net Impact of MSR Hedging
                                                       
MSR valuation adjustment(1)
  $ (16,131 )   $ (21,002 )     N.M. %   $ 4,871     $ 500       11.4 %   $ 4,371  
Net trading losses related to MSR hedging
    (8,653 )     (7,368 )     N.M.       (1,285 )     12,092       (90.4 )     (13,377 )
Net interest income related to MSR hedging
    5,797       5,761       N.M.       36       (1,652 )     (97.9 )     1,688  
 
Net impact of MSR hedging
  $ (18,987 )   $ (22,609 )     N.M. %   $ 3,622     $ 10,940       N.M. %   $ (7,318 )
                                                         
N.M., not a meaningful value.
 
(1)  The change in fair value for the period represents the MSR valuation adjustment, net of amortization of capitalized servicing.
 
(2)  At period end.


32


 

MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
 
 
Non-Interest Expense
 
(This section should be read in conjunction with Significant Items 1, 3, 4, 6, 7, and 9.)
 
Table 11 reflects non-interest expense for the three years ended December 31, 2007:
 
Table 11 — Non-Interest Expense
 
                                                         
    Twelve Months Ended December 31,  
          Change from 2006           Change from 2005        
(In thousands of dollars)   2007     Amount     %     2006     Amount     %     2005  
Salaries
  $ 557,254     $ 131,597       30.9 %   $ 425,657     $ 46,068       12.1 %   $ 379,589  
Benefits
    129,574       14,003       12.1       115,571       13,502       13.2       102,069  
                                                         
Personnel costs
    686,828       145,600       26.9       541,228       59,570       12.4       481,658  
Outside data processing and other services
    127,245       48,466       61.5       78,779       4,141       5.5       74,638  
Net occupancy
    99,373       28,092       39.4       71,281       189       0.3       71,092  
Equipment
    81,482       11,570       16.5       69,912       6,788       10.8       63,124  
Amortization of intangibles
    45,151       35,189       N.M.       9,962       9,133       N.M.       829  
Marketing
    46,043       14,315       45.1       31,728       5,449       20.7       26,279  
Professional services
    40,320       13,267       49.0       27,053       (7,516 )     (21.7 )     34,569  
Telecommunications
    24,502       5,250       27.3       19,252       604       3.2       18,648  
Printing and supplies
    18,251       4,387       31.6       13,864       1,291       10.3       12,573  
Other
    137,488       30,839       28.9       106,649       24,089       29.2       82,560  
                                                         
Sub-total before automobile operating lease expense
    1,306,683       336,975       34.8       969,708       103,738       12.0       865,970  
Automobile operating lease expense
    5,161       (26,125 )     (83.5 )     31,286       (72,564 )     (69.9 )     103,850  
                                                         
Total non-interest expense
  $ 1,311,844     $ 310,850       31.1 %   $ 1,000,994     $ 31,174       3.2 %   $ 969,820  
                                                         
N.M., not a meaningful value
 
2007 versus 2006
 
Non-interest expense increased $310.9 million, or 31%, from a year ago. This included $273.3 million of merger-related expenses, as well as $85.1 million of merger costs related to merger-integration activities. Non-merger-related non-interest expense declined. The following table details the estimated merger-related impact on our reported non-interest expense:
 
Table 12 — Non-Interest Expense — Estimated Merger-Related Impact
 
                                                                 
    Twelve Months Ended
                                     
    December 31,     Change                 Non-merger Related  
            Merger
    Merger
     
(in thousands)   2007     2006     Amount     Percent     Related     Costs     Amount     %(1)  
Personnel costs
  $ 686,828     $ 541,228     $ 145,600       26.9 %   $ 136,500     $ 31,183     $ (22,083 )     (3.1 )%
Outside data processing and other services
    127,245       78,779       48,466       61.5       24,524       18,527       5,415       4.4  
Net occupancy
    99,373       71,281       28,092       39.4       20,368       8,755       (1,031 )     (1.0 )
Equipment
    81,482       69,912       11,570       16.5       9,598       1,981       (9 )     (0.0 )
Amortization of intangibles
    45,151       9,962       35,189       353.2       34,862             327       0.7  
Marketing
    46,043       31,728       14,315       45.1       8,722       13,523       (7,930 )     (14.7 )
Professional services
    40,320       27,053       13,267       49.0       5,414       6,183       1,670       4.3  
Telecommunications
    24,502       19,252       5,250       27.3       4,448       1,150       (348 )     (1.4 )
Printing and supplies
    18,251       13,864       4,387       31.6       2,748       1,501       138       0.8  
Other expense
    137,488       106,649       30,839       28.9       26,096       2,281       2,462       1.8  
                                                                 
Sub-total before automobile operating lease expense
    1,306,683       969,708       336,975       34.8       273,280       85,084       (21,389 )     (1.6 )
Automobile operating lease expense
    5,161       31,286       (26,125 )     (83.5 )                 (26,125 )     (83.5 )
 
Total non-interest expense
  $ 1,311,844     $ 1,000,994     $ 310,850       31.1 %   $ 273,280     $ 85,084     $ (47,514 )     (3.5 )%
                                                                 
(1)  Calculated as non-merger related / (prior period + merger-related + merger-costs)
 
The $47.5 million, or 4%, non-merger-related decline primarily reflected:
 
  –  $26.1 million, or 84%, decline in automobile operating lease expense.
 
  –  $22.1 million, or 3%, decline in personnel costs reflecting merger efficiencies including the impact of the reductions to full-time equivalent staff during 2007.


33


 

MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
 
  –  $7.9 million, or 15%, decline in marketing expense.
 
Partially offset by:
 
  –  $5.4 million, or 4%, increase in outside data processing and other services expenses related to: (a) higher debit card transaction volume, and (b) additional expenditures related to technology-related initiatives.
 
  –  $2.5 million, or 2%, increase in other non-interest expense primarily reflecting: (a) $24.9 million Visa® indemnification charge, and (b) $10.8 million increase to litigation reserves, partially offset by (a) $10.0 million reduction in Huntington charitable foundation contribution, (b) $7.4 million reduction in lease residual value expenses, (c) $7.3 million gains on debt extinguishment, and (d) merger efficiencies.
 
2006 versus 2005
 
Non-interest expense in 2006 increased $31.2 million, or 3%, from 2005, despite a $72.6 million decline in automobile operating lease expense as that portfolio declined. Non-interest expense before automobile operating lease expense increased $103.7 million, or 12% ($59.7 million Unizan merger-related), reflecting:
 
  –  $59.6 million, or 12%, increase in personnel expense, with Unizan contributing $25.8 million, or 43%, of the increase. The remaining $33.8 million increase included a $17.0 million increase in share-based compensation, primarily related to the expensing of stock options, which began in 2006, and $9.0 million in higher performance and sales-related compensation.
 
  –  $24.1 million, or 29% ($10.0 million Unizan merger-related), increase in other expense, including a $10.0 million donation to the Huntington Foundation in the fourth quarter, $5.5 million of higher residual value losses on automobile leases, $3.7 million of Unizan merger costs, and $3.5 million related to the fourth quarter restructuring of certain FHLB advances.
 
  –  $9.1 million increase in the amortization of intangibles, substantially all Unizan merger-related.
 
  –  $6.8 million, or 11%, increase in equipment expense ($1.7 million Unizan merger-related), reflecting higher depreciation associated with recent technology investments.
 
  –  $5.4 million, or 21% ($0.9 million Unizan merger-related), increase in marketing expense, reflecting increased campaign and market research expenses.
 
  –  $4.1 million, or 6%, increase in outside data processing and other services ($1.7 million Unizan merger-related), with $2.0 million Unizan merger costs and a $1.7 million increase in debit card processing costs due to higher activity levels.
 
Partially offset by:
 
  –  $7.5 million, or 22%, decline in professional services expenses, despite Unizan adding $4.9 million, including a reduction in SEC/regulatory related expenses from 2005, as well as declines in collections and other consulting expenses.
 
Provision for Income Taxes
 
(This section should be read in conjunction with Significant Items 1, 3, 4, and 8.)
 
The provision for income taxes was a benefit of $52.5 million for 2007 compared with a $52.8 million provision in 2006 and a $131.5 million provision in 2005. The tax benefit in 2007 was a result of lower pretax income combined with the favorable impact of tax exempt income, bank owned life insurance, asset securitization activities, and general business credits from investments in low income housing and historic property partnerships. The 2006 provision for income taxes included a release of previously established federal income tax reserves due to the resolution of a federal income tax audit covering tax years 2002 and 2003, as well as the recognition of a federal tax loss carryback.
 
During 2007, the Internal Revenue Service commenced its audit of our consolidated federal income tax returns for tax years 2004 and 2005. In addition, we are subject to ongoing tax examinations in various jurisdictions. We believe that the resolution of these examinations will not have a significant adverse impact on our consolidated financial position or results of operations.


34


 

MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
 
RISK MANAGEMENT AND CAPITAL
 
Risk identification and monitoring are key elements in overall risk management. We believe our primary risk exposures are credit, market, liquidity, and operational risk. Credit risk is the risk of loss due to adverse changes in the borrower’s ability to meet its financial obligations under agreed upon terms. Market risk represents the risk of loss due to changes in the market value of assets and liabilities due to changes in interest rates, exchange rates, and equity prices. Liquidity risk arises from the possibility that funds may not be available to satisfy current or future commitments based on external macro market issues, investor perception of financial strength, and events unrelated to the company such as war, terrorism, or financial institution market specific issues. Operational risk arises from the inherent day-to-day operations of the company that could result in losses due to human error, inadequate or failed internal systems and controls, and external events.
 
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 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. Concentration risk is managed via limits on loan type, geography, industry, loan quality factors, and country limits. We continue to focus on extending credit to commercial customers with existing or expandable relationships within our primary banking markets. Also, we continue to focus on expanding existing relationships with our retail customers and adding new borrowers that meet our risk profile.
 
The checks and balances in the credit process and the independence of the credit administration and risk management functions are designed to assess the level of credit risk being accepted, facilitate the early recognition of credit problems when they do occur, and to provide for effective problem asset management and resolution.
 
Credit Exposure Mix
 
(This section should be read in conjunction with Significant Items 1, 2, and 3.)
 
As shown in Table 13, at December 31, 2007, our largest credit exposure was total commercial loans, which totaled $22.3 billion and represented 56% of total credit exposure. This portfolio was diversified among middle-market C&I loans, middle-market CRE loans, and small business loans (see “Commercial Credit” discussion below).
 
Total consumer loans were $17.7 billion at December 31, 2007, and represented 44% of total credit exposure. The consumer portfolio was diversified among home equity loans, residential mortgages, and automobile loans and leases (see “Consumer Credit” discussion below).
 
As a result of the Sky Financial acquisition in 2007, our mix of loans and leases between total commercial loans and total consumer loans changed, resulting in a higher percentage of total commercial loans than in prior years. We anticipate this higher percentage of total commercial loans to continue in the near-term. Also resulting from the Sky Financial acquisition were increases in total loans and leases across substantially all business segments.


35


 

MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
 
Table 13 — Loan and Lease Portfolio Composition
 
                                                                                 
    At December 31,  
(in millions of dollars)   2007     2006     2005     2004     2003  
Commercial(1)
                                                                               
Middle market commercial and industrial(2)
  $ 10,158       25.3 %   $ 5,961       22.8 %   $ 5,084       20.6 %   $ 4,666       19.3 %   $ 4,416       19.7 %
Construction
    1,946       4.9       1,229       4.7       1,522       6.2       1,602       6.6       1,264       5.6  
Commercial
    5,858       14.6       2,722       10.4       2,015       8.2       1,917       7.9       1,919       8.6  
 
Total middle market real estate
    7,804       19.5       3,951       15.1       3,537       14.4       3,519       14.5       3,183       14.2  
Small business commercial and industrial and commercial real estate
    4,347       10.8       2,442       9.2       2,224       9.1       2,118       8.8       1,887       8.4  
 
Total commercial
    22,309       55.6       12,354       47.1       10,845       44.1       10,303       42.6       9,486       42.3  
 
Consumer:
                                                                               
Automobile loans
    3,114       7.8       2,126       8.1       1,985       8.1       1,949       8.1       2,992       13.4  
Automobile leases
    1,180       2.9       1,769       6.8       2,289       9.3       2,443       10.1       1,902       8.5  
Home equity
    7,290       18.2       4,927       18.8       4,763       19.3       4,647       19.2       3,746       16.7  
Residential mortgage
    5,447       13.6       4,549       17.4       4,193       17.0       3,829       15.9       2,531       11.3  
Other loans
    715       1.7       428       1.7       397       1.4       389       1.7       418       2.0  
 
Total consumer
    17,746       44.2       13,799       52.8       13,627       55.1       13,257       55.0       11,589       51.9  
 
Total loans and direct financing leases
    40,055       99.8       26,153       99.9       24,472       99.2       23,560       97.6       21,075       94.2  
 
Automobile operating lease assets
    68       0.2       28       0.1       189       0.8       587       2.4       1,260       5.6  
Securitized loans
                                                    37       0.2  
 
Total credit exposure
  $ 40,123       100.0 %   $ 26,181       100.0 %   $ 24,661       100.0 %   $ 24,147       100.0 %   $ 22,372       100.0 %
 
Total automobile exposure(3)
  $ 4,362       10.9 %   $ 3,923       15.0 %   $ 4,463       18.1 %   $ 4,979       20.6 %   $ 6,191       27.7 %
 
                                                                                 
By Business Segment(4)
                                                                               
Regional Banking:
                                                                               
Central Ohio
  $ 5,110       12.8 %   $ 3,570       13.6 %                                                
Northwest Ohio
    2,284       5.7       462       1.8                                                  
Greater Cleveland
    3,097       7.7       1,920       7.3                                                  
Greater Akron/Canton
    2,021       5.0       1,326       5.1                                                  
Southern Ohio/Kentucky
    2,660       6.6       2,190       8.4                                                  
Mahoning Valley
    928       2.3                                                              
Ohio Valley
    870       2.2                                                              
West Michigan
    2,478       6.2       2,421       9.3                                                  
East Michigan
    1,750       4.4       1,630       6.2                                                  
Western Pennsylvania
    1,054       2.6                                                              
Pittsburgh
    901       2.2                                                              
Central Indiana
    1,421       3.5       963       3.7                                                  
West Virginia
    1,156       2.9       1,124       4.3                                                  
Other Regional(2)
    6,177       15.6       3,806       14.5                                                  
                                                                                 
Regional Banking
    31,907       79.7       19,412       74.2                                                  
Dealer Sales
    5,563       13.9