Huntington Bancshares Incorporated 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY PERIOD ENDED June 30, 2008

Commission File Number 1-34073

Huntington Bancshares Incorporated


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

41 South High Street, Columbus, Ohio 43287

Registrant’s telephone number (614) 480-8300

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

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


Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes þ No

There were 366,150,435 shares of Registrant’s common stock ($0.01 par value) outstanding on July 31, 2008.

Part 1. Financial Information

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

INTRODUCTION

Huntington Bancshares Incorporated (we or our) is a multi-state diversified financial holding company organized under Maryland law in 1966 and headquartered in Columbus, Ohio. Through our subsidiaries, 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, customized insurance service programs, 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, Nevada, New Jersey, New York, Tennessee, and Texas; Private Financial and Capital Markets Group offices in Florida; and Mortgage Banking offices in Maryland and New Jersey. Huntington 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. This discussion and analysis provides updates to the MD&A appearing in our 2007 Annual Report on Form 10-K (2007 Form 10-K), and should be read in conjunction with this discussion and analysis.

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 obtain funding, 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.

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: (a) 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; (b) merger revenue synergies may not be fully realized and/or within the expected timeframes; (c) changes in economic conditions; (d) movements in interest rates and spreads; (e) competitive pressures on product pricing and services; (f) success and timing of other business strategies; (g) the nature, extent, and timing of governmental actions and reforms; and (h) extended disruption of vital infrastructure. Additional factors that could cause results to differ materially from those described above can be found in Huntington’s 2007 Form 10-K, and documents subsequently filed by Huntington with the Securities and Exchange Commission (SEC).

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 that may adversely affect our financial condition or results of operation, 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 of loss due to loan and lease customers or other counter parties not being able to meet their financial obligations under agreed upon terms, (2) market risk, which is the risk of loss due to changes in the market value of assets and liabilities due to changes in market interest rates, foreign exchange rates, equity prices, and credit spreads, (3) liquidity risk, which is the risk of loss due to 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, and (4) operational risk, which is the risk of loss due to human error, inadequate or failed internal systems and controls, violations of, or noncompliance with, laws, rules, regulations, prescribed practices, or ethical standards, and external influences such as market conditions, fraudulent activities, disasters, and security risks. 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 2007 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 Unaudited Condensed Consolidated Financial Statements included in our 2007 Annual Report on Form 10-K as supplemented by this report lists significant accounting policies we use in the development and presentation of our financial statements. This discussion and analysis, the significant accounting policies, and other financial statement disclosures identify and address key variables and other qualitative and quantitative factors necessary for an understanding and evaluation of our company, financial position, results of operations, and cash flows.

An accounting estimate requires assumptions about uncertain matters that could have a material effect on the financial statements if a different amount within a range of estimates were used or if estimates changed from period to period. Readers of this report should understand that estimates are made under facts and circumstances at a point in time, and changes in those facts and circumstances could produce actual results that differ from when those estimates were made. The most significant accounting estimates and their related application are discussed in our 2007 Form 10-K. The following discussion provides an update of our accounting estimates related to goodwill.

Huntington accounts for goodwill in accordance with FASB Statement No. 142, Goodwill and Other Intangible Assets. The reporting units are tested for impairment annually as of October 1, to determine whether any goodwill impairment exists. Goodwill is also tested for impairment on an interim basis if an event occurs or circumstances change between annual tests that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Impairment losses, if any, would be reflected in non-interest expense.

Huntington uses judgment in assessing goodwill for impairment. Estimates of fair value are based primarily on the market capitalization of Huntington, adjusted for a control premium. Also considered are projections of cash flows considering historical and anticipated future results, and general economic and market conditions. Changes in market

capitalization, certain judgments, and projections could result in a significantly different estimate of the fair value of the reporting units and could result in an impairment of goodwill.

As a result of the continued economic weakness across our Midwest markets, our stock price declined significantly during the first six-month period of 2008. Therefore, we performed an impairment test of our goodwill as of June 30, 2008. Based upon the results of the test, no impairment to goodwill was required.

Recent Accounting Pronouncements and Developments

Note 2 to the Unaudited Condensed Consolidated Financial Statements discusses new accounting policies adopted during 2008 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 Unaudited Condensed Consolidated Financial Statements.

Acquisition of 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 has been included in our consolidated results since July 1, 2007. 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” and “Commercial Credit” sections of this report.

Given the significant impact of the merger on reported results, we believe that an understanding of the impacts of the merger and certain post-merger restructuring activities is necessary to better understand the 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 and restructuring 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 the merger, we combined Sky Financial’s operations with ours, and as such, we could no longer separately monitor the subsequent individual results of Sky Financial. As a result, the following methodologies were implemented to estimate the approximate effect of the Sky Financial merger used to determine “merger-related” impacts. 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.

Balance Sheet Items

For average loans and leases, as well as 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 2008 average balances, it was assumed that the June 30, 2007 balances, as adjusted, remained constant over time.

Income Statement Items

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 divided by two to estimate a quarterly 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.

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

We reported 2008 second quarter net income of $101.4 million or earnings per common share of $0.25. These results compared with net income of $127.1 million, or $0.35 per common share in the 2008 first quarter. Current quarter earnings per common share reflected a dilutive impact of $0.03 per common share, related to the convertible preferred stock issuance in April 2008. Comparisons with the prior quarter were also significantly impacted by a number of other factors that are discussed later in the “Significant Items Influencing Financial Performance Comparisons” section.

During the 2008 second quarter, the primary focus within our industry continued to be credit quality. The economy remained weak in our markets and continued to put stress on our borrowers. Our expectation is that the economy will remain under stress, and that no improvement will be seen until well into 2009. We do not anticipate that the economic environment will deteriorate materially, but neither do we expect any relief in the near term.

Given the current economic conditions discussed in the above paragraph, credit quality performance during the current quarter was consistent with our expectations. During the 2008 second quarter, the allowance for credit losses (ACL) increased 13 basis points to 1.80% compared with the prior quarter, and the net charge-off ratio increased 16 basis points to 0.64% compared with the prior quarter. We anticipate a 10-20 basis point increase in our ACL by year-end, and we have increased our expected full-year net charge-off ratio to 0.65%-0.70%. Nonaccrual loans (NALs) increased $157.7 million, or 42%. Our expectation is that NALs will continue to rise for the foreseeable future. We anticipate that the expected increases in NALs will be manageable, and will continue to be centered in our commercial real estate (CRE) loans to single-family homebuilders, and within our commercial and industrial (C&I) portfolio related to businesses that support residential development.

Capital also continued to be a major focus for us. We took several actions during the current quarter to strengthen our capital position and balance sheet, including: (a) the raising of $569 million of capital in the form of 8.50% Series A Non-Cumulative Perpetual Convertible Preferred Stock, (b) the on-balance sheet securitization of $887 million in automobile loans, (c) the sale of $473 million of mortgage loans, and (d) managing down our balances of non-relationship collateralized public fund deposits and related collateral securities.

The loan restructuring associated with our relationship with Franklin, completed during the 2007 fourth quarter, continued to perform consistent with our expectations. Cash flows exceeded the required debt payments, the loans continued to perform with interest accruing, and there were no net charge-offs or related provision for credit losses during the quarter. Based on the performance during the first six-month period of 2008, and continued expected cash flow performance and priority of cash flows, we removed $762 million, or 67%, of our total Franklin exposure from nonperforming asset status during the current quarter. Additionally, the total exposure to Franklin decreased $27 million, or 2%, compared with the prior quarter.

Fully taxable net interest income in the 2008 second quarter increased $13.2 million, or 3%, compared with the prior quarter. Our net interest margin increased 6 basis points resulting primarily from improved pricing on our core deposits. Average total loans and leases increased, particularly in our commercial loan portfolio, as loans grew in 10 of our 13 regions.

Non-interest income in the 2008 second quarter increased $0.7 million compared with the prior quarter. Significant items (see “Significant Items”) resulted in a net positive impact of $11.6 million in the current quarter compared with the prior quarter. Considering the impact of these items, fee income performance was strong for the current quarter. Service charges on deposit accounts increased 10%, and other service charges increased 12%, both reflecting continued underlying growth in deposits as well as a return to more seasonally adjusted levels. Core mortgage banking activities increased 20%, reflecting higher loan sale volumes and improved gains on mortgage loan sales.

Table 1 — Selected Quarterly Income Statement Data ^{(1), (2)}


	2008						2007
(in thousands, except per share amounts)	Second			First			Fourth			Third			Second

Interest income	$	696,675		$	753,411		$	814,398		$	851,155		$	542,461
Interest expense		306,809			376,587			431,465			441,522			289,070

Net interest income		389,866			376,824			382,933			409,633			253,391
Provision for credit losses		120,813			88,650			512,082			42,007			60,133

Net interest income (loss) after provision for credit losses		269,053			288,174			(129,149	)		367,626			193,258

Service charges on deposit accounts		79,630			72,668			81,276			78,107			50,017
Trust services		33,089			34,128			35,198			33,562			26,764
Brokerage and insurance income		35,694			36,560			30,288			28,806			17,199
Other service charges and fees		23,242			20,741			21,891			21,045			14,923
Bank owned life insurance income		14,131			13,750			13,253			14,847			10,904
Mortgage banking income (loss)		12,502			(7,063	)		3,702			9,629			7,122
Securities gains (losses)		2,073			1,429			(11,551	)		(13,152	)		(5,139	)
Other income (loss) ⁽³⁾		36,069			63,539			(3,500	)		31,830			34,403

Total non-interest income		236,430			235,752			170,557			204,674			156,193

Personnel costs		199,991			201,943			214,850			202,148			135,191
Outside data processing and other services		30,186			34,361			39,130			40,600			25,701
Net occupancy		26,971			33,243			26,714			33,334			19,417
Equipment		25,740			23,794			22,816			23,290			17,157
Amortization of intangibles		19,327			18,917			20,163			19,949			2,519
Marketing		7,339			8,919			16,175			13,186			8,986
Professional services		13,752			9,090			14,464			11,273			8,101
Telecommunications		6,864			6,245			8,513			7,286			4,577
Printing and supplies		4,757			5,622			6,594			4,743			3,672
Other expense⁽³⁾		42,876			28,347			70,133			29,754			19,334

Total non-interest expense		377,803			370,481			439,552			385,563			244,655

Income (loss) before income taxes		127,680			153,445			(398,144	)		186,737			104,796
Provision (benefit) for income taxes		26,328			26,377			(158,864	)		48,535			24,275

Net income (loss)	$	101,352		$	127,068		$	(239,280	)	$	138,202		$	80,521


Dividends declared on preferred shares		11,151			—			—			—			—


Net income (loss) applicable to common shares	$	90,201		$	127,068		$	(239,280	)	$	138,202		$	80,521

Average common shares — basic		366,206			366,235			366,119			365,895			236,032
Average common shares — diluted ⁽⁴⁾		367,234			367,208			366,119			368,280			239,008

Per common share

Net income (loss) — basic	$	0.25		$	0.35		$	(0.65	)	$	0.38		$	0.34
Net income (loss) — diluted		0.25			0.35			(0.65	)		0.38			0.34
Cash dividends declared		0.1325			0.2650			0.2650			0.2650			0.2650

Return on average total assets		0.73	%		0.93	%		(1.74	)%		1.02	%		0.92	%

Return on average total shareholders’ equity		6.4			8.7			(15.3	)		8.8			10.6

Return on average tangible shareholders’ equity ⁽⁵⁾		15.0			22.0			(30.7	)		19.7			13.5

Net interest margin⁽⁶⁾		3.29			3.23			3.26			3.52			3.26

Efficiency ratio⁽⁷⁾		56.9			57.0			73.5			57.7			57.8

Effective tax rate (benefit)		20.6			17.2			(39.9	)		26.0			23.2

Revenue — fully taxable equivalent (FTE)
Net interest income	$	389,866		$	376,824		$	382,933		$	409,633		$	253,391
FTE adjustment		5,624			5,502			5,363			5,712			4,127

Net interest income⁽⁶⁾		395,490			382,326			388,296			415,345			257,518
Non-interest income		236,430			235,752			170,557			204,674			156,193

Total revenue⁽⁶⁾	$	631,920		$	618,078		$	558,853		$	620,019		$	413,711


⁽¹⁾		Comparisons for presented periods are impacted by a number of factors. Refer to the “Significant Items Influencing Financial Performance Comparisons” for additional discussion regarding these key factors.

⁽²⁾		On July 1, 2007, Huntington acquired Sky Financial Group, Inc. Accordingly, the balances presented include the impact of the acquisition from that date.

⁽³⁾		Automobile operating lease income and expense is included in “Other Income” and “Other Expense”, respectively.

⁽⁴⁾		For the three months ended June 30, 2008, the impact of convertible preferred stock issued in April of 2008 totaling 39.8 million shares was excluded from the diluted share calculation. It was excluded because the result would have been higher than basic earnings per common share (anti-dilutive) for the period.

⁽⁵⁾		Net income excluding expense for amortization of intangibles for the period divided by average tangible shareholders’ equity. Average tangible shareholders’ equity equals average total stockholders’ equity less average intangible assets and goodwill. Expense for amortization of intangibles and average intangible assets are net of deferred tax liability, and calculated assuming a 35% tax rate.

⁽⁶⁾		On a fully taxable equivalent (FTE) basis assuming a 35% tax rate.

⁽⁷⁾		Non-interest expense less amortization of intangibles divided by the sum of FTE net interest income and non-interest income excluding securities gains (losses).

Table 2 — Selected Year to Date Income Statement Data ^{(1), (2)}


	Six Months Ended June 30,						Change
(in thousands, except per share amounts)	2008			2007			Amount			Percent

Interest income	$	1,450,086		$	1,077,410		$	372,676			34.6	%
Interest expense		683,396			568,464			114,932			20.2

Net interest income		766,690			508,946			257,744			50.6
Provision for credit losses		209,463			89,539			119,924			N.M.

Net interest income after provision for credit losses		557,227			419,407			137,820			32.9

Service charges on deposit accounts		152,298			94,810			57,488			60.6
Trust services		67,217			52,658			14,559			27.6
Brokerage and insurance income		72,254			33,281			38,973			N.M.
Other service charges and fees		43,983			28,131			15,852			56.4
Bank owned life insurance income		27,881			21,755			6,126			28.2
Mortgage banking income		5,439			16,473			(11,034	)		(67.0	)
Securities gains (losses)		3,502			(5,035	)		8,537			N.M.
Other income		99,608			59,297			40,311			68.0


Total non-interest income		472,182			301,370			170,812			56.7

Personnel costs		401,934			269,830			132,104			49.0
Outside data processing and other services		64,547			47,515			17,032			35.8
Net occupancy		60,214			39,325			20,889			53.1
Equipment		49,534			35,376			14,158			40.0
Amortization of intangibles		38,244			5,039			33,205			N.M.
Marketing		16,258			16,682			(424	)		(2.5	)
Professional services		22,842			14,583			8,259			56.6
Telecommunications		13,109			8,703			4,406			50.6
Printing and supplies		10,379			6,914			3,465			50.1
Other expense		71,223			42,760			28,463			66.6

Total non-interest expense		748,284			486,727			261,557			53.7

Income before income taxes		281,125			234,050			47,075			20.1
Provision for income taxes		52,705			57,803			(5,098	)		(8.8	)

Net income	$	228,420		$	176,247		$	52,173			29.6	%

Dividends declared on preferred shares		11,151			—			11,151			—

Net income applicable to common shares	$	217,269		$	176,247		$	41,022			23.3

Average common shares — basic		366,221			235,809			130,412			55.3	%
Average common shares — diluted ⁽³⁾		387,322			238,881			148,441			62.1

Per common share
Net income per common share — basic	$	0.59		$	0.75		$	(0.16	)		(21.3	)
Net income per common share — diluted		0.59			0.74			(0.15	)		(20.3	)%
Cash dividends declared		0.3975			0.5300			(0.1325	)		(25.0	)

Return on average total assets		0.83	%		1.01	%		(0.18	)%		(17.8	)%
Return on average total shareholders’ equity		7.5			11.7			(4.2	)		(35.9	)
Return on average tangible shareholders’ equity ⁽⁴⁾		18.2			14.9			3.3			22.1
Net interest margin ⁽⁵⁾		3.26			3.31			(0.05	)		(1.5	)
Efficiency ratio ⁽⁶⁾		57.0			58.5			(1.5	)		(2.6	)
Effective tax rate ⁽⁵⁾		18.7			24.7			(6.0	)		(24.3	)

Revenue — fully taxable equivalent (FTE)
Net interest income	$	766,690		$	508,946		$	257,744			50.6	%
FTE adjustment ⁽⁵⁾		11,126			8,174			2,952			36.1

Net interest income		777,816			517,120			260,696			50.4
Non-interest income		472,182			301,370			170,812			56.7

Total revenue	$	1,249,998		$	818,490		$	431,508			52.7	%


N.M.,		not a meaningful value.

⁽¹⁾		Comparisons for presented periods are impacted by a number of factors. Refer to the ‘Significant Items Influencing Financial Performance Comparisons’ for additional discussion regarding these key factors.

⁽²⁾		On July 1, 2007, Huntington acquired Sky Financial Group, Inc. Accordingly, the balances presented include the impact of the acquisition from that date.

⁽³⁾		For the six months ended June 30, 2008, the impact of the convertible preferred stock issued in April of 2008 totaling 20.1 millon shares was included in the diluted share calculation. It was included because the result was less than basic earnings per share (dilutive) on a year-to-date basis.

⁽⁴⁾		Net income excluding expense of amortization of intangibles (net of tax) for the period divided by average tangible common shareholders’ equity. Average tangible common shareholders’ equity equals average total common shareholders’ equity less average intangible assets and goodwill. Expense for amortization of intangibles and average intangible assets are net of deferred tax liability, and calculated assuming a 35% tax rate.

⁽⁵⁾		On a fully taxable equivalent (FTE) basis assuming a 35% tax rate.

⁽⁶⁾		Non-interest expense less amortization of intangibles divided by the sum of FTE net interest income and non-interest income excluding securities gains/(losses).

Significant Items

Definition of 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 is judged to be one-time, short-term in nature, and/or materially outside typically expected performance. Examples would be (a) 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.; (b) changes in an accounting principle; (c) large tax assessments/refunds; (d) a large gain/loss on the sale of an asset; and (e) outsized commercial loan net charge-offs related to fraud; and similar events that could occur. 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 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, readers of this report 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 from the beginning of 2007 through the 2008 second quarter were impacted by a number of significant items summarized below.

Sky Financial Acquisition. The merger with Sky Financial was completed on July 1, 2007. The impacts of the quarterly 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 and post-merger restructuring activities, most notably employee retention bonuses, outside programming services related to systems conversions, and marketing expenses related to customer retention initiatives. These net merger and restructuring costs were $14.6 million in the 2008 second quarter, $7.3 million in the 2008 first quarter, $44.4 million in the 2007 fourth quarter, $32.3 million in the 2007 third quarter, $7.6 million in the 2007 second quarter, and $0.8 million in the 2007 first quarter.

	2.		Franklin Relationship Restructuring. Performance for the 2007 fourth quarter included a $423.6 million ($0.75 per common share based upon the quarterly 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.

	3.		Visaâ Initial Public Offering (IPO). Performance for the 2008 first quarter included the positive impact of $37.5 million ($0.07 per common share) related to the Visa^® IPO occurring in March of 2008. This impact was comprised of two components: (a) $25.1 million gain, recorded in other non-interest income, resulting from the proceeds of the IPO, and (b) $12.4 million partial reversal of the 2007 fourth quarter accrual of $24.9 million ($0.04 per common share) for indemnification charges against Visa^®, recorded in other non-interest expense.

	4.		Mortgage Servicing Rights (MSRs) and Related Hedging. Included in total 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):

(in thousands, except per common share)


	Net interest		Non-interest			Pretax			Net			Per common
Period	income		income			income			income			share
1Q’07	$	—	$	(2,018	)	$	(2,018	)	$	(1,312	)	$	(0.01	)
2Q’07		248		(4,998	)		(4,750	)		(3,088	)		(0.01	)
3Q’07		2,357		(6,002	)		(3,645	)		(2,369	)		(0.01	)
4Q’07		3,192		(11,766	)		(8,574	)		(5,573	)		(0.02	)

2007	$	5,797	$	(24,784	)	$	(18,987	)	$	(12,342	)	$	(0.04	)

1Q’08	$	5,934	$	(24,706	)	$	(18,772	)	$	(12,202	)	$	(0.03	)
2Q’08		9,364		(10,697	)		(1,333	)		(866	)		—

2008	$	15,298	$	(35,403	)	$	(20,105	)	$	(13,068	)	$	(0.03	)

During the 2008 second quarter, we engaged an independent party to provide improved analytical tools and insight to enhance our strategies with the objective to decrease the volatility from MSR fair value changes. This change is reflected in the improvement in our net impact of MSR hedging during the current quarter.

Other Net Market-Related Gains or Losses. Other net market-related gains or losses included gains and losses 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, and the impact from the extinguishment of debt. Total net market-related losses also include the net impact of MSRs and related hedging (see item 4 above). Net income included the following impact from other net market-related losses:

(in thousands, except per common share)


	Securities						Net			Debt
	gains/			Equity Fund			Gain / (loss)			extinguish-		Pretax			Net			Per common
Period	(losses)			investments			on loans sold			ment		income			income			share
1Q’07	$	104		$	(8,530	)	$	—		$	—	$	(8,426	)	$	(5,477	)	$	(0.02	)
2Q’07		(5,139	)		2,301			—			4,090		1,252			814			—
3Q’07		(13,900	)		(4,387	)		—			3,968		(14,319	)		(9,307	)		(0.03	)
4Q’07		(11,551	)		(9,393	)		(34,003	)		—		(54,947	)		(35,716	)		(0.09	)

2007	$	(30,486	)	$	(20,009	)	$	(34,003	)	$	8,058	$	(76,440	)	$	(49,686	)	$	(0.16	)

1Q’08	$	1,429		$	(2,668	)	$	—		$	—	$	(1,239	)	$	(805	)	$	—
2Q’08		2,073			(4,609	)		(5,131	)		2,177		(5,490	)		(3,569	)		(0.01	)

2008	$	3,502		$	(7,277	)	$	(5,131	)	$	2,177	$	(6,729	)	$	(4,374	)	$	—

6.		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:

		*2008*- Second Quarter

•

$3.4 million ($0.01 per common share) benefit to provision for income taxes, representing a reduction to the previously established capital loss carry-forward valuation allowance related to the value of Visa^®shares held.

2008- First Quarter

	•		$11.1 million ($0.03 per common share) benefit to provision for income taxes, representing a reduction to the previously established capital loss carry-forward valuation allowance as a result of the 2008 first quarter Visa^® IPO.

	•		$11.0 million ($0.02 per common share) of asset impairment, including (a) $5.9 million venture capital loss, (b) $2.6 million charge off of a receivable, and (c) $2.5 million write-down of leasehold improvements in our Cleveland main office.

2007- Fourth Quarter

•

$8.9 million ($0.02 per common share) negative impact primarily due to increases to litigation reserves on existing cases.

2007- First Quarter

•

$1.9 million ($0.01 per common share) negative impact primarily due to increases to litigation reserves on existing cases.

Table 3 reflects the earnings impact of the above-mentioned significant items for periods affected by this Results of Operations discussion:

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


	Three Months Ended
	June 30,2008					March 31,2008					June 30,2007
(in millions)	After-tax		EPS			After-tax		EPS			After-tax		EPS

Net income — reported earnings	$	101.4				$	127.1				$	80.5
Earnings per share, after tax			$	0.25				$	0.35				$	0.34
Change from prior quarter — $			$	(0.10	)				1.00					(0.06	)
Change from prior quarter — %				(28.6	)%				N.M.	%				(15.0	)%

Change from a year-ago — $			$	(0.09	)			$	(0.05	)			$	(0.12	)
Change from a year-ago — %				(26.5	)%				(12.5)	%				(26.1	)%


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

Deferred tax valuation allowance benefit ⁽³⁾	$	3.4		$	0.01		$	11.1		$	0.02		$	—		$	—
Merger and restructuring costs		(14.6	)		(0.03	)		(7.3	)		(0.01	)		(7.6	)		(0.02	)
Net market-related losses		(6.8	)		(0.01	)		(20.0	)		(0.04	)		(3.5	)		(0.01	)
Aggregate impact of Visa^{^®}IPO		—			—			37.5			0.07			—			—
Asset impairment		—			—			(11.0	)		(0.02	)		—			—


	Six Months Ended
	June 30,2008					June 30,2007
(in millions)	After-tax		EPS			After-tax		EPS

Net income — reported earnings	$	228.4				$	176.2
Earnings per share, after tax			$	0.59				$	0.74
Change from a year-ago — $				(0.15	)				(0.16	)
Change from a year-ago — %				(20.3	)%				(17.8	)%


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

Aggregate impact of Visa^{^®}IPO	$	37.5			0.06		$	—			—
Deferred tax valuation allowance benefit ⁽³⁾		14.5			0.02			—			—
Net market-related losses		(26.9	)		(0.05	)		(13.9	)		(0.04	)
Merger and restructuring costs		(21.9	)		(0.04	)		(8.4	)		(0.02	)
Asset impairment		(11.0	)		(0.02	)		—			—
Litigation losses		—			—			(1.9	)		(0.01	)


N.M., not a meaningful value.

⁽¹⁾		Refer to the “Significant Items Influencing Financial Performance Comparisons” section for additional discussion regarding these items.

⁽²⁾		Pre-tax unless otherwise noted.

⁽³⁾		After-tax.

Net Interest Income / Average Balance Sheet
(This section should be read in conjunction with Significant Items 1, 2, and 4.)

2008 Second Quarter versus 2007 Second Quarter

Fully taxable equivalent net interest income increased $138.0 million, or 54%, compared with the year-ago quarter. This reflected the favorable impact of a $16.6 billion, or 52%, increase in average earning assets, with $14.6 billion representing an increase in average loans and leases, and a 3 basis point increase in the net interest margin to 3.29%. The increase in average earning assets, including loans and leases, was primarily Sky Financial merger-related. Table 4 details the $14.6 billion reported increase in average loans and leases.

Table 4 — Average Loans/Leases and Deposits — Estimated Merger Related Impacts — 2Q’08 vs. 2Q’07


	Second Quarter				Change					Merger		Non-merger Related
(in millions)	2008		2007		Amount		Percent			Related		Amount			% ⁽¹⁾
Net interest income - FTE	$ 395,490		$ 257,518		$ 137,972		53.6 %			$ 151,592		$ (13,620)			(3.3) %
Average Loans and Deposits
(in millions)
Loans/Leases
Commercial and industrial	$	13,631	$	8,167	$	5,464		66.9	%	$	4,775	$	689			5.3	%
Commercial real estate		9,601		4,651		4,950		N.M.			3,971		979			11.4

Total commercial	$	23,232	$	12,818	$	10,414		81.2	%	$	8,746	$	1,668			7.7	%


Automobile loans and leases	$	4,551	$	3,873	$	678		17.5	%	$	432	$	246			5.7	%
Home equity		7,365		4,973		2,392		48.1			2,385		7			0.1
Residential mortgage		5,178		4,351		827		19.0			1,112		(285	)		(5.2	)
Other consumer		699		424		275		64.9			143		132			23.3

Total consumer		17,793		13,621		4,172		30.6			4,072		100			0.6

Total loans	$	41,025	$	26,439	$	14,586		55.2	%	$	12,818	$	1,768			4.5	%


Deposits
Demand deposits — non-interest bearing	$	5,061	$	3,591	$	1,470		40.9	%	$	1,829	$	(359	)		(6.6	)%
Demand deposits — interest bearing		4,086		2,404		1,682		70.0			1,460		222			5.7
Money market deposits		6,267		5,466		801		14.7			996		(195	)		(3.0	)
Savings and other domestic time deposits		5,047		2,931		2,116		72.2			2,594		(478	)		(8.7	)
Core certificates of deposit		10,952		5,591		5,361		95.9			4,630		731			7.2

Total core deposits		31,413		19,983		11,430		57.2			11,509		(79	)		(0.3	)
Other deposits		6,614		4,290		2,324		54.2			1,342		982			17.4

Total deposits	$	38,027	$	24,273	$	13,754		56.7	%	$	12,851	$	903			2.4	%


N.M., not a meaningful value.

⁽¹⁾		Calculated as non-merger related / (prior period + merger-related)

The $1.8 billion, or 5%, non-merger-related increase in average total loans and leases primarily reflected:

	•		$1.7 billion, or 8%, increase in average total commercial loans, with growth reflected in both C&I and CRE loans. The growth in CRE was primarily to existing borrowers with a focus on traditional income producing property types and was not related to the single family home builder segment.

	•		$0.1 billion, or 1%, increase in average total consumer loans. This reflected growth in automobile loans and leases and other consumer loans, partially offset by a decline in residential mortgages due to loan sales in the current and year-ago quarters. Average home equity loans were little changed.

Regarding average total deposits, most of the increase was merger-related. The $0.9 billion non-merger-related increase reflected:

•

$1.0 billion, or 17%, growth in other deposits, primarily other domestic deposits over $100,000, reflecting increases in commercial and public funds deposits.

Partially offset by:

•

$0.1 billion decrease in average total core deposits. This reflected a decline in non-interest bearing demand deposits, a planned reduction in non-relationship collateralized public fund deposits, as well as a decline in average savings and other domestic deposits and money market deposits, as customers continued to transfer funds from lower rate to higher rate accounts like certificates of deposits. Offsetting these declines was continued growth in core certificates of deposit, as well as in interest bearing demand deposits.

2008 Second Quarter versus 2008 First Quarter

Compared with the 2008 first quarter, fully taxable equivalent net interest income increased $13.2 million, or 3%. This reflected the positive impact of a higher net interest margin and an increase in average earning assets, primarily loans. The net interest margin was 3.29% in the current quarter, up 6 basis points. The 6 basis point increase reflected:

	•		5 basis points positive impact primarily due to improved pricing of core deposits.

	•		2 basis points increase related to the funding provided by the convertible preferred capital issuance.

Partially offset by:

•

1 basis point decrease related to earning asset mix.

The $0.7 billion, or 2%, increase in average total loans and leases reflected 3% growth in average total commercial loans. The 2008 second quarter growth was comprised primarily of new or increased loan facilities to existing borrowers. This growth was not related to the single family home builder segment or funding interest coverage on existing construction loans. Average total consumer loans increased slightly, led by growth in automobile loans and leases and modest growth in home equity, partially offset by declines in residential mortgages and other consumer loans. During the current quarter, $473 million residential mortgage loans were sold to improve our interest rate risk position and overall balance sheet.

Average total deposits were $38.0 billion, up slightly compared with the prior quarter. There were changes between the various deposit account categories consisting of:

•

$0.2 billion, or 3%, increase in other deposits.

Partially offset by:

•

$0.1 billion decline in average total core deposits. The primary driver of the change was a planned reduction in non-relationship collateralized public fund deposits.

Tables 5 and 6 reflect quarterly average balance sheets and rates earned and paid on interest-earning assets and interest-bearing liabilities.

Table 5 — Consolidated Quarterly Average Balance Sheets

Fully taxable equivalent basis


	Average Balances															Change
	2008						2007									2Q08 vs 2Q07
(in millions)	Second			First			Fourth			Third			Second			Amount			Percent

Assets
Interest bearing deposits in banks	$	256		$	293		$	324		$	292		$	259		$	(3	)		(1.2)	%
Trading account securities		1,243			1,186			1,122			1,149			230			1,013			N.M.
Federal funds sold and securities purchased under resale agreements		566			769			730			557			574			(8	)		(1.4	)
Loans held for sale		501			565			493			419			291			210			72.2
Investment securities:
Taxable		3,971			3,774			3,807			3,951			3,253			718			22.1
Tax-exempt		717			703			689			675			629			88			14.0

Total investment securities		4,688			4,477			4,496			4,626			3,882			806			20.8
Loans and leases:⁽¹⁾
Commercial:
Commercial and industrial		13,631			13,343			13,270			13,036			8,167			5,464			66.9
Commercial real estate:
Construction		2,038			2,014			1,892			1,815			1,258			780			62.0
Commercial		7,563			7,273			7,161			7,165			3,393			4,170			N.M.

Commercial real estate		9,601			9,287			9,053			8,980			4,651			4,950			N.M.

Total commercial		23,232			22,630			22,323			22,016			12,818			10,414			81.2

Consumer:
Automobile loans		3,636			3,309			3,052			2,931			2,322			1,314			56.6
Automobile leases		915			1,090			1,272			1,423			1,551			(636	)		(41.0	)

Automobile loans and leases		4,551			4,399			4,324			4,354			3,873			678			17.5
Home equity		7,365			7,274			7,297			7,468			4,973			2,392			48.1
Residential mortgage		5,178			5,351			5,437			5,456			4,351			827			19.0
Other loans		699			713			728			534			424			275			64.9

Total consumer		17,793			17,737			17,786			17,812			13,621			4,172			30.6

Total loans and leases		41,025			40,367			40,109			39,828			26,439			14,586			55.2
Allowance for loan and lease losses		(654	)		(630	)		(474	)		(475	)		(297	)		(357	)		N.M.

Net loans and leases		40,371			39,737			39,635			39,353			26,142			14,229			54.4

Total earning assets		48,279			47,657			47,274			46,871			31,675			16,604			52.4

Cash and due from banks		943			1,036			1,098			1,111			748			195			26.1
Intangible assets		3,449			3,472			3,440			3,337			626			2,823			N.M.
All other assets		3,522			3,350			3,142			3,124			2,398			1,124			46.9

Total Assets	$	55,539		$	54,885		$	54,480		$	53,968		$	35,150		$	20,389			58.0	%
																-

Liabilities and Shareholders’ Equity
Deposits:
Demand deposits — non-interest bearing	$	5,061		$	5,034		$	5,218		$	5,384		$	3,591		$	1,470			40.9	%
Demand deposits — interest bearing		4,086			3,934			3,929			3,808			2,404			1,682			70.0
Money market deposits		6,267			6,753			6,845			6,869			5,466			801			14.7
Savings and other domestic deposits		5,047			5,004			5,012			5,127			2,931			2,116			72.2
Core certificates of deposit		10,952			10,796			10,674			10,425			5,591			5,361			95.9

Total core deposits		31,413			31,521			31,678			31,613			19,983			11,430			57.2
Other domestic deposits of $100,000 or more		2,143			1,983			1,731			1,610			1,056			1,087			N.M.
Brokered deposits and negotiable CDs		3,361			3,542			3,518			3,728			2,682			679			25.3
Deposits in foreign offices		1,110			885			748			701			552			558			N.M.

Total deposits		38,027			37,931			37,675			37,652			24,273			13,754			56.7
Short-term borrowings		2,854			2,772			2,489			2,542			2,075			779			37.5
Federal Home Loan Bank advances		3,412			3,389			3,070			2,553			1,329			2,083			N.M.
Subordinated notes and other long-term debt		3,928			3,814			3,875			3,912			3,470			458			13.2

Total interest bearing liabilities		43,160			42,872			41,891			41,275			27,556			15,604			56.6

All other liabilities		963			1,104			1,160			1,103			960			3			0.3
Shareholders’ equity		6,355			5,875			6,211			6,206			3,043			3,312			N.M.

Total Liabilities and Shareholders’ Equity	$	55,539		$	54,885		$	54,480		$	53,968		$	35,150		$	20,389			58.0	%
																-


		N.M., not a meaningful value.

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

Table 6 — Consolidated Quarterly Net Interest Margin Analysis

Fully taxable equivalent basis ⁽¹⁾


	Average Rates⁽²⁾
	2008						2007
Fully taxable equivalent basis ⁽¹⁾	Second			First			Fourth			Third			Second

Assets
Interest bearing deposits in banks		2.77	%		3.97	%		4.30	%		4.69	%		6.47	%
Trading account securities		5.13			5.27			5.72			6.01			5.74
Federal funds sold and securities purchased under resale agreements		2.08			3.07			4.59			5.26			5.28
Loans held for sale		5.98			5.41			5.86			5.13			5.79
Investment securities:
Taxable		5.50			5.71			5.98			6.09			6.11
Tax-exempt		6.77			6.75			6.74			6.78			6.69

Total investment securities		5.69			5.88			6.10			6.19			6.20
Loans and leases:⁽³⁾
Commercial:
Commercial and industrial		5.53			6.32			6.92			7.70			7.36
Commercial real estate:
Construction		4.81			5.86			7.24			7.70			7.63
Commercial		5.47			6.27			7.09			7.63			7.35

Commercial real estate		5.32			6.18			7.12			7.65			7.42

Total commercial		5.45			6.27			7.00			7.68			7.38

Consumer:
Automobile loans		7.12			7.25			7.31			7.25			7.10
Automobile leases		5.59			5.53			5.52			5.56			5.34

Automobile loans and leases		6.81			6.82			6.78			6.70			6.39
Home equity		6.43			7.21			7.81			7.94			7.63
Residential mortgage		5.78			5.86			5.88			6.06			5.61
Other loans		9.98			10.43			10.91			11.48			9.57

Total consumer		6.48			6.84			7.10			7.17			6.69

Total loans and leases		5.89			6.51			7.05			7.45			7.03

Total earning assets		5.85	%		6.40	%		6.88	%		7.25	%		6.92	%


Liabilities and Shareholders’ Equity
Deposits:
Demand deposits — non-interest bearing		—	%		—	%		—	%		—	%		—	%
Demand deposits — interest bearing		0.55			0.82			1.14			1.53			1.22
Money market deposits		1.76			2.83			3.67			3.78			3.85
Savings and other domestic deposits		1.83			2.27			2.54			2.54			2.23
Core certificates of deposit		4.37			4.68			4.83			4.99			4.79

Total core deposits		2.67			3.18			3.55			3.69			3.50
Other domestic deposits of $100,000 or more		3.77			4.39			4.99			4.79			5.31
Brokered deposits and negotiable CDs		3.38			4.43			5.24			5.42			5.53
Deposits in foreign offices		1.66			2.16			3.27			3.29			3.16

Total deposits		2.78			3.36			3.80			3.94			3.84
Short-term borrowings		1.66			2.78			3.74			4.10			4.50
Federal Home Loan Bank advances		3.01			3.94			5.03			5.31			4.76
Subordinated notes and other long-term debt		4.21			5.12			5.93			6.15			5.96

Total interest bearing liabilities		2.85	%		3.53	%		4.09	%		4.24	%		4.20	%

Net interest rate spread		3.00	%		2.87	%		2.79	%		3.01	%		2.72	%
Impact of non-interest bearing funds on margin		0.29			0.36			0.47			0.51			0.54

Net interest margin		3.29	%		3.23	%		3.26	%		3.52	%		3.26	%
							-


⁽¹⁾		Fully taxable equivalent (FTE) yields are calculated assuming a 35% tax rate. See Table 1 for the FTE adjustment.

⁽²⁾		Loan, lease, and deposit average rates include impact of applicable derivatives and non-deferrable fees.

⁽³⁾		For purposes of this analysis, non-accrual loans are reflected in the average balances of loans.

2008 First Six Months versus 2007 First Six Months

Fully taxable equivalent net interest income for the first six-month period of 2008 increased $260.7 million, or 50%, compared with the comparable year-ago period. This reflected the favorable impact of a $16.5 billion, or 52%, increase in average earning assets, with $14.4 billion representing an increase in average loans and leases, partially offset by a 5 basis point decrease in the net interest margin to 3.26%. The increase in average earning assets, including loans and leases, was primarily Sky Financial merger-related.

The following table details the estimated merger related impacts on our reported loans and deposits:

Table 7 — Average Loans/Leases and Deposits — Estimated Merger Related Impacts — Six Months 2008 vs. Six Months 2007


	Six Months Ended
	June 30,				Change					Merger		Non-merger Related
(in millions)	2008		2007		Amount		Percent			Related		Amount			% ⁽¹⁾
Net interest income — FTE	$	777,816	$	517,120	$	260,696		50.4	%	$	303,184	$	(42,488	)		(5.2)	%

Average Loans and Deposits
(in millions)
Loans
Commercial and industrial	$	13,487	$	8,077	$	5,410		67.0	%	$	4,775	$	635			4.9	%
Commercial real estate		9,444		4,563		4,881		N.M.			3,971		910			10.7

Total commercial	$	22,931	$	12,640	$	10,291		81.4	%	$	8,746	$	1,545			7.2	%


Automobile loans and leases	$	4,475	$	3,893	$	582		14.9	%	$	432	$	150			3.5	%
Home equity		7,271		4,943		2,328		47.1			2,385		(57	)		(0.8	)
Residential mortgage		5,264		4,423		841		19.0			1,112		(271	)		(4.9	)
Other consumer		755		423		332		78.5			143		189			33.4

Total consumer		17,765		13,682		4,083		29.8			4,072		11			0.1

Total loans	$	40,696	$	26,322	$	14,374		54.6	%	$	12,818	$	1,556			4.0	%


Deposits
Demand deposits — non-interest bearing	$	5,047	$	3,561	$	1,486		41.7	%	$	1,829	$	(343	)		(6.4)	%
Demand deposits — interest bearing		4,010		2,377		1,633		68.7			1,460		173			4.5
Money market deposits		6,510		5,477		1,033		18.9			996		37			0.6
Savings and other domestic time deposits		5,026		2,915		2,111		72.4			2,594		(483	)		(8.8	)
Core certificates of deposit		10,874		5,523		5,351		96.9			4,630		721			7.1

Total core deposits		31,467		19,853		11,614		58.5			11,509		105			0.3
Other deposits		6,512		4,508		2,004		44.5			1,342		662			11.3

Total deposits	$	37,979	$	24,361	$	13,618		55.9	%	$	12,851	$	767			2.1	%


N.M., not a meaningful value.

⁽¹⁾		Calculated as non-merger related / (prior period + merger-related)

The $1.6 billion, or 4%, non-merger-related increase in average total loans and leases primarily reflected an increase in average total commercial loans, with growth reflected in both C&I and CRE loans. The growth in CRE loans was primarily to existing borrowers with a focus on traditional income producing property types and was not related to the single family home builder segment.

Average total consumer loans were little changed. This reflected a decline in average residential mortgages due to loan sales in the first six-month period of 2007, partially offset by modest growth in total average automobile loans and leases. Average home equity loans were down slightly, reflecting the continued weakness in the housing sector and a softer economy.

Regarding average total deposits, most of the increase was merger-related. The $0.8 billion non-merger-related increase reflected:

•

$0.7 billion, or 11%, growth in other deposits, primarily other domestic deposits over $100,000, reflecting increases in commercial and public funds deposits.

Table 8 — Consolidated YTD Average Balance Sheets and Net Interest Margin Analysis

Fully taxable equivalent basis⁽¹⁾


	YTD Average Balances												YTD Average Rates⁽²⁾
	Six Months Ending June 30,						Change						Six Months Ending June 30,
(in millions of dollars)	2008			2007			Amount			Percent			2008			2007

Assets
Interest bearing deposits in banks	$	274		$	212		$	62			29.2	%		3.43	%		5.09	%
Trading account securities		1,214			139			1,075			N.M.			5.18			5.66
Federal funds sold and securities purchased under resale agreements		668			538			130			24.2			2.65			5.26
Loans held for sale		533			266			267			N.M.			5.68			6.01
Investment securities:
Taxable		3,873			3,423			450			13.1			5.60			6.12
Tax-exempt		710			610			100			16.4			6.76			6.67

Total investment securities		4,583			4,033			550			13.6			5.78			6.21
Loans and leases:⁽³⁾
Commercial:
Commercial and industrial		13,487			8,077			5,410			67.0			5.92			7.38
Commercial real estate:
Construction		2,026			1,208			818			67.7			5.34			8.02
Commercial		7,418			3,355			4,063			N.M.			5.86			7.49

Commercial real estate		9,444			4,563			4,881			N.M.			5.75			7.63

Total commercial		22,931			12,640			10,291			81.4			5.85			7.47

Consumer:
Automobile loans		3,472			2,269			1,203			53.0			7.18			7.01
Automobile leases		1,003			1,624			(621	)		(38.2	)		5.56			5.29

Automobile loans and leases		4,475			3,893			582			14.9			6.82			6.29
Home equity		7,320			4,943			2,377			48.1			6.82			7.65
Residential mortgage		5,264			4,423			841			19.0			5.82			5.58
Other loans		706			423			283			66.9			10.21			9.55

Total consumer		17,765			13,682			4,083			29.8			6.66			6.65

Total loans and leases		40,696			26,322			14,374			54.6			6.20			7.04

Allowance for loan and lease losses		(642	)		(288	)		(354	)		N.M.

Net loans and leases		40,054			26,034			14,020			53.9

Total earning assets		47,968			31,510			16,458			52.2			6.13	%		6.95	%

Cash and due from banks		990			752			238			31.6
Intangible assets		3,460			626			2,834			N.M.
All other assets		3,436			2,441			995			40.8

Total Assets	$	55,212		$	35,041		$	20,171			57.6	%


Liabilities and Shareholders’ Equity
Deposits:
Demand deposits — non-interest bearing	$	5,047		$	3,561		$	1,486			41.7	%		—	%		—	%
Demand deposits — interest bearing		4,010			2,377			1,633			68.7			0.68			1.21
Money market deposits		6,510			5,477			1,033			18.9			2.31			3.81
Savings and other domestic time deposits		5,026			2,915			2,111			72.4			2.05			2.16
Core certificates of deposit		10,874			5,523			5,351			96.9			4.52			4.76

Total core deposits		31,467			19,853			11,614			58.5			2.93			3.46
Other domestic time deposits of $100,000 or more		2,063			1,101			962			87.4			4.07			5.32
Brokered deposits and negotiable CDs		3,451			2,850			601			21.1			3.92			5.51
Deposits in foreign offices		998			557			441			79.2			1.88			3.07

Total deposits		37,979			24,361			13,618			55.9			3.07			3.83
Short-term borrowings		2,813			1,970			843			42.8			2.21			4.41
Federal Home Loan Bank advances		3,399			1,229			2,170			N.M.			3.47			4.61
Subordinated notes and other long-term debt		3,872			3,478			394			11.3			4.66			5.87

Total interest bearing liabilities		43,016			27,477			15,539			56.6			3.19			4.16

All other liabilities		1,034			974			60			6.2
Shareholders’ equity		6,115			3,029			3,086			N.M.

Total Liabilities and Shareholders’ Equity	$	55,212		$	35,041		$	20,171			57.6	%

Net interest rate spread														2.94			2.79
Impact of non-interest bearing funds on margin														0.32			0.52

Net interest margin														3.26	%		3.31	%


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.

Provision for Credit Losses
(This section should be read in conjunction with Significant Items 1 and 2, and the Credit Risk section.)

The provision for credit losses is the expense necessary to maintain the allowance for loan and lease losses (ALLL) and the allowance for unfunded loan commitments and letters of credit (AULC) at levels adequate to absorb our estimate of probable inherent credit losses in the loan and lease portfolio and the portfolio of unfunded loan commitments and letters of credit.

The provision for credit losses in the 2008 second quarter was $120.8 million, up $60.7 million compared with the year-ago quarter, and up $32.2 million compared with the prior quarter. The reported 2008 second quarter provision for credit losses exceeded net charge-offs by $55.6 million. The provision for credit losses in the first six-month period of 2008 was $209.5 million, up $119.9 million compared with $89.5 million in the first six-month period of 2007. The reported provision for credit losses for the first six-month period of 2008 exceeded net charge-offs by $95.8 million. (See Credit Quality Discussion).

Non-Interest Income

(This section should be read in conjunction with Significant Items 1, 3, 4, 5, and 6.)

Table 9 reflects non-interest income for each of the past five quarters:

Table 9 — Non-Interest Income


	2008					2007									2Q08 vs 2Q07
(in thousands)	Second		First			Fourth			Third			Second			Amount		Percent
															-
Service charges on deposit accounts	$	79,630	$	72,668		$	81,276		$	78,107		$	50,017		$	29,613		59.2	%
Trust services		33,089		34,128			35,198			33,562			26,764			6,325		23.6
Brokerage and insurance income		35,694		36,560			30,288			28,806			17,199			18,495		N.M.
Other service charges and fees		23,242		20,741			21,891			21,045			14,923			8,319		55.7
Bank owned life insurance income		14,131		13,750			13,253			14,847			10,904			3,227		29.6
Mortgage banking income (loss)		12,502		(7,063	)		3,702			9,629			7,122			5,380		75.5
Securities gains (losses)		2,073		1,429			(11,551	)		(13,152	)		(5,139	)		7,212		N.M.
Other income		36,069		63,539			(3,500	)		31,830			34,403			1,666		4.8
															-
Total non-interest income	$	236,430	$	235,752		$	170,557		$	204,674		$	156,193		$	80,237		51.4	%


	Six Months Ended June 30,					YTD 2008 vs 2007
(in thousands)	2008		2007			Amount			Percent

Service charges on deposit accounts	$	152,298	$	94,810		$	57,488			60.6	%
Trust services		67,217		52,658			14,559			27.6
Brokerage and insurance income		72,254		33,281			38,973			N.M.
Other service charges and fees		43,983		28,131			15,852			56.4
Bank owned life insurance income		27,881		21,755			6,126			28.2
Mortgage banking income		5,439		16,473			(11,034	)		(67.0	)
Securities gains (losses)		3,502		(5,035	)		8,537			N.M.
Other income		99,608		59,297			40,311			68.0

Total non-interest income	$	472,182	$	301,370		$	170,812			56.7


N.M., not a meaningful value.

Table 10 details mortgage banking income and the net impact of MSR hedging activity for each of the past five quarters:

Table 10 — Mortgage Banking Income and Net Impact of MSR Hedging


	2008						2007									2Q08 vs 2Q07
(in thousands, except as noted)	Second			First			Fourth			Third			Second			Amount			Percent

Mortgage Banking Income
Origination and secondary marketing	$	13,098		$	9,332			5,879		$	8,375		$	6,771		$	6,327			93.4	%
Servicing fees		11,166			10,894			11,405			10,811			6,976			4,190			60.1
Amortization of capitalized servicing⁽¹⁾		(7,024	)		(6,914	)		(5,929	)		(6,571	)		(4,449	)		(2,575	)		(57.9	)
Other mortgage banking income		5,959			4,331			4,113			3,016			2,822			3,137			N.M.

Sub-total		23,199			17,643			15,468			15,631			12,120			11,079			91.4

MSR valuation adjustment⁽¹⁾		39,031			(18,093	)		(21,245	)		(9,863	)		16,034			22,997			N.M.
Net trading (losses) gains related to MSR hedging		(49,728	)		(6,613	)		9,479			3,861			(21,032	)		(28,696	)		N.M.

Total mortgage banking income (loss)	$	12,502		$	(7,063	)	$	3,702		$	9,629		$	7,122		$	5,380			75.5	%


Capitalized mortgage servicing rights⁽²⁾	$	240,024		$	191,806		$	207,894		$	228,933		$	155,420		$	84,604			54.4	%
Total mortgages serviced for others (in millions)⁽²⁾		15,770			15,138			15,088			15,073			8,693			7,077			81.4
MSR % of investor servicing portfolio		1.52	%		1.27	%		1.38	%		1.52	%		1.79	%		(0.27	)%		(14.9	)


Net Impact of MSR Hedging

MSR valuation adjustment⁽¹⁾	$	39,031		$	(18,093	)	$	(21,245	)	$	(9,863	)	$	16,034		$	22,997			N.M.	%
Net trading (losses) gains related to MSR hedging		(49,728	)		(6,613	)		9,479			3,861			(21,032	)		(28,696	)		N.M.
Net interest income related to MSR hedging		9,364			5,934			3,192			2,357			248			9,116			N.M.

Net impact of MSR hedging	$	(1,333	)	$	(18,772	)	$	(8,574	)	$	(3,645	)	$	(4,750	)	$	3,417			(71.9)	%


	Six Months Ended June 30,						YTD 2008 vs 2007
(in thousands, except as noted)	2008			2007			Amount			Percent

Mortgage Banking Income
Origination and secondary marketing	$	22,430			11,711			10,719			91.5	%
Servicing fees		22,060			13,796			8,264			59.9
Amortization of capitalized servicing⁽¹⁾		(13,938	)		(8,087	)		(5,851	)		72.4
Other mortgage banking income		10,290			6,069			4,221			69.6

Sub-total		40,842			23,489			17,353			73.9

MSR valuation adjustment⁽¹⁾		20,938			14,977			5,961			39.8
Net trading losses related to MSR hedging		(56,341	)		(21,993	)		(34,348	)		N.M.

Total mortgage banking income	$	5,439		$	16,473		$	(11,034	)		(67.0)	%


Capitalized mortgage servicing rights⁽²⁾	$	240,024		$	155,420			84,604			54.4	%
Total mortgages serviced for others⁽²⁾		15,770			8,693			7,077			81.4
MSR % of investor servicing portfolio (in millions)		1.52	%		1.79	%		(0.27	)		(14.9	)

Net Impact of MSR Hedging
MSR valuation adjustment⁽¹⁾	$	20,938		$	14,977			5,961			39.8	%
Net trading losses related to MSR hedging		(56,341	)		(21,993	)		(34,348	)		N.M.
Net interest income related to MSR hedging		15,298			248			15,050			N.M.

Net impact of MSR hedging	$	(20,105	)	$	(6,768	)		(13,337	)		N.M.	%


N.M., not a meaningful value.

⁽¹⁾		The change in fair value for the period represents the MSR valuation adjustment, excluding amortization of capitalized servicing.

⁽²⁾		At period end.

2008 Second Quarter versus 2007 Second Quarter

Non-interest income increased $80.2 million compared with the year-ago quarter. The $68.7 million of merger-related non-interest income drove most of the increase. Table 11 details the $80.2 million increase in reported total non-interest income.

Table 11 — Non-Interest Income — Estimated Merger-Related Impacts — 2Q’08 vs. 2Q’07


	Second Quarter					Change					Merger		Non-merger Related
(in thousands)	2008		2007			Amount		%			Related		Amount			% ⁽¹⁾
						-
Service charges on deposit accounts	$	79,630	$	50,017		$	29,613		59.2	%	$	24,110	$	5,503			7.4	%
Trust services		33,089		26,764			6,325		23.6			7,009		(684	)		(2.0	)
Brokerage and insurance income		35,694		17,199			18,495		N.M.			17,061		1,434			4.2
Other service charges and fees		23,242		14,923			8,319		55.7			5,800		2,519			12.2
Bank owned life insurance income		14,131		10,904			3,227		29.6			1,807		1,420			11.2
Mortgage banking income		12,502		7,122			5,380		75.5			6,256		(876	)		(6.5	)
Securities gains (losses)		2,073		(5,139	)		7,212		N.M.			283		6,929			N.M.
Other income		36,069		34,403			1,666		4.8			6,390		(4,724	)		(11.6	)
						-
Total non-interest income	$	236,430	$	156,193		$	80,237		51.4	%	$	68,716	$	11,521			5.1	%
						-


N.M., not a meaningful value.

⁽¹⁾		Calculated as non-merger related / (prior period + merger-related)

The $11.5 million, or 5%, non-merger-related increase reflected:

	•		$6.9 million increase in securities gains, reflecting the current quarter’s gain compared with a loss in the year-ago quarter.

	•		$5.5 million, or 7%, increase in service charges on deposit accounts, primarily reflecting strong growth in personal service charge income.

	•		$2.5 million, or 12%, increase in other service charges, reflecting higher debit card volume.

Partially offset by:

•

$4.7 million, or 12%, decrease in other income. The current quarter included: (a) $7.2 million loss on the sale of certain held-for-sale loans and (b) $6.9 million of higher equity investment losses ($4.6 million loss in the current quarter vs. $2.3 million gain in the year-ago quarter). These decreases were partially offset by $7.8 million of higher automobile operating lease income ($9.4 million in the current quarter and $1.6 million in the year-ago quarter).

2008 Second Quarter versus 2008 First Quarter

Non-interest income increased $0.7 million compared with the 2008 first quarter, as shown in the following table:

Table 12 — Non-Interest Income — 2Q’08 vs. 1Q’08


	Second		First
	Quarter		Quarter			Change
(in thousands)	2008		2008			Amount			%

Service charges on deposit accounts	$	79,630	$	72,668		$	6,962			9.6	%
Trust services		33,089		34,128			(1,039	)		(3.0	)
Brokerage and insurance income		35,694		36,560			(866	)		(2.4	)
Other service charges and fees		23,242		20,741			2,501			12.1
Bank owned life insurance income		14,131		13,750			381			2.8
Mortgage banking income (loss)		12,502		(7,063	)		19,565			N.M.
Securities gains		2,073		1,429			644			45.1
Other income		36,069		63,539			(27,470	)		(43.2	)

Total non-interest income	$	236,430	$	235,752		$	678			0.3	%


N.M., not a meaningful value.

This $0.7 million increase reflected:

	•		$19.6 million increase in mortgage banking income. This reflected: (a) $3.5 million, or 20%, increase in core mortgage banking activities, primarily secondary marketing and servicing fees, (b) $2.1 million gain on the sale of mortgage loans, and (c) $14.0 million lower negative MSR valuation impact reflecting the current quarter’s $10.7 million net negative MSR valuation impact, compared with a $24.7 million net negative MSR valuation impact in the prior quarter. These negative MSR valuation impacts are partially offset by a net interest income benefit from the hedging assets.

	•		$7.0 million, or 10%, increase in service charges on deposit accounts, primarily reflecting a seasonal increase in personal service charges.

	•		$2.5 million, or 12%, increase in other service charges and fees, reflecting a seasonal increase in debit card fees.

Partially offset by:

•

$27.5 million, or 43%, decrease in other income. The first quarter included: (a) $25.1 million gain related to the Visa^® IPO and (b) $5.9 million venture capital loss. The second quarter included: (a) $7.2 million loss on the sale of certain loans held-for-sale, (b) $1.9 million decline in equity investment income ($4.6 million loss in the current quarter and $2.7 million loss in the prior quarter), (c) $3.3 million decline in derivatives income, and (d) $3.5 million increase in automobile operating lease income ($9.4 million in the current quarter and $5.8 in the prior quarter).

2008 First Six Months versus 2007 First Six Months

Non-interest income for the first six-month period of 2008 increased $170.8 million, or 57%, compared with the year-ago period, of which $137.4 million was merger related. The following table details the estimated merger related impact on our non-interest income.

Table 13 — Non-Interest Income — Estimated Merger Related Impact — Six Months 2008 vs. Six Months 2007


	Six Months Ended June 30,					Change						Merger		Non-merger Related
(in thousands)	2008		2007			Amount			%			Related		Amount			% ⁽¹⁾
						-								-
Service charges on deposit accounts	$	152,298	$	94,810		$	57,488			60.6	%	$	48,220	$	9,268			6.5	%
Trust services		67,217		52,658			14,559			27.6			14,018		541			0.8
Brokerage and insurance income		72,254		33,281			38,973			N.M.			34,122		4,851			7.2
Other service charges and fees		43,983		28,131			15,852			56.4			11,600		4,252			10.7
Bank owned life insurance income		27,881		21,755			6,126			28.2			3,614		2,512			9.9
Mortgage banking income		5,439		16,473			(11,034	)		(67.0	)		12,512		(23,546	)		(81.2	)
Securities gains (losses)		3,502		(5,035	)		8,537			N.M.			566		7,971			N.M.
Other income		99,608		59,297			40,311			68.0			12,780		27,531			38.2
						-								-
Total non-interest income	$	472,182	$	301,370		$	170,812			56.7	%	$	137,432	$	33,380			7.6	%

N.M., not a meaningful value.

⁽¹⁾Calculated as non-merger related / (prior period + merger-related)

The $33.4 million, or 8%, non-merger related increase primarily reflected:

	•		$9.3 million, or 6%, increase in service charges on deposit accounts, primarily reflecting strong growth in personal service charge income.

	•		$8.0 million increase in securities gains, reflecting the gain from the first six-month period of 2008 compared with a loss in the first six-month period of 2007.

	•		$27.5 million, or 38%, increase in other income. This increase included: (a) the 2008 first quarter gain of $25.1 million related to Visa^® IPO, (b) $13.0 million of increased derivative revenue, and (c) $10.7 million of increased operating lease income ($15.2 million in the first six-month period of 2008, and $4.5 million in the comparable year-ago period). These increases were partially offset by a venture capital loss of $5.9 million in the 2008 first quarter.

Partially offset by:

•

$23.5 million, or 81%, decrease in mortgage banking income. This decline primarily reflected the $35.4 million net negative MSR valuation impact in the 2008 first six-month period, compared with a $7.0 million net negative MSR valuation impact in the first six-month period of 2007. These negative MSR valuation impacts were partially offset by a net interest income benefit from the hedging assets.

Non-Interest Expense

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

Table 14 reflects non-interest expense for each of the past five quarters:

Table 14 — Non-Interest Expense


	2008				2007						2Q08 vs 2Q07
(in thousands)	Second		First		Fourth		Third		Second		Amount			Percent
											-
Salaries	$	163,595	$	159,946	$	178,855	$	166,719	$	106,768	$	56,827			53.2	%
Benefits		36,396		41,997		35,995		35,429		28,423		7,973			28.1
											-
Personnel costs		199,991		201,943		214,850		202,148		135,191		64,800			47.9	%
Outside data processing and other services		30,186		34,361		39,130		40,600		25,701		4,485			17.5
Net occupancy		26,971		33,243		26,714		33,334		19,417		7,554			38.9
Equipment		25,740		23,794		22,816		23,290		17,157		8,583			50.0
Amortization of intangibles		19,327		18,917		20,163		19,949		2,519		16,808			N.M.
Marketing		7,339		8,919		16,175		13,186		8,986		(1,647	)		(18.3	)
Professional services		13,752		9,090		14,464		11,273		8,101		5,651			69.8
Telecommunications		6,864		6,245		8,513		7,286		4,577		2,287			50.0
Printing and supplies		4,757		5,622		6,594		4,743		3,672		1,085			29.5
Other expense		42,876		28,347		70,133		29,754		19,334		23,542			N.M.
											-
Total non-interest expense	$	377,803	$	370,481	$	439,552	$	385,563	$	244,655	$	133,148			54.4	%


	Six Months Ended June 30,				YTD 2008 vs 2007
(in thousands)	2008		2007		Amount			Percent

Salaries	$	323,541	$	211,680	$	111,861			52.8	%
Benefits		78,393		58,150		20,243			34.8

Personnel costs		401,934		269,830		132,104			49.0
Outside data processing and other services		64,547		47,515		17,032			35.8
Net occupancy		60,214		39,325		20,889			53.1
Equipment		49,534		35,376		14,158			40.0
Amortization of intangibles		38,244		5,039		33,205			N.M.
Marketing		16,258		16,682		(424	)		(2.5	)
Professional Services		22,842		14,583		8,259			56.6
Telecommunication		13,109		8,703		4,406			50.6
Printing and supplies		10,379		6,914		3,465			50.1
Other expense		71,223		42,760		28,463			66.6

Total non-interest expense	$	748,284	$	486,727	$	261,557			53.7	%

N.M., not a meaningful value.

2008 Second Quarter versus 2007 Second Quarter

Non-interest expense increased $133.1 million, or 54%, compared with the year-ago quarter. The $135.7 million of merger-related expenses and $7.0 million of higher merger/restructuring costs drove the increase, as non-merger-related expenses declined $9.5 million, or 2%. Table 15 details the $133.1 million increase in reported total non-interest expense.

Table 15 — Non-Interest Expense — Estimated Merger/Restructuring-Related Impacts — 2Q’08 vs. 2Q’07


	Second Quarter				Change								Restructuring/			Non-restructuring/merger Related
(in thousands)	2008		2007		Amount			Percent			Merger Related		Merger Costs			Amount			% ⁽¹⁾
					-											-
Personnel costs	$	199,991	$	135,191	$	64,800			47.9	%	$	68,250	$	10,019		$	(13,469	)		(6.3)	%
Outside data processing and other services		30,186		25,701		4,485			17.5			12,262		(4,969	)		(2,808	)		(8.5	)
Net occupancy		26,971		19,417		7,554			38.9			10,184		1,702			(4,332	)		(13.8	)
Equipment		25,740		17,157		8,583			50.0			4,799		2,799			985			4.0
Amortization of intangibles		19,327		2,519		16,808			N.M.			16,481		—			327			1.7
Marketing		7,339		8,986		(1,647	)		(18.3	)		4,361		(1,551	)		(4,457	)		(37.8	)
Professional services		13,752		8,101		5,651			69.8			2,707		(995	)		3,939			40.1
Telecommunications		6,864		4,577		2,287			50.0			2,224		3			60			0.9
Printing and supplies		4,757		3,672		1,085			29.5			1,374		19			(308	)		(6.1	)
Other expense		42,876		19,334		23,542			N.M.			13,048		(52	)		10,546			32.6
					-											-
Total non-interest expense	$	377,803	$	244,655	$	133,148			54.4	%	$	135,690	$	6,975		$	(9,517	)		(2.5)	%
					-											-


N.M., not a meaningful value.

⁽¹⁾		Calculated as non-merger related / (prior period + merger-related + merger-costs)

The $9.5 million, or 2%, non-merger-related decline reflected:

	•		$13.5 million, or 6%, decline in personnel expense, reflecting the benefit of merger efficiencies, including the impact of a reduction of 667, or 6%, full-time equivalent staff from December 31, 2007.

	•		$4.5 million, or 38%, decline in marketing expense.

	•		$4.3 million, or 14%, decline in net occupancy expense, reflecting merger efficiencies.

	•		$2.8 million, or 9%, decline in outside data processing and other services, reflecting merger efficiencies.

Partially offset by:

	•		$10.5 million, or 33%, increase in other expense. This increase primarily reflected a $6.3 million increase in automobile operating lease expense ($7.2 million in the current quarter, and $0.9 in the comparable year-ago period), and a $6.0 million increase in other real estate owned (OREO), that is real estate acquired through foreclosure, expenses.

	•		$3.9 million, or 40%, increase in professional services expense, reflecting increased collection costs.

2008 Second Quarter versus 2008 First Quarter

Non-interest expense increased $7.3 million, or 2%, compared with the 2008 first quarter, reflecting increased merger/restructuring costs. Table 16 details the $7.3 million increase in reported total non-interest expense.

Table 16 — Non-Interest Expense — Estimated Merger/Restructuring-Related Impacts — 2Q’08 vs. 1Q’08


	Second Quarter		First Quarter		Change						Restructuring/			Non-restructuring/merger Related
(in thousands)	2008		2008		Amount			Percent			Merger Costs			Amount			% ⁽¹⁾
					-									-
Personnel costs	$	199,991	$	201,943	$	(1,952	)		(1.0)	%	$	7,775		$	(9,727	)		(4.6)	%
Outside data processing and other services		30,186		34,361		(4,175	)		(12.2	)		(4,305	)		130			0.4
Net occupancy		26,971		33,243		(6,272	)		(18.9	)		1,359			(7,631	)		(22.1	)
Equipment		25,740		23,794		1,946			8.2			2,703			(757	)		(2.9	)
Amortization of intangibles		19,327		18,917		410			2.2			—			410			2.2
Marketing		7,339		8,919		(1,580	)		(17.7	)		(67	)		(1,513	)		(17.1	)
Professional services		13,752		9,090		4,662			51.3			399			4,263			44.9
Telecommunications		6,864		6,245		619			9.9			(591	)		1,210			21.4
Printing and supplies		4,757		5,622		(865	)		(15.4	)		(27	)		(838	)		(15.0	)
Other expense		42,876		28,347		14,529			51.3			28			14,501			51.1
					-									-
Total non-interest expense	$	377,803	$	370,481	$	7,322			2.0	%	$	7,274			48			0.0	%


⁽¹⁾		Calculated as non-merger related / (prior period + merger-related + merger-costs)

Non-merger-related expenses were flat, and reflected:

	•		$14.5 million, or 51%, increase in other expense. The first quarter included a $12.4 million Visa^® indemnification reversal and a $2.6 million asset impairment expense. The second quarter included a $2.7 million increase in automobile operating lease expense ($7.2 million in the current quarter, and $4.5 million in the prior quarter) and a $2.7 million increase in OREO expenses, partially offset by a $2.2 million gain from debt extinguishment.

	•		$4.3 million, or 45%, increase in professional services reflecting increased collection costs.

Partially offset by:

	•		$9.7 million, or 5%, decrease in personnel costs, reflecting seasonally lower payroll taxes and lower full-time equivalent staff.

	•		$7.6 million, or 22%, decrease in net occupancy expense, reflecting higher seasonal expenses in the prior quarter, and the prior quarter’s $2.5 million impairment of leasehold improvements in our Cleveland main office.

2008 First Six Months versus 2007 First Six Months

Non-interest expense for the first six-month period of 2008 increased $261.6 million compared with the first six-month period of 2007. This included $271.4 million of merger-related expenses, as well as $13.4 million of higher merger/restructuring costs. The following table details the $261.6 million increase in reported non-interest expense:

Table 17 — Non-Interest Expense — Estimated Merger/Restructuring-Related Impacts — Six Months 2008 vs. Six Months 2007


	Six Months Ended
	June 30,				Change								Restructuring/			Non-restructuring/merger Related
(in thousands)	2008		2007		Amount			Percent			Merger Related		Merger Costs			Amount			% ⁽¹⁾

Personnel costs	$	401,934	$	269,830	$	132,104			49.0	%	$	136,500	$	12,897		$	(17,293	)		(4.3	)%
Outside data processing and other services		64,547		47,515		17,032			35.8			24,524		(2,158	)		(5,334	)		(7.4	)
Net occupancy		60,214		39,325		20,889			53.1			20,368		2,156			(1,635	)		(2.7	)
Equipment		49,534		35,376		14,158			40.0			9,598		2,909			1,651			3.7
Amortization of intangibles		38,244		5,039		33,205			N.M.			32,962		—			243			0.6
Marketing		16,258		16,682		(424	)		(2.5	)		8,722		(1,529	)		(7,617	)		(30.0	)
Professional services		22,842		14,583		8,259			56.6			5,414		(1,397	)		4,242			21.2
Telecommunications		13,109		8,703		4,406			50.6			4,448		597			(639	)		(4.9	)
Printing and supplies		10,379		6,914		3,465			50.1			2,748		66			651			6.7
Other expense		71,223		42,760		28,463			66.6			26,096		(119	)		2,486			3.6

Total non-interest expense	$	748,284	$	486,727	$	261,557			53.7	%	$	271,380	$	13,422		$	(23,245	)		(3.1	)%


N.M., not a meaningful value.

⁽¹⁾		Calculated as non-merger related / (prior period + merger-related)

Non-merger related non-interest expense actually declined $23.2 million, reflecting:

	•		$17.3 million, or 4%, decline in personnel expense, reflecting the benefit of merger efficiencies.

	•		$7.6 million, or 30%, decline in marketing expense.

	•		$5.3 million, or 7%, decline in outside data processing and other services, reflecting merger efficiencies.

Partially offset by:

•

$4.2 million, or 21%, increase in professional services expense, reflecting increased collection costs.

Provision for Income Taxes
(This section should be read in conjunction with Significant Items 1, 3, and 6.)

The provision for income taxes in the 2008 second quarter was $26.3 million and represented an effective tax rate on income before taxes of 20.6%. The effective tax rates in the year-ago quarter and prior quarter were 23.2% and 17.2%, respectively. In the 2008 second quarter, a $3.4 million benefit to provision for income taxes, representing a reduction to the previously established capital loss carry-forward valuation allowance related to the value of Visa^® shares held, was recorded. The comparable tax benefit in the 2008 first quarter was $11.1 million. The effective tax rate for the second half of 2008 is expected to be in the range of 24%-26%.

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

The Internal Revenue Service is currently examining our federal tax returns for the years ended 2004 and 2005. In addition, we are subject to ongoing tax examinations in various jurisdictions. We believe that the resolution of these examinations will not have a significant adverse impact on our consolidated financial position or results of operations.

RISK MANAGEMENT AND CAPITAL

Risk identification and monitoring are key elements in overall risk management. We believe our primary risk exposures are credit, market, liquidity, and operational risk. 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. Additionally, the MD&A appearing in our 2007 Form 10-K should be read in conjunction with this discussion and analysis as this report provides only material updates to the 2007 Form 10-K. Our definition, philosophy, and approach to risk management are unchanged from the discussion presented in that document.

Credit Risk

Credit risk is the risk of loss due to loan and lease customers or other counter parties not being able to meet their financial obligations under agreed upon terms. 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 mitigated through a combination of credit policies and processes and portfolio diversification.

Credit Exposure Mix
(This section should be read in conjunction with Significant Items 1 and 2.)

As shown in Table 18, at June 30, 2008, commercial loans totaled $23.4 billion, and represented 57% of our total credit exposure. This portfolio was diversified between C&I and CRE loans (see “Commercial Credit” discussion below).

Total consumer loans were $17.6 billion at June 30, 2008, and represented 43% of our total credit exposure. The consumer portfolio was diversified among home equity loans, residential mortgages, and automobile loans and leases (see “Consumer Credit” discussion below). Our home equity and residential mortgages portfolios represented $12.3 billion, or 30%, of our total loans and leases. These portfolios are discussed in greater detail below in the “Consumer Credit” section of this report.

Table 18 — Loans and Leases Composition ⁽¹⁾


	2008								2007
(in thousands)	June 30,				March 31,				December 31,				September 30,				June 30,

By Type
Commercial:
Commercial and industrial	$	13,745,515	33.5	%	$	13,645,890	33.3	%	$	13,125,565	32.8	%	$	13,125,158	32.8	%	$	8,185,451	30.5	%
Commercial real estate:
Construction		2,135,979	5.2			2,058,105	5.0			1,961,839	4.9			1,876,075	4.7			1,382,533	5.2
Commercial		7,565,486	18.4			7,457,744	18.2			7,221,213	18.0			7,097,465	17.7			3,484,039	13.0

Commercial real estate		9,701,465	23.6			9,515,849	23.2			9,183,052	22.9			8,973,540	22.4			4,866,572	18.2

Total commercial		23,446,980	57.1			23,161,739	56.5			22,308,617	55.7			22,098,698	55.2			13,052,023	48.7

Consumer:
Automobile loans		3,758,715	9.2			3,491,369	8.5			3,114,029	7.8			2,959,913	7.4			2,424,105	9.0
Automobile leases		834,777	2.0			999,629	2.4			1,179,505	2.9			1,365,805	3.4			1,488,903	5.6
Home equity		7,410,393	18.1			7,296,448	17.8			7,290,063	18.2			7,317,545	18.3			5,015,506	18.7
Residential mortgage		4,901,420	11.9			5,366,414	13.1			5,447,126	13.6			5,505,340	13.8			4,398,720	16.4
Other loans		694,855	1.7			698,620	1.7			714,998	1.8			739,939	1.9			432,256	1.6

Total consumer		17,600,160	42.9			17,852,480	43.5			17,745,721	44.3			17,888,542	44.8			13,759,490	51.3

Total loans and leases	$	41,047,140	100.0	%	$	41,014,219	100.0	%	$	40,054,338	100.0		$	39,987,240	100.0	%	$	26,811,513	100.0	%


By Business Segment
Regional Banking:
Central Ohio	$	5,226,741	12.7	%	$	5,229,075	12.7	%	$	5,110,270	12.8	%	$	4,993,373	12.5	%	$	3,701,459	13.8	%
Northwest Ohio		2,238,454	5.5			2,280,255	5.6			2,284,141	5.7			2,342,088	5.9			449,232	1.7
Greater Cleveland		3,262,379	7.9			3,194,533	7.8			3,097,120	7.7			3,057,757	7.6			2,099,941	7.8
Greater Akron/Canton		2,088,189	5.1			2,058,031	5.0			2,020,447	5.0			2,078,588	5.2			1,330,102	5.0
Southern Ohio/Kentucky		2,966,035	7.2			2,900,259	7.1			2,659,870	6.6			2,547,800	6.4			2,275,224	8.5
Mahoning Valley		865,226	2.1			893,317	2.2			927,918	2.3			939,739	2.4			—	—
Ohio Valley		867,682	2.1			870,833	2.1			870,276	2.2			869,139	2.2			—	—
West Michigan		2,600,512	6.3			2,535,359	6.2			2,477,617	6.2			2,520,325	6.3			2,439,517	9.1
East Michigan		1,809,680	4.4			1,766,750	4.3			1,750,171	4.4			1,760,158	4.4			1,654,934	6.2
Western Pennsylvania		1,013,470	2.5			1,031,319	2.5			1,053,685	2.6			1,106,068	2.8			—	—
Pittsburgh		969,307	2.4			926,487	2.3			900,789	2.2			888,848	2.2			—	—
Central Indiana		1,527,627	3.7			1,507,934	3.7			1,421,116	3.5			1,419,693	3.6			1,004,934	3.7
West Virginia		1,213,033	3.0			1,158,915	2.8			1,155,719	2.9			1,125,628	2.8			1,148,573	4.3
Other Regional		5,828,043	14.2			6,251,173	15.3			6,176,485	15.6			6,409,470	15.9			3,832,953	14.3

Regional Banking		32,476,378	79.1			32,604,240	79.5			31,905,624	79.7			32,058,674	80.2			19,936,869	74.4

Dealer Sales		5,958,599	14.5			5,862,116	14.3			5,563,415	13.9			5,449,580	13.6			4,944,386	18.4

Private Financial and Capital Markets Group		2,612,163	6.4			2,547,863	6.2			2,585,299	6.4			2,478,986	6.2			1,930,258	7.2

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

Total loans and leases	$	41,047,140	100.0	%	$	41,014,219	100.0	%	$	40,054,338	100.0	%	$	39,987,240	100.0	%	$	26,811,513	100.0	%


⁽¹⁾		Reflects post-Sky Financial merger organizational structure effective on July 1, 2007. Accordingly, balances presented for prior periods do not include the impact of the acquisition.

Commercial Credit
(This section should be read in conjunction with Significant Items 1 and 2.)

Commercial credit approvals are based on, among other factors, the financial strength of the borrower, assessment of the borrower’s management capabilities, industry sector trends, type of exposure, transaction structure, and the general economic outlook.

In commercial lending, ongoing credit management is dependent on the type and nature of the loan. In general, quarterly monitoring is normal for all significant exposures. The internal risk ratings are revised and updated with each periodic monitoring event. There is also extensive macro portfolio management analysis on an ongoing basis. We continually review and adjust our risk rating criteria based on actual experience, which may result in further changes to such criteria, in future periods.

Our commercial loan portfolio is diversified by customer size, as well as throughout our geographic footprint. However, the following segments are noteworthy:

Franklin relationship
(This section should be read in conjunction with Significant Items 1 and 2.)

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 the Federal National Mortgage Association (FNMA or Fannie Mae) and the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) and involve elevated credit risk as a result of the nature or absence of income documentation, limited credit histories, and 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.

Loans to Franklin are funded by a bank group, of which we are the lead bank and largest participant. The loans participated to other banks have no recourse to Huntington. The term debt exposure is secured by over 30,000 individual first- and second-priority lien residential mortgages. In addition, pursuant to an exclusive lockbox arrangement, we receive all payments made to Franklin on these individual mortgages.

At June 30, 2008, bank group loans totaled $1.512 billion, down $73 million compared with $1.585 billion at December 31, 2007 (see Table 19). This reduction reflected loan payments of $116 million, partially offset by an increase of $43 million as another institution entered into the restructuring agreement. The loans participated to other banks commensurately increased $43 million reflecting this institution’s participation in the restructuring during the 2008 first quarter. The monthly cash flow has been consistently above the required debt service, allowing for additional principal paydowns of $46.7 million of the total bank group debt during the first six-month period of 2008.

At June 30, 2008, our exposure to Franklin net of charge-offs was $1.130 billion, down $58 million, or 5%, compared with $1.188 billion exposure at December 31, 2007 (see Table 19). In the second half of 2008, we expect our proportion of payments received to increase to our pro-rata participation level, following satisfaction of certain terms of the restructuring agreement that provided for a more rapid amortization on a certain participant’s portion of the debt.

At June 30, 2008, our specific ALLL for Franklin loans was $115.3 million, unchanged compared with December 31, 2007, and there were no charge-offs or provision for credit losses in either the current quarter or the prior quarter. This relationship continued to perform with interest being accrued. The cash flow generated by the underlying collateral in the current quarter exceeded the required payments per terms of the restructuring agreement. As a result, we moved the $762 million Tranche A portion of our Franklin exposure out of the troubled debt restructuring nonperforming asset classification based on the performance during the first six-month period of 2008, and the continued expected cash flow performance and priority of cash flows.

The following table details our loan relationship with Franklin as of June 30, 2008, and changes from December 31, 2007:

Table 19 — Commercial Loans to Franklin


										Participated
(in thousands of dollars)	Franklin			Tribeca			Subtotal			to others			Total
Variable rate, term loan (Facility A)	$	541,521		$	386,069		$	927,590		$	(166,409	)	$	761,181
Variable rate, subordinated term loan (Facility B)		318,764			97,949			416,713			(69,300	)		347,413
Fixed rate, junior subordinated term loan (Facility C)		125,000			—			125,000			(8,224	)		—
Line of credit facility		853			—			853			—			853
Other variable rate term loans		41,929			—			41,929			(20,964	)		20,965

Subtotal		1,028,067			484,018			1,512,085		$	(264,897	)	$	1,130,412


Participated to others		(166,496	)		(98,401	)		(264,897	)

Total principal owed to Huntington		861,571			385,617			1,247,188
Previously charged off		(116,776	)		—			(116,776	)

Total book value of loans	$	744,795		$	385,617		$	1,130,412


	Bank Group						Huntington
				Loans
				Participated						Cumulative Net
(in thousands of dollars)	Total Loans			to Others			Total Loans			Charge-offs			Net Loans
Commercial loans, at December 31, 2007	$	1,584,967		$	(279,790	)	$	1,305,177		$	(116,776	)	$	1,188,401
New institution enters restructuring		43,295			(43,295	)		—			—			—
Payments received		(56,699	)		25,659			(31,040	)		—			(31,040	)

Commercial loans, at March 31, 2008	$	1,571,563		$	(297,426	)	$	1,274,137		$	(116,776	)	$	1,157,361
Payments received		(59,478	)		32,529			(26,949	)		—			(26,949	)

Commercial loans, at June 30, 2008	$	1,512,085		$	(264,897	)	$	1,247,188		$	(116,776	)	$	1,130,412

Single Family Home Builders

At June 30, 2008, we had $1.6 billion of loans to single family home builders. Such loans represented 4% of total loans and leases. Of this portfolio, 69% were to finance projects currently under construction, 17% to finance land under development, and 14% to finance land held for development. The $1.6 billion represented a $0.1 billion decrease compared with the 2008 first quarter. We did not originate any new loans in this portfolio during the current quarter.

The housing market across our geographic footprint remains stressed, reflecting relatively lower sales activity, declining prices, and excess inventories of houses to be sold, particularly impacting borrowers in our eastern Michigan and northern Ohio regions. We anticipate the residential developer market will continue to be depressed, and anticipate continued pressure on the single family home builder segment in the coming months. We have taken the following steps to mitigate the risk arising from this exposure: (a) all loans within the portfolio have been reviewed continuously over the past 18 months and will continue to be closely monitored, (b) credit valuation adjustments have been made when appropriate based on the current condition of each relationship, and (c) reserves have been increased based on proactive risk identification and thorough borrower analysis.

Consumer Credit
(This section should be read in conjunction with Significant Item 1.)

Consumer credit approvals are based on, among other factors, the financial strength and payment history of the borrower, type of exposure, and the transaction structure.

Our consumer loan portfolio is primarily comprised of traditional residential mortgages, home equity loans and lines of credit and automobile loans and leases. The residential mortgage and home equity portfolios are diversified throughout our geographic footprint. Our automobile loan and lease portfolio is predominantly diversified throughout our banking footprint, with no out-of-footprint state representing more than 10% of our originations, except Florida, representing 13% of our automobile loan and lease originations during the first six-month period of 2008.

The general slowdown in the housing market has impacted the performance of our residential mortgage and home equity portfolios over the past year. While the degree of price depreciation varies across our markets, all regions throughout our footprint have been affected.

Given the market conditions in our markets as described above in the single family home builder section, the home equity and residential mortgage portfolios are particularly noteworthy, and are discussed below:

Table 20 — Selected Home Equity and Residential Mortgage Portfolio Data


	June 30, 2008									2008 Second Quarter
		% of Total			Portfolio			Portfolio			Origination			Origination
	Ending Balance	Loans and Leases			Average LTV ratio*			Average FICO		Originations	Average LTV ratio*			Average FICO
Home equity loans	$3.3 billion		8	%		70	%		732	$159 million		65	%		744
Home equity lines of credit	4.1 billion		10	%		78	%		729	647 million		74	%		755
Residential mortgages	4.9 billion		12	%		76	%		699	240 million		77	%		738


*		= The loan-to-value (LTV) ratios for home equity loans and home equity lines of credit are cumulative LTVs reflecting the balance of any senior loans.

Home Equity Portfolio

Our home equity portfolio (loans and lines of credit) consists of both first and second mortgage loans with underwriting criteria based on minimum FICO credit scores, debt-to-income ratios, and loan-to-value (LTV) ratios. Included in our home equity loan portfolio are $1.4 billion of loans where we have the first-mortgage lien on the property. We offer closed-end home equity loans with a fixed interest rate and level monthly payments and a variable-rate, interest-only home equity line of credit. The weighted average cumulative LTV ratio at origination of our home equity portfolio was 75% at June 30, 2008.

We believe we have granted credit conservatively within this portfolio. We do not originate home equity loans or lines of credit that allow negative amortization, or which have cumulative LTV ratios (including any first-mortgage loans) at origination greater than 100%. Home equity loans are generally fixed rate with periodic principal and interest payments. Home equity lines of credit generally have variable rates of interest and do not require payment of principal during the 10-year revolving period of the line.

We have addressed the risk profile of this portfolio. We stopped originating new production through brokers in 2007, a continuation of our strategy begun in early 2005 to reduce our exposure to the broker channel. Reducing our reliance on brokers also addresses the risk profile as this channel typically included a higher-risk borrower profile, as well as the risks associated with a third party sourcing arrangement. Production is focused within our banking footprint. Regarding origination policies, we continued to make appropriate adjustments based on our own assessment of an appropriate risk profile as well as industry actions. As an example, the significant changes made by Fannie Mae and Freddie Mac resulted in the reduction of our maximum LTV on second-mortgage loans, even for customers with high FICO scores. While it is still too early to make any declarative statements regarding the impact of these actions, our more recent originations have shown consistent or lower levels of cumulative risk during the first twelve months of the loan or line of credit term compared with earlier originations.

Residential Mortgages

We focus on higher quality borrowers, and underwrite all applications centrally, or through the use of an automated underwriting system. We do not originate residential mortgage loans that (a) allow negative amortization, (b) have a LTV ratio at origination greater than 100%, or (c) are “payment option adjustable-rate mortgages.”

A majority of the loans in our loan portfolio have adjustable rates. Our adjustable-rate mortgages (ARMs) are primarily residential mortgages that have a fixed rate for the first 3 to 5 years and then adjust annually. These loans comprised approximately 60% of our total residential mortgage loan portfolio at June 30, 2008. At June 30, 2008, ARM loans that were expected to have rates reset, in 2008 and 2009 respectively, totaled $309 million and $708 million. Given the quality of our borrowers, and the decline in interest rates during the first six-month period of 2008, we believe that we have a relatively limited exposure to ARM reset risk. Nonetheless, we have taken actions to mitigate our risk exposure. We initiate borrower contact at least six months prior to the interest rate resetting, and have been successful in converting many ARMs to fixed-rate loans through this process. Additionally, where borrowers are experiencing payment difficulties, loans may be re-underwritten or restructured based on the borrower’s ability to repay the loan.

We had $0.5 billion of Alt-A mortgages in the residential mortgage loan portfolio at June 30, 2008. These loans have a higher risk profile than the rest of the portfolio as a result of origination policies including stated income, stated assets, and higher acceptable LTV ratios. Our exposure related to this product will decline in the future as we stopped originating these loans in 2007.

Interest-only loans comprised $0.7 billion, or 14%, of residential real estate loans at June 30, 2008. Interest-only loans are underwritten to specific standards including minimum FICO credit scores, stressed debt-to-income ratios, and extensive collateral evaluation. At June 30, 2008, borrowers for interest-only loans had an average current FICO score of 714 and the loans had an average LTV ratio of 81%. We continue to believe that we have mitigated the risk of such loans by matching this product with appropriate borrowers.

Credit Quality

We believe the most meaningful way to assess overall credit quality performance for the 2008 second quarter is through an analysis of credit quality performance ratios. This approach forms the basis of most of the discussion in the three sections immediately following: Nonaccruing Loans and Nonperforming Assets, Allowance for Credit Losses, and Net Charge-offs.

The ALLL increase reflected the impact of the continued economic weakness across our Midwest markets. These economic factors influenced the performance of net charge-offs (NCOs) and NALs. To maintain the adequacy of our reserves, there was a commensurate significant increase in the provision for credit losses (see Provision for Credit Losses discussion) in order to increase the absolute and relative levels of our ACL.

Nonaccruing Loans (NAL/NALs) and Nonperforming Assets (NPA/NPAs)
(This section should be read in conjunction with Significant Items 1 and 2.)

Nonperforming assets (NPAs) consist of (a) NALs, which represent loans and leases that are no longer accruing interest and/or have been renegotiated to below market rates based upon financial difficulties of the borrower, (b) troubled-debt restructured loans, (c) NALs held-for-sale, (d) OREO, and (e) other NPAs. C&I and CRE loans are generally placed on nonaccrual status when collection of principal or interest is in doubt or when the loan is 90-days past due. When interest accruals are suspended, accrued interest income is reversed with current year accruals charged to earnings and prior-year amounts generally charged-off as a credit loss.

Table 21 reflects period-end NALs, NPAs, and past due loans and leases detail for each of the last five quarters.

Table 21 — Nonaccruing Loans (NALs), Nonperforming Assets (NPAs) and Past Due Loans and Leases


	2008						2007
(in thousands)	June 30,			March 31,			December 31,			September 30,			June 30,

Non-accrual loans and leases:
Commercial and industrial	$	161,345		$	101,842		$	87,679		$	82,960		$	65,846
Commercial real estate		261,739			183,000			148,467			95,587			88,965
Residential mortgage		82,882			66,466			59,557			47,738			39,868
Home equity		29,076			26,053			24,068			23,111			16,837

Total NALs		535,042			377,361			319,771			249,396			211,516

Restructured loans ⁽¹⁾		368,379			1,157,361			1,187,368			—			—
Other real estate:
Residential		59,119			63,675			60,804			49,555			47,590
Commercial		13,259			10,181			14,467			19,310			2,079

Total other real estate		72,378			73,856			75,271			68,865			49,669

Impaired loans held for sale ⁽²⁾		14,759			66,353			73,481			100,485			—

Other NPAs ⁽³⁾		2,557			2,836			4,379			16,296			—

Total NPAs	$	993,115		$	1,677,767		$	1,660,270		$	435,042		$	261,185


NALs as a % of total loans and leases		1.30	%		0.92	%		0.80	%		0.62	%		0.79	%

NPA ratio ⁽⁴⁾		2.41			4.08			4.13			1.08			0.97

Accruing loans and leases past due 90 days or more	$	136,914		$	152,897		$	140,977		$	115,607		$	67,277

Accruing loans and leases past due 90 days or more as a percent of total loans and leases		0.33	%		0.37	%		0.35	%		0.29	%		0.25	%


(1)		Restructured loans represent loans to Franklin Credit Management Corporation (Franklin) that were restructured during the 2007 fourth quarter, and the subsequent removal of the Franklin Tranche A loans from nonperforming status during the 2008 second quarter.

(2)		Impaired loans held for sale represent impaired loans obtained from the Sky Financial acquisition that are intended to be sold. Impaired loans held for sale are carried at the lower of cost or fair value less costs to sell. The decline from March 31, 2008 to June 30, 2008 was primarily due to the sale of these loans.

(3)		Other NPAs represent certain investment securities backed by mortgage loans to borrowers with lower FICO scores.

(4)		Nonperforming assets divided by the sum of loans and leases, impaired loans held for sale, other real estate, and other NPAs.

Compared with the prior quarter, NALs increased $157.7 million, or 42%, primarily reflecting the overall weakness in our markets. The majority of the increase occurred in our C&I and CRE portfolios.

	•		C&I NALs increased $59.5 million, or 58%. The increase was spread across all regions, but was more concentrated in the central Ohio and southeastern Michigan areas. The increase was a result of number of small relationships, as only one loan exceeded $10 million.

	•		CRE NALs increased $78.7 million, or 43%. The increase included one $30 million relationship secured by a retail property, with the remainder of the increase spread across all regions and consisting of smaller dollar relationships.

The $684.7 million, or 41%, decrease in NPAs, which include NALs, from the end of the prior quarter reflected:

	•		$789.0 million, or 68%, reduction in restructured Franklin loans, primarily reflecting the removal of the Tranche A portion of the total Franklin loans based on the performance during the first six-month period of 2008, and the continued expected cash flow performance and priority of cash flows.

	•		$51.6 million, or 78%, reduction in impaired loans held-for-sale, primarily reflecting loan sales and payments.

	•		$1.5 million decline in OREO.

Partially offset by:

•

$157.7 million, or 42%, increase in NALs (discussed above).

Compared with December 31, 2007, NPAs, which include NALs, decreased $667.2 million, or 40%, reflecting:

	•		$819.0 million, or 69%, reduction in restructured Franklin loans, primarily reflecting the removal of the Tranche A portion of the total Franklin loans during the 2008 second quarter based on the performance during the first six-month period of 2008, and the continued expected cash flow performance and priority of cash flows.

	•		$58.7 million, or 80%, reduction in impaired loans held-for-sale, primarily reflecting loan sales and payments.

	•		$2.9 million decline in OREO.

Partially offset by:

•

$215.3 million, or 67%, increase in NALs primarily reflecting the overall economic weakness in our markets. These increases are primarily in our C&I and CRE portfolios, reflecting the continued softness in the residential real estate development markets.

From time to time, as part of our loss mitigation process, loans may be renegotiated when we determine that we will ultimately receive greater economic value under the new terms than through foreclosure, liquidation, or bankruptcy. We may consider the borrower’s payment status and history, borrower’s ability to pay upon a rate reset on an adjustable rate mortgage, size of the payment increase upon a rate reset, period of time remaining prior to the rate reset and other relevant factors in determining whether a borrower is experiencing financial difficulty. These restructurings generally occur within the residential mortgage and home equity loan portfolios and are not material in any period presented.

NPA activity for each of the past five quarters was as follows:

Table 22 — Non-Performing Assets (NPAs) Activity


	2008						2007
(in thousands)	Second			First			Fourth			Third			Second

NPAs, beginning of period	$	1,677,767		$	1,660,270		$	435,042		$	261,185		$	206,678
New NPAs		256,308			141,090			211,134			92,986			112,348
Restructured loans ⁽¹⁾		(762,033	)		—			1,187,368			—			—
Acquired NPAs		—			—			—			144,492			—
Returns to accruing status		(5,817	)		(13,484	)		(5,273	)		(8,829	)		(4,674	)
Loan and lease losses		(40,808	)		(27,896	)		(62,502	)		(28,031	)		(27,149	)
Payments		(73,040	)		(68,753	)		(30,756	)		(17,589	)		(19,662	)
Sales		(59,262	)		(13,460	)		(74,743	)		(9,172	)		(6,356	)

NPAs, end of period	$	993,115		$	1,677,767		$	1,660,270		$	435,042		$	261,185


(1)		Restructured loans represent loans to Franklin Credit Management Corporation (Franklin) that were restructured during the 2007 fourth quarter, and the subsequent removal of the Franklin Tranche A loans from nonperforming status during the 2008 second quarter.

Allowances for Credit Losses (ACL)
(This section should be read in conjunction with Significant Items 1 and 2.)

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

Table 23 reflects activity in the ALLL and AULC for each of the last five quarters.

Table 23 — Quarterly Credit Reserves Analysis


	2008						2007
(in thousands)	Second			First			Fourth			Third			Second

Allowance for loan and lease losses, beginning of period	$	627,615		$	578,442		$	454,784		$	307,519		$	282,976
Acquired allowance for loan and lease losses		—			—			—			188,128			—
Loan and lease losses		(78,084	)		(60,804	)		(388,506	)		(57,466	)		(44,158	)
Recoveries of loans previously charged off		12,837			12,355			10,599			10,360			9,658

Net loan and lease losses		(65,247	)		(48,449	)		(377,907	)		(47,106	)		(34,500	)

Provision for loan and lease losses		117,035			97,622			503,781			36,952			59,043
Allowance for loans transferred to held-for-sale		—			—			(2,216	)		(30,709	)		—

Allowance for loan and lease losses, end of period	$	679,403		$	627,615		$	578,442		$	454,784		$	307,519



Allowance for unfunded loan commitments and letters of credit, beginning of period	$	57,556		$	66,528		$	58,227		$	41,631		$	40,541

Acquired AULC		—			—			—			11,541			—
(Reduction in) provision for unfunded loan commitments and letters of credit losses		3,778			(8,972	)		8,301			5,055			1,090

Allowance for unfunded loan commitments and letters of credit, end of period	$	61,334		$	57,556		$	66,528		$	58,227		$	41,631

Total allowances for credit losses	$	740,737		$	685,171		$	644,970		$	513,011		$	349,150


Allowance for loan and lease losses (ALLL) as % of:
Transaction reserve		1.45	%		1.34	%		1.27	%		0.97	%		0.94	%
Economic reserve		0.21			0.19			0.17			0.17			0.21

Total loans and leases		1.66	%		1.53	%		1.44	%		1.14	%		1.15	%

Nonaccrual loans and leases (NALs)		127			166			181			182			145

Total allowances for credit losses (ACL) as % of:
Total loans and leases		1.80	%		1.67	%		1.61	%		1.28	%		1.30	%
NALs		138			182			202			206			165

Table 24 reflects activity in the ALLL and AULC for the first six-month periods of 2008 and 2007.

Table 24 — Year to Date Credit Reserves Analysis


	Six Months Ended June 30,
(in thousands)	2008			2007

Allowance for loan and lease losses, beginning of period	$	578,442		$	272,068
Loan and lease losses		(138,888	)		(71,971	)
Recoveries of loans previously charged off		25,192			19,353

Net loan and lease losses		(113,696	)		(52,618	)
Provision for loan and lease losses		214,657			88,069

Allowance for loan and lease losses, end of period	$	679,403		$	307,519


Allowance for unfunded loan commitments and letters of credit, beginning of period	$	66,528		$	40,161
(Reduction in) provision for unfunded loan commitments and letters of credit losses		(5,194	)		1,470


Allowance for unfunded loan commitments and letters of credit, end of period	$	61,334		$	41,631

Total allowances for credit losses	$	740,737		$	349,150


Allowance for loan and lease losses (ALLL) as % of:
Transaction reserve		1.45	%		0.94	%
Economic reserve		0.21			0.21

Total loans and leases		1.66	%		1.15	%

Nonaccrual loans and leases (NALs)		127			145

Total allowances for credit losses (ACL) as % of:
Total loans and leases		1.80	%		1.30	%
NALs		138			165

The increases to the ALLL of $51.8 million and $101.0 million compared with March 31, 2008, and December 31, 2007, respectively, primarily reflected the impact of the continued economic weakness across our Midwest markets. Our loan loss reserve methodology indicates the need for higher reserves in response to changes in underlying portfolio characteristics as reflected in the transaction reserve component, and changes in the economy as reflected in the economic reserve component. At June 30, 2008, the specific ALLL related to Franklin was $115.3 million, unchanged compared with December 31, 2007.

The estimated loss factors assigned to credit exposures across the portfolio are updated from time to time based on changes in actual performance. During the 2008 first quarter, we updated the expected loss factors used to estimate the AULC. The lower expected loss factors were based on our observations of how unfunded loan commitments have historically become funded loans. Additionally, we also made other adjustments that affected the level of the ALLL during the first six-month period of 2008. In the aggregate, these changes did not have a significant impact to the provision for credit losses for the first six-month period of 2008.

Net Charge-offs (NCOs)
(This section should be read in conjunction with Significant Items 1 and 2.)

Table 25 reflects net loan and lease charge-off detail for each of the last five quarters.

Table 25 — Quarterly Net Charge-Off Analysis


	2008						2007
(in thousands)	Second			First			Fourth			Third			Second

Net charge-offs by loan and lease type:
Commercial:
Commercial and industrial	$	12,361		$	10,732		$	323,905		$	12,641		$	7,251
Commercial real estate:
Construction		575			122			6,800			2,157			2,888
Commercial		14,524			4,153			13,936			2,506			10,396

Commercial real estate		15,099			4,275			20,736			4,663			13,284

Total commercial		27,460			15,007			344,641			17,304			20,535

Consumer:
Automobile loans		8,522			8,008			7,347			5,354			1,631
Automobile leases		2,928			3,211			3,046			2,561			2,699

Automobile loans and leases		11,450			11,219			10,393			7,915			4,330
Home equity		13,984			14,515			12,212			10,841			5,405
Residential mortgage		4,286			2,927			3,340			4,405			1,695
Other loans		8,067			4,781			7,321			6,641			2,535

Total consumer		37,787			33,442			33,266			29,802			13,965

Total net charge-offs	$	65,247		$	48,449		$	377,907		$	47,106		$	34,500


Net charge-offs — annualized percentages:
Commercial:
Commercial and industrial		0.36	%		0.32	%		9.76	%		0.39	%		0.36	%
Commercial real estate:
Construction		0.11			0.02			1.44			0.48			0.92
Commercial		0.77			0.23			0.78			0.14			1.23

Commercial real estate		0.63			0.18			0.92			0.21			1.14

Total commercial		0.47			0.27			6.18			0.31			0.64

Consumer:
Automobile loans		0.94			0.97			0.96			0.73			0.28
Automobile leases		1.28			1.18			0.96			0.72			0.70

Automobile loans and leases		1.01			1.02			0.96			0.73			0.45
Home equity		0.76			0.80			0.67			0.58			0.43
Residential mortgage		0.33			0.22			0.25			0.32			0.16
Other loans		4.62			2.68			4.02			4.97			2.39

Total consumer		0.85			0.75			0.75			0.67			0.41

Net charge-offs as a % of average loans		0.64	%		0.48	%		3.77	%		0.47	%		0.52	%

Second quarter performance was generally in line with the full-year net charge-off expectation we provided at the end of the 2008 first quarter of 0.60%-.65%. Reflecting the expectation for continued economic weakness into 2009, we have raised our 2008 full-year net charge-off expectation to 0.65%-0.70%.

The $16.8 million increase in total NCOs compared with the prior quarter was driven primarily by a $12.5 million increase in total commercial NCOs to $27.5 million, or an annualized 0.47% of related balances. This increase primarily reflected higher CRE NCOs, particularly within the single family home builder segment. Commercial NCOs typically

display more variance between quarters as such charge-offs are generally of larger relative amount compared with consumer loans where the average charge-off amount is smaller.

In reviewing commercial NCOs trends, it is helpful to understand that reserves for such loans are usually established in periods prior to that in which any related NCOs are typically recognized. As the quality of a commercial credit deteriorates, it migrates from a higher quality loan classification to a lower quality classification. As a part of our normal process, the credit is reviewed and reserves are established or increased as warranted. It is usually not until a later period that the credit is resolved and a NCO is recognized. If the previously established reserves exceed that needed to satisfactorily resolve the problem credit, a recovery would be recognized; if not, a final NCO is recorded. Increases in reserves precede increases in NALs. Once a credit is classified as NAL, it is evaluated for specific reserves. As a result, an increase in NALs does not necessarily result in an increase in reserves. In sum, the typical sequence are periods of building reserve levels, followed by periods of higher NCOs that are applied against these previously established reserves.

Automobile loan and lease NCOs were $11.5 million, or an annualized 1.01%, in the current quarter. This level reflected a slightly lower level of annualized automobile loan NCOs compared with the prior quarter, but an increase in annualized automobile lease NCOs. The declining balances of automobile direct financing leases, resulting from no new automobile direct financing leases being originated, increases the potential for volatility in reported automobile direct financing lease NCOs. Both the automobile loan and lease NCOs were also negatively impacted by the lack of recovery in used car prices. It is our expectation that the automobile loan and lease NCO ratio for the second six-month period of 2008 will be consistent with the first six-month period of 2008.

Home equity NCOs in the 2008 second quarter were $14.0 million, or an annualized 0.76%. This portfolio continues to be impacted by the general housing market slowdown, and the resulting losses were evident across our banking footprint. Our expectation is that second six-month period of 2008 performance will be consistent with the first six-month period of 2008, as the small broker-originated portfolio continues to decline, and our enhanced loss mitigation programs positively impact performance. We continue to believe our home equity NCO experience will compare very favorably to the industry.

Residential mortgage NCOs were $4.3 million, or an annualized 0.33% of related average balances. We expect residential mortgage NCOs will remain under only modest upward pressure from the first six-month period of 2008 level for the remainder of 2008, given our limited exposure to non-traditional mortgages.

Table 26 reflects net loan and lease charge-off detail for the first six-month periods of 2008 and 2007.

Table 26 — Year To Date Net Charge-Off Analysis


	Six Months Ended June 30,
(in thousands)	2008			2007

Net charge-offs by loan and lease type:
Commercial:
Commercial and industrial	$	23,093		$	9,294
Commercial real estate:
Construction		697			2,897
Commercial		18,677			10,808

Commercial real estate		19,374			13,705

Total commercial		42,467			22,999

Consumer:
Automobile loans		16,530			4,484
Automobile leases		6,139			4,900

Automobile loans and leases		22,669			9,384
Home equity		28,499			11,373
Residential mortgage		7,213			3,626
Other loans		12,848			5,236

Total consumer		71,229			29,619

Total net charge-offs	$	113,696		$	52,618


Net charge-offs — annualized percentages:
Commercial:
Commercial and industrial		0.34	%		0.23	%
Commercial real estate:
Construction		0.07			0.48
Commercial		0.50			0.64

Commercial real estate		0.41			0.60

Total commercial		0.37			0.36

Consumer:
Automobile loans		0.95			0.40
Automobile leases		1.22			0.60

Automobile loans and leases		1.01			0.48
Home equity		0.78			0.46
Residential mortgage		0.27			0.16
Other loans		3.64			2.48

Total consumer		0.80			0.43

Net charge-offs as a % of average loans		0.56	%		0.40	%

Investment Portfolio
(This section should be read in conjunction with Significant Item 5.)

We routinely review our available-for-sale portfolio, and recognize impairment write-downs based primarily on fair value, issuer-specific factors and results, and our intent to hold such investments.

Available-for-sale portfolio

Our available-for-sale portfolio is evaluated in light of established asset/liability management objectives, and changing market conditions that could affect the profitability of the portfolio, as well as the level of interest rate risk we are exposed to.

Within our securities available-for-sale portfolio are asset-backed securities. At June 30, 2008, the securities in this portfolio had a fair value that was $173.7 million less than their book value, resulting from increased liquidity spreads and higher long-term rates during the first six-month period of 2008, as well as the expected extended duration of the securities. We have reviewed our asset-backed securities portfolio with an independent party, and we do not believe that there has been an adverse change in the estimated cash flows that we expect to receive from these securities. Therefore, we believe the $173.7 million of impairment to be temporary. Table 27 details our asset-backed securities exposure.

Table 27 — Asset Backed Securities Exposure
(in thousands of dollars)

June 30, 2008

December 31, 2007

Average

Average

Collateral Type

Book value

Fair value

Credit Rating

Book value

Fair value

Credit Rating

Alt-A mortgage loans

545,322

458,437

AAA

560,654

547,358

AAA

Trust preferred securities

299,564

212,745

A+

301,231

279,175

Other securities⁽¹⁾

2,557

B-

7,769

7,956

BB-

Total

847,443

673,739

869,654

834,489


⁽¹⁾		Other securities represent certain investment securities backed by mortgage loans to borrowers with lower FICO scores.

At June 30, 2008, we held in our investment securities portfolio $123.1 million of Fannie Mae debt securities with a weight average maturity of 1.9 years, and $225.9 million of Freddie Mac debt securities with a weighted average maturity of 2.5 years. Combined equity holdings in these companies was immaterial.

Market Risk

Market risk is the risk of loss due to changes in the market value of assets and liabilities due to changes in market interest rates, foreign exchange rates, equity prices, and credit spreads. Interest rate risk and price risk are our two primary sources of market risk.

Interest Rate Risk

Interest rate risk is the risk to earnings and value arising from changes in market interest rates. Interest rate risk arises from timing differences in the repricings and maturities of interest bearing assets and liabilities (reprice risk), changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers’ ability to prepay residential mortgage loans at any time and depositors’ ability to terminate certificates of deposit before maturity (option risk), changes in the shape of the yield curve whereby market interest rates increase or decrease in a non-parallel fashion (yield curve risk), and changes in spread relationships between different yield curves, such as U.S. Treasuries and LIBOR (basis risk).

The simulations for evaluating short-term interest rate risk exposure are scenarios that model gradual 100 and 200 basis point increasing and decreasing parallel shifts in market interest rates over the next 12-month period beyond the interest rate change implied by the current yield curve. As of June 30, 2008, the scenario that used the “-200 basis” point parallel shift in market interest rates over the next 12-month period indicated that market interest rates could fall below historical levels. Accordingly, management instituted an assumption that market interest rates would not fall below 0.50% over the next 12-month period. The table below shows the results of the scenarios as of June 30, 2008, and December 31, 2007. All of the positions were well within the board of directors’ policy limits.

Table 28 — Net Interest Income at Risk


	Net Interest Income at Risk (%)

Basis point change scenario		-200		-100		+100		+200

Board policy limits		-4.0	%	-2.0	%	-2.0	%	-4.0	%

June 30, 2008		-0.3	%	+0.0		-0.3	%	-0.6	%
December 31, 2007		-3.0	%	-1.3	%	+1.4	%	+2.2	%

The change in net interest income at risk reported as of June 30, 2008 compared with December 31, 2007 reflected actions taken by management to reduce net interest income at risk. During the first quarter of 2008, $2.5 billion of receive fixed rate, pay variable rate interest rate swaps were executed, and $0.2 billion of pay fixed rate, receive variable rate interest rate swaps were terminated. The combined impact of these actions decreased net interest income at risk to market interest rates “+200” basis points 1.9%. The remainder of the change in net interest income at risk to market interest rates “+200” basis points was primarily related to the impact of slower prepayments on mortgage assets resulting from expectations for higher longer-term market interest rates over the simulation horizon.

The primary simulations for EVE at risk assume immediate 100 and 200 basis point increasing and decreasing parallel shifts in market interest rates beyond the interest rate change implied by the current yield curve. The table below outlines the June 30, 2008, results compared with December 31, 2007.

Table 29 — Economic Value of Equity at Risk


	Economic Value of Equity at Risk (%)

Basis point change scenario		-200		-100		+100		+200

Board policy limits		-12.0	%	-5.0	%	-5.0	%	-12.0	%

June 30, 2008		+1.6	%	+3.5	%	-5.5	%	-11.7	%
December 31, 2007		-0.3	%	+1.1	%	-4.4	%	-10.8	%

The change to EVE at risk reported as of June 30, 2008 compared with December 31, 2007 reflected the impact of slower prepayments on mortgage assets resulting from expectations for higher longer-term market interest rates. The “+100” basis point scenario was slightly outside the board of directors’ policy limits. However, the Market Risk Committee (MRC) recommended in April 2008, and the Risk Committee of the board of directors approved, a temporary exception to the policy limits for the purpose of minimizing the amount of net interest income at risk as noted above. EVE at risk is expected to be within the board of directors’ policy limits by December 31, 2008.

Mortgage Servicing Rights (MSRs)

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

MSR fair values are very sensitive to movements in interest rates as expected future net servicing income depends on the projected outstanding principal balances of the underlying loans, which can be greatly reduced by prepayments. Prepayments usually increase when mortgage interest rates decline and decrease when mortgage interest rates rise. We have employed strategies to reduce the risk of MSR fair value changes. In addition, a third party has been engaged to provide improved analytical tools and insight to enhance our strategies with the objective to decrease the volatility from MSR fair value changes. However, volatile changes in interest rates can diminish the effectiveness of these hedges. We typically report MSR fair value adjustments net of hedge-related trading activity in the mortgage banking income category of non-interest income.

At June 30, 2008, we had a total of $240.0 million of MSRs representing the right to service $15.8 billion in mortgage loans. For additional information regarding MSRs, please refer to Note 5 of the Notes to the Unaudited Condensed Consolidated Financial Statements.

Price Risk

(This section should be read in conjunction with Significant Item 5.)

Price risk represents the risk of loss arising from adverse movements in the prices of financial instruments that are carried at fair value and are subject to fair value accounting. We have price risk from trading securities, which includes instruments to hedge MSRs. We also have price risk from securities owned by our broker-dealer subsidiaries, foreign exchange positions, equity investments, investments in securities backed by mortgage loans, and marketable equity securities held by our insurance subsidiaries. We have established loss limits on the trading portfolio, on the amount of foreign exchange exposure that can be maintained, and on the amount of marketable equity securities that can be held by the insurance subsidiaries.

Equity Investment Portfolios

In reviewing our equity investment portfolio, we consider general economic and market conditions, including industries in which private equity merchant banking and community development investments are made, and adverse changes affecting the availability of capital. We determine any impairment based on all of the information available at the time of the assessment. New information or economic developments in the future could result in recognition of additional impairment.

From time to time, we invest in various investments with equity risk. Such investments include investment funds that buy and sell publicly traded securities, investment funds that hold securities of private companies, direct equity or venture capital investments in companies (public and private), and direct equity or venture capital interests in private companies in connection with our mezzanine lending activities. These investments are reported as a component of “accrued income and other assets” on our consolidated balance sheet. At June 30, 2008, we had a total of $39.5 million of such investments, down from $48.7 million at December 31, 2007. The following table details the components of this change during the first six-month period of 2008.

Table 30 — Equity Investment Activity
(in thousands of dollars)


	Balance at		New		Returns of						Balance at
	December 31, 2007		Investments		Capital			Gain / (Loss)			June 30, 2008
Type:
Public equity	$	16,583	$	—	$	—		$	(6,053	)	$	10,530
Private equity		20,202		3,071		(391	)		(1,224	)		21,658
Direct investment		11,962		1,893		(473	)		(6,115	)		7,267

Total	$	48,747	$	4,964	$	(864	)	$	(13,392	)	$	39,455

The majority of the equity investment losses in the first six-month period of 2008 was attributable to: (a) $5.9 million venture capital loss, and (b) $7.3 million losses on public equity investment funds that buy and sell publicly traded securities and private equity investments. These investments were in funds that focus on the financial services sector that, during the first six months of 2008, performed worse than the broad equity market.

Investment decisions that incorporate credit risk require the approval of the independent credit administration function. The degree of initial due diligence and subsequent review is a function of the type, size, and collateral of the investment. Performance is monitored on a regular basis, and reported to the MRC and the Risk Committee of the board of directors.

Liquidity Risk

Liquidity risk is the risk of loss due to 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. We manage liquidity risk at both the Bank and at the parent company, Huntington Bancshares Incorporated.

Liquidity policies and limits are established by our board of directors, with operating limits set by the MRC, based upon analyses of the ratio of loans to deposits, the percentage of assets funded with non-core or wholesale funding, and the amount of liquid assets available to cover non-core funds maturities. In addition, guidelines are established to ensure diversification of wholesale funding by type, source, and maturity and provide sufficient balance sheet liquidity to cover 100% of wholesale funds maturing within a six-month period. A contingency funding plan is in place, which includes forecasted sources and uses of funds under various scenarios in order to prepare for unexpected liquidity shortages, including the implications of any rating changes. The MRC meets monthly to identify and monitor liquidity issues, provide policy guidance, and oversee adherence to, and the maintenance of, the contingency funding plan.

Bank Liquidity

Conditions in the capital markets remained volatile throughout the first six-month period of 2008 resulting from the disruptions caused by the Bear Stearns liquidity crisis and subsequent forced portfolio liquidations from a variety of mortgage related hedge funds. As a result, liquidity premiums and credit spreads widened and many investors remained invested in lower risk investments such as US Treasuries. Many banks relying on short term funding structures, such as commercial paper, alternative collateral repurchase agreements, or other short term funding vehicles, have had limited access to these funding markets. We, however, have maintained a diversified wholesale funding structure with an emphasis on reducing the risk from maturing borrowings resulting in minimizing our reliance on the short term funding markets. We do not have an active commercial paper funding program and, while historically we have used the securitization markets (primarily indirect auto loans and leases) to provide funding, we do not rely heavily on these sources of funding. In addition, we do not provide liquidity facilities for conduits, structured investment vehicles, or other off-balance sheet financing structures. As expected, indicative credit spreads have widened in the secondary market for our debt. We expect these spreads to remain wider than in prior periods for the foreseeable future.

Our primary source of funding for the Bank is retail and commercial core deposits. Core deposits are comprised of interest bearing and non-interest bearing demand deposits, money market deposits, savings and other domestic time deposits, consumer certificates of deposit both over and under $100,000, and non-consumer certificates of deposit less than $100,000. Non-core deposits are comprised of brokered money market deposits and certificates of deposit, foreign time deposits, and other domestic time deposits of $100,000 or more comprised primarily of public fund certificates of deposit greater than $100,000.

Table 31, presented on the next page, reflects deposit composition detail for each of the past five quarters.

Table 31 — Deposit Composition ⁽¹⁾


	2008								2007
(in thousands)	June 30,				March 31,				December 31,				September 30,				June 30,
	*(Unaudited)*
By Type
Demand deposits — non-interest bearing	$	5,253,156	13.8	%	$	5,160,068	13.5	%	$	5,371,747	14.2	%	$	4,984,663	13.0	%	$	3,625,540	14.7	%
Demand deposits — interest bearing		4,074,202	10.7			4,040,747	10.6			4,048,873	10.7			3,982,102	10.4			2,496,250	10.1
Money market deposits		6,170,640	16.2			6,681,412	17.5			6,643,242	17.6			6,721,963	17.5			5,323,707	21.6
Savings and other domestic deposits		5,008,855	13.1			5,083,046	13.3			4,968,615	13.2			5,081,856	13.2			2,914,078	11.8
Core certificates of deposit		11,273,807	29.6			10,582,394	27.8			10,736,146	28.4			10,611,821	27.6			5,738,598	23.3

Total core deposits		31,780,660	83.4			31,547,667	82.7			31,768,623	84.1			31,382,405	81.7			20,098,173	81.5
Other domestic deposits of $100,000 or more		2,138,692	5.6			2,160,339	5.7			1,870,730	5.0			1,710,037	4.5			984,412	4.0
Brokered deposits and negotiable CDs		3,100,955	8.1			3,361,957	8.8			3,376,854	8.9			3,701,726	9.6			2,920,726	11.9
Deposits in foreign offices		1,104,119	2.9			1,046,378	2.8			726,714	2.0			1,610,197	4.2			596,601	2.6

Total deposits	$	38,124,426	100.0	%	$	38,116,341	100.0	%	$	37,742,921	100.0	%	$	38,404,365	100.0	%	$	24,599,912	100.0	%


Total core deposits:
Commercial	$	8,471,809	26.7	%	$	8,715,690	27.6	%	$	9,017,852	28.4	%	$	9,017,474	28.7	%	$	6,267,644	31.2	%
Personal		23,308,851	73.3			22,831,977	72.4			22,750,771	71.6			22,364,931	71.3			13,830,529	68.8

Total core deposits	$	31,780,660	100.0	%	$	31,547,667	100.0	%	$	31,768,623	100.0	%	$	31,382,405	100.0	%	$	20,098,173	100.0	%


By Business Segment
Regional Banking:
Central Ohio	$	6,618,913	17.4	%	$	6,665,031	17.5	%	$	6,332,143	16.8	%	$	5,931,926	15.4	%	$	5,016,401	20.4	%
Northwest Ohio		2,775,959	7.3			2,798,377	7.3			2,837,735	7.5			2,841,442	7.4			1,097,765	4.5
Greater Cleveland		3,334,461	8.7			3,263,713	8.6			3,194,780	8.5			3,071,014	8.0			2,025,824	8.2
Greater Akron/Canton		2,631,229	6.9			2,660,216	7.0			2,636,564	7.0			2,629,397	6.8			1,883,329	7.7
Southern Ohio / Kentucky		2,655,612	7.0			2,676,381	7.0			2,628,766	7.0			2,626,166	6.8			2,353,087	9.6
Mahoning Valley		1,498,004	3.9			1,583,723	4.2			1,550,676	4.1			1,540,095	4.0			—	—
Ohio Valley		1,280,188	3.4			1,291,747	3.4			1,289,027	3.4			1,374,947	3.6			—	—
West Michigan		2,946,401	7.7			2,937,318	7.7			2,919,926	7.7			2,966,558	7.7			2,820,076	11.5
East Michigan		2,513,804	6.6			2,445,148	6.4			2,442,354	6.5			2,420,169	6.3			2,357,108	9.6
Western Pennsylvania		1,629,258	4.3			1,630,114	4.3			1,643,483	4.4			1,663,174	4.3			—	—
Pittsburgh		935,180	2.5			956,254	2.5			948,451	2.5			933,468	2.4			—	—
Central Indiana		1,973,110	5.2			1,881,781	4.9			1,896,433	5.0			1,910,530	5.0			851,839	3.5
West Virginia		1,658,034	4.3			1,584,233	4.2			1,589,903	4.2			1,559,864	4.1			1,586,407	6.4
Other Regional		849,501	2.2			781,967	2.1			771,261	2.0			612,620	1.6			526,035	2.1

Regional Banking		33,299,654	87.3			33,156,003	87.0			32,681,502	86.6			32,081,370	83.5			20,517,871	83.4
Dealer Sales		56,517	0.1			55,557	0.1			58,196	0.2			63,399	0.2			57,554	0.2
Private Financial and Capital Markets Group		1,666,608	4.4			1,542,631	4.0			1,626,043	4.3			1,630,675	4.2			1,106,329	4.5
Treasury / Other⁽²⁾		3,101,647	8.2			3,362,150	8.9			3,377,180	8.9			4,628,921	12.1			2,918,158	11.9

Total deposits	$	38,124,426	100.0	%	$	38,116,341	100.0	%	$	37,742,921	100.0	%	$	38,404,365	100.0	%	$	24,599,912	100.0	%


⁽¹⁾		Reflects post-Sky Financial merger organizational structure effective on July 1, 2007. Accordingly, balances presented for prior periods do not include the impact of the acquisition.

⁽²⁾		Comprised largely of national market deposits.

Core deposits can also increase our need for liquidity as certificates of deposit mature or are withdrawn early and as non-maturity deposits, such as checking and savings account balances, are withdrawn.

To the extent that we are unable to obtain sufficient liquidity through core deposits, we can meet our liquidity needs through short-term borrowings by purchasing federal funds or by selling securities under repurchase agreements. The Bank also has access to the Federal Reserve’s discount window and term auction facility. As of June 30, 2008, a total of $8.3 billion of commercial loans and home equity lines of credit were pledged to these facilities. As of June 30, 2008, borrowings under the term auction facility totaled $0.3 billion, with a $6.1 billion of borrowing capacity available from both facilities. Additionally, the Bank has a $4.4 billion borrowing capacity at the Federal Home Loan Bank of Cincinnati, of which $1.3 billion remained unused at June 30, 2008. Other sources of liquidity exist within our securities available-for-sale, and the relatively shorter-term structure of our commercial loans and automobile loans.

During the quarter, we reduced our dependency on overnight funding through: (a) an on-balance sheet securitization transaction, which raised $887 million of longer-term funding, (b) the net proceeds of our convertible preferred stock issuance, (c) the sale of $473 million of residential real estate loans, and (d) managing down of certain non-relationship collateralized public funds deposits and related collateral securities.

At June 30, 2008, we believe that the Bank had sufficient liquidity to meet its cash flow obligations for the foreseeable future.

Parent Company Liquidity

At June 30, 2008, the parent company had $665.1 million in cash or cash equivalents, compared with $153.5 million at December 31, 2007. This increase primarily reflected net proceeds from the current quarter’s issuance of preferred stock (see below paragraph) and the decision to reduce the quarterly cash dividend on our common stock. On April 15, 2008, we declared a quarterly cash dividend on our common stock of $0.1325 per common share, payable July 1, 2008, to shareholders of record on June 13, 2008. Also, on July 16, 2008, we declared a quarterly cash dividend on our common stock of $0.1325 per common share, payable October 1, 2008, to shareholders of record on September 12, 2008.

During the 2008 second quarter, we issued an aggregate $569 million of Series A Preferred Stock. The Series A Preferred Stock will pay, as declared by our board of directors, dividends in cash at a rate of 8.50% per annum, payable quarterly, commencing July 15, 2008. (Please refer to Note 7 of the Notes to Unaudited Condensed Consolidated Financial Statements for additional information.) On May 27, 2008, the board of directors declared a quarterly cash dividend on the Series A Preferred Stock of $19.597 per share. This amount was pro-rated over the initial dividend period as further set forth in the Articles Supplementary classifying the preferred stock. The dividend was payable July 15, 2008, to shareholders of record on July 1, 2008. On July 16, 2008, the board of directors declared a quarterly cash dividend on the Preferred Stock of $21.25 per share. The dividend is payable October 15, 2008, to shareholders of record on October 1, 2008.

Based on the regulatory dividend limitation, the Bank could not have declared and paid a dividend to the parent company at June 30, 2008, without regulatory approval. We do not anticipate that the parent company will receive dividends from the Bank until later in 2008. To help meet any additional liquidity needs, we have an open-ended, automatic shelf registration statement filed and effective with the SEC, which permits us to issue an unspecified amount of debt or equity securities. We also have a $50.0 million committed line of credit that expires in 2009. This credit facility contains financial covenants that require us to maintain certain levels on return on average assets ratio, nonperforming assets, capital ratios, and double leverage ratio. As of June 30, 2008, the entire borrowing capacity was available for use.

Considering anticipated earnings and the capital raised from the 2008 second quarter preferred-stock issuance (discussed above), we believe the parent company has sufficient liquidity to meet its cash flow obligations for the foreseeable future.

Credit Ratings

Credit ratings by the three major credit rating agencies are an important component of our liquidity profile. Among other factors, the credit ratings are based on financial strength, credit quality and concentrations in the loan portfolio, the level and volatility of earnings, capital adequacy, the quality of management, the liquidity of the balance sheet, the availability of a significant base of core retail and commercial deposits, and our ability to access a broad array of wholesale

funding sources. Adverse changes in these factors could result in a negative change in credit ratings and impact not only the ability to raise funds in the capital markets, but also the cost of these funds. In addition, certain financial on- and off-balance sheet arrangements contain credit rating triggers that could increase funding needs if a negative rating change occurs. Letter of credit commitments for marketable securities, interest rate swap collateral agreements, and certain asset securitization transactions contain credit rating provisions. (See the “Liquidity Risks” section in Part 1 of the 2007 Annual Report on Form 10-K for additional discussion.)

On February 22, 2008, Moody’s Investor Service affirmed the ratings of the parent company and the Bank. Moody’s Investor Service and Fitch Ratings upgraded the ratings outlook comment to stable from negative on May 13, 2008, and June 27, 2008, respectively.

Credit ratings as of June 30, 2008, for the parent company and the Bank were:

Table 32 — Credit Ratings

June 30, 2008

Senior Unsecured

Subordinated

Notes

Short-Term

Outlook

Huntington Bancshares Incorporated

Moody’s Investor Service

Baal

P-2

Stable

Standard and Poor’s

BBB+

BBB

A-2

Negative

Fitch Ratings

A-

BBB+

Stable

The Huntington National Bank

Moody’s Investor Service

P-1

Stable

Standard and Poor’s

A-

BBB+

A-2

Negative

Fitch Ratings

A-

BBB+

Stable

As an investor, you should be aware that a security rating is not a recommendation to buy, sell, or hold securities, that it may be subject to revision or withdrawal at any time by the assigning rating organization, and that each rating should be evaluated independently of any other rating.

Off-Balance Sheet Arrangements

In the normal course of business, we enter into various off-balance sheet arrangements. These arrangements include financial guarantees contained in standby letters of credit issued by the Bank and commitments by the Bank to sell mortgage loans.

Through our credit process, we monitor the credit risks of outstanding standby letters of credit. When it is probable that a standby letter of credit will be drawn and not repaid in full, losses are recognized in the provision for credit losses. At June 30, 2008, we had $1.6 billion of standby letters of credit outstanding, of which 42% were collateralized. Included in these letters of credit are letters of credit issued by the Bank that support $0.9 billion of notes and bonds that have been issued by our customers and sold by The Huntington Investment Company, our broker-dealer subsidiary. If the Bank’s short-term credit ratings were downgraded, the Bank could be required to purchase all of these bonds pursuant to its letters of credit, requiring the Bank to obtain funding for the amount of notes and bonds purchased.

We enter into forward contracts relating to the mortgage banking business to hedge the exposures we have from commitments to extend new residential mortgage loans to our customers and from our held-for-sale mortgage loans. At June 30, 2008, December 31, 2007, and June 30, 2007, we had commitments to sell residential real estate loans of $577.0 million, $555.9 million, and $484.5 million, respectively. These contracts mature in less than one year.

We do not believe that off-balance sheet arrangements will have a material impact on our liquidity or capital resources.

Operational Risk

Operational risk is the risk of loss due to human error, inadequate or failed internal systems and controls, violations of, or noncompliance with, laws, rules, regulations, prescribed practices, or ethical standards, and external influences such as market conditions, fraudulent activities, disasters, and security risks. We continuously strive to strengthen our system of internal controls to ensure compliance with laws, rules and regulations, and to improve the oversight of our operational risk.

Capital

Capital is managed both at the Bank and on a consolidated basis. Capital levels are maintained based on regulatory capital requirements and the economic capital required to support credit, market, liquidity, and operational risks inherent in our business, and to provide the flexibility needed for future growth and new business opportunities.

Shareholders’ equity totaled $6.4 billion at June 30, 2008. This balance was an increase compared with $5.9 billion at December 31, 2007, primarily reflecting the current quarter’s issuance of preferred stock (see below paragraph).

During the 2008 second quarter, we issued an aggregate $569 million of Series A Preferred Stock. The Series A Preferred Stock will pay, when declared by our board of directors, dividends in cash at a rate of 8.50% per annum, payable quarterly, commencing July 15, 2008. Each share of the Series A Preferred Stock is non-voting and may be convertible at any time, at the option of the holder, into 83.668 shares of common stock of Huntington.

Additionally, to accelerate the building of capital and to lower the cost of issuing the aforementioned securities, we reduced our quarterly common stock dividend to $0.1325 per common share, effective with the dividend payable July 1, 2008.

No shares were repurchased during the quarter. Although there are currently 3.9 million shares remaining available under the current authorization announced April 20, 2006, no future share repurchases are contemplated.

As shown in the table below, our tangible equity to assets ratio was 5.90% at June 30, 2008, up compared with 5.08% at December 31, 2007, and 4.92% at March 31, 2008. The 98 basis point increase from March 31, 2008, primarily reflected the benefit of the issuance of the $569 million of convertible preferred stock, as well as retained earnings.

Table 33 — Consolidated Capital Adequacy


	“Well-
	Capitalized”			2008						2007
(in millions)	Minimums			June 30,			March 31,			December 31,			September 30,			June 30,
Total risk-weighted assets⁽¹⁾				$	46,602		$	46,546		$	46,044		$	45,931		$	32,121

Tier 1 leverage ratio ⁽¹⁾		5.00	%		7.88	%		6.83	%		6.77	%		7.57	%		9.07	%
Tier 1 risk-based capital ratio ⁽¹⁾		6.00			8.82			7.56			7.51			8.35			9.74
Total risk-based capital ratio ⁽¹⁾		10.00			12.05			10.87			10.85			11.58			13.49

Tangible equity / asset ratio					5.90			4.92			5.08			5.70			6.87
Tangible common equity / asset ratio					4.80			4.92			5.08			5.70			6.87
Tangible equity / risk-weighted assets ratio ⁽¹⁾					6.58			5.57			5.67			6.46			7.66
Average equity / average assets					11.44			10.70			11.40			11.50			8.66


⁽¹⁾		June 30, 2008 figures are estimated. Based on an interim decision by the banking agencies on December 14, 2006, Huntington has excluded the impact of adopting Statement 158 from the regulatory capital calculations.

The Bank is primarily supervised and regulated by the Office of the Comptroller of the Currency, which establishes regulatory capital guidelines for banks similar to those established for bank holding companies by the Federal Reserve Board. We intend to maintain both the parent company’s and the Bank’s risk-based capital ratios at levels at which each would be considered “well capitalized” by regulators. At June 30, 2008, the Bank had Tier 1 and Total risk-based capital in excess of the minimum level required to be considered “well capitalized” of $512.0 million and $148.8 million, respectively; and the parent company had Tier 1 and Total risk-based capital in excess of the minimum level required to be considered “well capitalized” of $1.3 billion and $1.0 billion, respectively.

LINES OF BUSINESS DISCUSSION

This section reviews financial performance from a line of business perspective and should be read in conjunction with the Discussion of Results of Operations, Note 14 of the Notes to Unaudited Condensed Consolidated Financial Statements, and other sections for a full understanding of consolidated financial performance.

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

Acquisition of Sky Financial

The businesses acquired in the Sky Financial merger were fully integrated into each of the corresponding Huntington lines of business as of July 1, 2007. The Sky Financial merger had the largest impact to Regional Banking, but also impacted PFCMG and Treasury/Other. For Regional Banking, the merger added four new banking regions and strengthened our presence in five regions where Huntington previously operated. The merger did not significantly impact Dealer Sales.

After completion of the Sky Financial acquisition, we combined Sky Financial’s operations with ours. Methodologies were implemented to estimate the approximate effect of the acquisition for the entire company; however, these methodologies were not designed to estimate the approximate effect of the acquisition to individual lines of business. As a result, the effect of the acquisition to the individual lines of business is not quantifiable. In the following individual line of business discussions, 2008 second quarter results are compared with 2008 first quarter results. We believe that this comparison provides the most meaningful analysis because: (a) the impacts of the Sky Financial acquisition are included in both periods, (b) the comparisons of 2008 second quarter results to 2007 second quarter results are distorted as a result of the non-quantifiable impact of the Sky Financial acquisition to the individual lines of business, and (c) the comparisons of the first six-month period of 2008 to the first six-month period of 2007 are distorted as a result of the non-quantifiable impact of the Sky Financial acquisition to the individual lines of business.

Funds Transfer Pricing

We use a centralized funds transfer pricing (FTP) methodology to attribute appropriate net interest income to the business segments. The Treasury/Other business segment charges (credits) an internal cost of funds for assets held in (or pays for funding provided by) each line of business. The FTP rate is based on prevailing market interest rates for comparable duration assets (or liabilities). Deposits of an indeterminate maturity receive an FTP credit based on vintage-based pool rates. Other assets, liabilities, and capital are charged (credited) with a four-year moving average FTP rate. The

intent of the FTP methodology is to eliminate all interest rate risk from the lines of business by providing matched duration funding of assets and liabilities. The result is to centralize the financial impact, management, and reporting of interest rate and liquidity risk in Treasury/Other where it can be monitored and managed.

Treasury/Other

The Treasury function includes revenue and expense related to assets, liabilities, and equity not directly assigned or allocated to one of the other three business segments. Assets in this segment include insurance, investment securities, and bank owned life insurance. The financial impact associated with our FTP methodology, as described above, is also included in this segment.

Net interest income includes the impact of administering our investment securities portfolios and the net impact of derivatives used to hedge interest rate sensitivity. Non-interest income includes miscellaneous fee income not allocated to other business segments such as bank owned life insurance income, insurance revenue, and any investment securities and trading assets gains or losses. Non-interest expense includes certain corporate administrative, merger, and other miscellaneous expenses not allocated to other business segments. The provision for income taxes for the other business segments is calculated at a statutory 35% tax rate, though our overall effective tax rate is lower. As a result, Treasury/Other reflects a credit for income taxes representing the difference between the lower actual effective tax rate and the statutory tax rate used to allocate income taxes to the other segments.

The 2008 second quarter increase in the net interest margin compared with the 2008 first quarter primarily reflected the impact of improved pricing of our funding costs, particularly as related to deposits. As this factor is primarily related to interest rate risk, and our FTP methodology is constructed so as to eliminate interest rate risk from the lines of business, this increase in our net interest margin is reflected in our Treasury/Other segment.

Net Income by Business Segment

The company reported net income of $101.4 million in the 2008 second quarter. This compared with a net income of $127.1 million in the 2008 first quarter, a decline of $25.7 million. The breakdown of net income for the 2008 second quarter by business segment is as follows:

	§		Regional Banking: $117.5 million ($5.5 million increase compared with 2008 first quarter)

	§		Dealer Sales: $7.9 million ($4.2 million increase compared with 2008 first quarter)

	§		PFCMG: $9.5 million ($3.2 million decrease compared with 2008 first quarter)

	§		Treasury/Other: $33.5 million loss ($32.2 million decrease compared with 2008 first quarter)

Regional Banking
(This section should be read in conjunction with Significant Items 1, 2, and 4.)

Objectives, Strategies, and Priorities

Our Regional Banking line of business provides traditional banking products and services to consumer, small business, and commercial customers located in its 13 operating regions within the six states of Ohio, Michigan, Pennsylvania, Indiana, West Virginia, and Kentucky. It provides these services through a banking network of over 600 branches, and over 1,400 ATMs, along with Internet and telephone banking channels. It also provides certain services on a limited basis outside of these six states, including mortgage banking and equipment leasing. Each region is further divided into retail and commercial banking units. Retail products and services include home equity loans and lines of credit, first mortgage loans, direct installment loans, small business loans, personal and business deposit products, as well as sales of investment and insurance services. At June 30, 2008, Retail Banking accounted for 52% and 80% of total Regional Banking loans and deposits, respectively. Commercial Banking serves middle market commercial banking relationships, which use a variety of banking products and services including, but not limited to, commercial loans, international trade, cash management, leasing, interest rate protection products, capital market alternatives, 401(k) plans, and mezzanine investment capabilities.

We have a business model that emphasizes the delivery of a complete set of banking products and services offered by larger banks, but distinguished by local decision-making about the pricing and the offering of these products. Our strategy is to focus on building a deeper relationship with our customers by providing a “Simply the Best” service experience. This focus on service requires continued investments in state-of-the-art platform technology in our branches, award-winning retail and business websites for our customers, extensive development of associates, and internal processes that empower our local bankers to serve our customers better. We expect the combination of local decision-making and “Simply the Best” service provides a competitive advantage and supports revenue and earnings growth.

2008 Second Quarter versus 2008 First Quarter

Table 35 — Key Performance Indicators for Regional Banking


	Three Months Ended
	June 30,			March 31,			Change
(in thousands unless otherwise noted)	2008			2008			Amount			Percent

Net income — operating	$	117,506		$	111,971		$	5,535			4.9	%
Total average assets (in millions)		34,570			34,240			330			1.0
Total average deposits (in millions)		33,095			32,750			345			1.1
Return on average equity		20.4	%		19.2	%		1.2	%		6.3
Retail banking # DDA households (eop)		897,023			895,340			1,683			0.2
Retail banking # new relationships 90-day cross-sell (average)		2.54			2.38			0.16			6.7
Small business # business DDA relationships (eop)		105,337			104,493			844			0.8
Small business # new relationships 90-day cross-sell (average)		2.11			2.03			0.08			3.9
Mortgage banking closed loan volume (in millions)	$	1,127		$	1,242		$	(115	)		(9.3	)


eop - End of Period.

Regional Banking contributed $117.5 million of the company’s net income in the 2008 second quarter. This compared with net income of $112.0 million in the 2008 first quarter, and represented an increase of $5.5 million.

Fully taxable equivalent net interest income increased $7.2 million, or 2%, reflecting a $0.4 billion, or 1%, increase in total average earning assets, primarily in commercial loans, and a 3 basis point increase in the net interest margin to 4.46% compared with 4.43%. Also contributing to the increase was a combined increase of $0.3 billion, or 3%, in consumer deposit transaction accounts and consumer certificates-of-deposit under $100,000, as well as improved spreads in our consumer savings and consumer money-market products.

Total average loans and leases increased $459 million, or 1%, compared with the prior quarter primarily reflecting growth in our C&I and CRE portfolios. C&I loans increased $263 million, or 2%, and CRE loans grew $306 million, or 3%. The Southern Ohio/KY, Central Ohio, and Cleveland regions accounted for most of Regional Banking’s commercial loan growth. These increases were partially offset by a $0.1 billion, or 1%, decrease in consumer loans, primarily in residential mortgages, reflecting loan sales during the quarter.

Average deposits grew $345 million, or 1%, compared with the prior quarter. This growth was driven primarily by a $0.6 billion, or 4%, increase in time deposits. Additionally, consumer interest checking deposits increased $114 million, or 4%, due partly to an increase in retail banking DDA households. This favorable growth was partially offset by a $374 million, or 12%, decrease in commercial non-time deposits and was the result of a planned reduction in non-relationship collateralized public fund deposits.

The provision for credit losses increased to $104.7 million in the current quarter compared with $69.7 million in the prior quarter reflecting higher NCOs during the quarter, as well as increases in total loans at the end of the period, especially within the commercial loan portfolio. NCOs totaled $51.3 million, or an annualized 0.63% of average loans and leases, in the 2008 second quarter compared with $34.8 million, or an annualized 0.44% of average loans and leases, in the 2008 first quarter. This increase reflected the impact of the continued economic weakness across our Midwest markets, most notably in portfolios related to the residential housing sector, both commercial and consumer.

Non-interest income increased $30.7 million, or 26%, primarily reflecting: (a) $19.5 million increase in mortgage banking income primarily due to lower losses of $14.0 million related to the net hedging impact of MSRs, and (b) $9.8 million increase in service charges on deposit accounts and other service charges and fees primarily due to seasonal increases.

Non-interest expense decreased $5.6 million, or 2%, primarily reflecting a $4.6 million decrease in personnel expense resulting from the impact of an average reduction of 260, or 4%, full-time equivalent staff reflecting the benefit of merger efficiencies and restructuring.

Dealer Sales

(This section should be read in conjunction with Significant Item 1.)

Objectives, Strategies, and Priorities

Our Dealer Sales line of business provides a variety of banking products and services to more than 3,800 automotive dealerships within our primary banking markets, as well as in Arizona, Florida, Nevada, New Jersey, New York, Tennessee, and Texas. Dealer Sales finances the purchase of automobiles by customers at the automotive dealerships; purchases automobiles from dealers and simultaneously leases the automobiles to consumers under long-term leases; finances dealerships’ new and used vehicle inventories, land, buildings, and other real estate owned by the dealership, and their working capital needs; and provides other banking services to the automotive dealerships and their owners. Competition from the financing divisions of automobile manufacturers and from other financial institutions is intense. Dealer Sales’ production opportunities are directly impacted by the general automotive sales business, including programs initiated by manufacturers to enhance and increase sales directly. We have been in this line of business for over 50 years.

The Dealer Sales strategy has been to focus on developing relationships with the dealership through its finance department, general manager, and owner. An underwriter who understands each local market makes loan decisions, though we prioritize maintaining pricing discipline over market share.

2008 Second Quarter versus 2008 First Quarter

Table 36 — Key Performance Indicators for Dealer Sales


	Three Months Ended
	June 30,			March 31,			Change
(in thousands unless otherwise noted)	2008			2008			Amount			Percent

Net income — operating	$	7,906		$	3,718		$	4,188			N.M.	%
Total average assets (in millions)		5,791			5,549			242			4.4
Return on average equity		16.3	%		7.7	%		8.6	%		N.M.
Automobile loans production (in millions)	$	672.7		$	678.9		$	(6.2	)		(0.9	)
Automobile leases production (in millions)		74.3			67.9			6.4			9.4

N.M., not a meaningful value.

Dealer Sales contributed $7.9 million, or 8%, of the company’s net income in the 2008 second quarter. This compared with $3.7 million in the 2008 first quarter, and represented an increase of $4.2 million.

The most notable factor contributing to the $4.2 million increase in net income was a $10.2 million decrease in provision for credit losses to $6.9 million in the current quarter compared with $17.1 million in the prior quarter. This decrease reflected a reduction of approximately $7.0 million in the ALLL maintained for commercial loans during the 2008 second quarter due to the improved credit quality of this portfolio combined with an increase of approximately $3.0 million in the ALLL maintained for consumer loans during the 2008 first quarter due to the deteriorating quality of this portfolio associated with the continuing economic weakness in our markets.

Fully taxable equivalent net interest income decreased $0.8 million, or 2%, reflecting a 12 basis point decline in net interest margin to 2.37% in the current quarter compared with 2.49% in the prior quarter primarily due to increased interest costs related to operating lease assets as that portfolio continues to grow (see below for associated increases in other non interest income and expense). These decreases were partially offset by a $0.2 billion, or 3%, increase in average total consumer loans (see next paragraph).

Total average automobile loans increased $0.3 billion reflecting a continuation of strong origination volumes, which totaled $673 million for the 2008 second quarter and $679 million for the 2008 first quarter, both significantly above 2007 levels. The increase in automobile loan production reflected the consistent execution of our commitment to service quality to our dealers, as well as market dynamics that have resulted in some competitors reducing their automobile lending activities. The increase in total average automobile loans was partially offset by $0.1 billion, or 9%, decline in average

lease balances (operating and direct leases, combined), reflecting consistent declines in automobile lease production volumes since the 2007 second quarter as automobile lease production continues to be challenged by special programs offered by automobile manufacturers’ captive finance companies.

Non-interest expense (excluding operating lease expense) increased $2.4 million, or 11%, reflecting a $1.9 million increase in losses resulting from sales of vehicles returned at the end of their lease terms as values of many used vehicles have continued to decline, as well as higher collection related costs. Additionally, non-interest income (excluding operating lease income) decreased $1.4 million, or 20%, primarily reflecting a $1.0 million reduction in fee income from Huntington Plus loans as production levels of this product have declined.

Automobile operating lease income increased $0.8 million, or 63%, reflecting a 70% increase in operating lease assets. This increase consisted of a $3.5 million increase in non-interest income, offset by a $2.7 million increase in non-interest expense. As discussed previously, all automobile lease originations since the 2007 fourth quarter were recorded as operating leases.

NCOs totaled $12.4 million, or an annualized 0.85% of average related loans and leases compared with $11.7 million, or an annualized 0.82% of average related loans and leases in the 2008 first quarter. This increase reflected the continued economic weakness in our markets along with declines in values of certain used vehicles, which have resulted in lower recovery rates on sales of repossessed vehicles.

Private Financial and Capital Markets Group (PFCMG)

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

Objectives, Strategies, and Priorities

The PFCMG provides products and services designed to meet the needs of higher net worth customers. Revenue results from the sale of trust, asset management, investment advisory, brokerage, and private banking products and services. PFCMG also focuses on financial solutions for corporate and institutional customers that include investment banking, sales and trading of securities, mezzanine capital financing, and interest rate risk management products. To serve higher net worth customers, a unique distribution model is used that employs a single, unified sales force to deliver products and services mainly through Regional Banking distribution channels. PFCMG provides investment management and custodial services to our Huntington Funds, which consists of 32 proprietary mutual funds, including 11 variable annuity funds. Huntington Funds assets represented 29% of the approximately $14.6 billion total assets under management at June 30, 2008. The Huntington Investment Company offers brokerage and investment advisory services to both Regional Banking and PFCMG customers through a combination of licensed investment sales representatives and licensed personal bankers.

PFCMG’s primary goals are to consistently increase assets under management by offering innovative products and services that are responsive to our clients’ changing financial needs and to grow the balance sheet mainly through increased loan volume achieved through improved cross-selling efforts. To grow managed assets, the Huntington Investment Company sales team has been utilized as the distribution source for trust and investment management.

2008 Second Quarter versus 2008 First Quarter

Table 37 — Key Performance Indicators for Private Financial and Capital Markets Group


	Three Months Ended
	June 30,			March 31,			Change
(in thousands unless otherwise noted)	2008			2008			Amount			Percent

Net income — operating	$	9,471		$	12,700		$	(3,229	)		(25.4)	%
Total average assets (in millions)		3,030			2,994			36			1.2
Return on average equity		18.2	%		25.7	%		(7.5	)%		(29.2	)
Total brokerage and insurance income	$	17,414		$	16,882		$	532			3.2
Total assets under management (in billions)		14.6			15.4			(0.8	)		(5.2	)
Total trust assets (in billions)		52.7			55.1			(2.4	)		(4.4	)

PFCMG contributed $9.5 million, or 9%, of the company’s net income in the 2008 second quarter. This compared with $12.7 million in the 2008 first quarter, and represented a decrease of $3.2 million.

Factors negatively impacting the 2008 second quarter performance included: (a) $7.5 million increase in provision for credit losses related to the current quarter’s rise in C&I NALs to $23 million compared with $7 million in the 2008 first quarter; and (b) $0.1 million decrease in fully taxable equivalent net interest income reflecting a 8 basis point decline in net interest margin to 3.75% in the current quarter compared with 3.83% in the prior quarter.

Partially offsetting the above negative impacts was a $2.6 million, or 5%, decrease in non-interest expense, primarily reflecting a $1.8 million, or 6%, decrease in personnel expense resulting from the impact of a reduction of 50, or 5%, full-time equivalent staff during the quarter. Reduced losses accounted for most of the remaining expense decrease.

Total non-interest income for the current quarter was flat compared with the prior quarter. After considering equity investment losses ($8.6 million in the current quarter and $4.2 in the prior quarter), non-interest income declined $4.4 million, reflecting: (a) $1.1 million, or 3%, decrease in trust services income, representing a 4% decline in total trust assets, which was primarily market value driven, and (b) $3.3 million, or 28%, decrease in revenue associated with customer loan swap transactions. Such revenue, although down from the prior quarter, was significantly higher than 2007 levels reflecting lower interest rates and increased sales to former Sky Financial customers. These impacts were partially offset by a $0.5 million, or 3%, increase in brokerage and insurance income reflecting a 9% increase in annuity sales volume. Although net income excluding equity investment losses declined from the current quarter compared to the prior quarter, net income

Item 1. Financial Statements

Huntington Bancshares Incorporated

Condensed Consolidated Balance Sheets

(Unaudited)


	2008			2007
(in thousands, except number of shares)	June 30,			December 31,			June 30,


Assets
Cash and due from banks	$	1,159,819		$	1,416,597		$	818,877
Federal funds sold and securities purchased under resale agreements		198,333			592,649			857,080
Interest bearing deposits in banks		313,855			340,090			271,133
Trading account securities		1,096,239			1,032,745			619,836
Loans held for sale		365,063			494,379			348,272
Investment securities		4,788,275			4,500,171			3,863,182
Loans and leases		41,047,140			40,054,338			26,811,513
Allowance for loan and lease losses		(679,403	)		(578,442	)		(307,519	)

Net loans and leases		40,367,737			39,475,896			26,503,994

Bank owned life insurance		1,341,162			1,313,281			1,107,042
Premises and equipment		533,789			557,565			398,436
Goodwill		3,056,691			3,059,333			569,738
Other intangible assets		395,250			427,970			54,646
Accrued income and other assets		1,717,628			1,486,792			1,008,450


Total Assets	$	55,333,841		$	54,697,468		$	36,420,686


Liabilities and Shareholders’ Equity
Liabilities
Deposits	$	38,124,426		$	37,742,921		$	24,599,912
Short-term borrowings		2,313,190			2,843,638			2,860,939
Federal Home Loan Bank advances		3,058,163			3,083,555			1,397,398
Other long-term debt		2,608,092			1,937,078			2,016,199
Subordinated notes		1,879,900			1,934,276			1,494,197
Accrued expenses and other liabilities		968,805			1,206,860			987,900

Total Liabilities		48,952,576			48,748,328			33,356,545


Shareholders’ equity
Preferred stock — authorized 6,617,808 shares -
8.50% Series A Non-cumulative Perpetual Convertible Preferred Stock, Par value of $1,000, 569,000 shares issued and outstanding		569,000			—			—
Common stock -
Par value of $0.01 and authorized 1,000,000,000 shares; issued 367,019,713; 367,000,815 and 236,944,611 shares respectively; outstanding 366,196,767; 366,261,676, and 236,244,063 shares, respectively		3,670			3,670			2,369
Capital surplus		5,226,326			5,237,783			2,089,516
Less 822,946; 739,139 and 700,548 treasury shares at cost, respectively		(15,224	)		(14,391	)		(13,754	)
Accumulated other comprehensive loss:
Unrealized (losses) on investment securities		(146,307	)		(10,011	)		(17,243	)
Unrealized (losses) gains on cash flow hedging derivatives		(50,544	)		4,553			18,158
Pension and other postretirement benefit adjustments		(46,271	)		(44,153	)		(81,705	)
Retained earnings		840,615			771,689			1,066,800

Total Shareholders’ Equity		6,381,265			5,949,140			3,064,141

Total Liabilities and Shareholders’ Equity	$	55,333,841		$	54,697,468		$	36,420,686

See notes to unaudited condensed consolidated financial statements

Huntington Bancshares Incorporated

Condensed Consolidated Statements of Income

(Unaudited)


	Three Months Ended					Six Months Ended
	June 30,					June 30,
(in thousands, except per share amounts)	2008		2007			2008		2007

Interest and fee income
Loans and leases
Taxable	$	604,746	$	466,904		$	1,263,216	$	928,045
Tax-exempt		1,775		114			3,511		585
Investment securities
Taxable		54,563		49,684			108,458		104,799
Tax-exempt		7,524		6,528			14,878		12,621
Other		28,067		19,231			60,023		31,360

Total interest income		696,675		542,461			1,450,086		1,077,410

Interest expenses
Deposits		227,765		198,108			502,648		394,831
Short-term borrowings		11,785		23,271			30,941		43,108
Federal Home Loan Bank advances		25,925		16,009			59,645		28,519
Subordinated notes and other long-term debt		41,334		51,682			90,162		102,006

Total interest expense		306,809		289,070			683,396		568,464

Net interest income		389,866		253,391			766,690		508,946
Provision for credit losses		120,813		60,133			209,463		89,539

Net interest income after provision for credit losses		269,053		193,258			557,227		419,407

Service charges on deposit accounts		79,630		50,017			152,298		94,810
Trust services		33,089		26,764			67,217		52,658
Brokerage and insurance income		35,694		17,199			72,254		33,281
Other service charges and fees		23,242		14,923			43,983		28,131
Bank owned life insurance income		14,131		10,904			27,881		21,755
Mortgage banking income		12,502		7,122			5,439		16,473
Securities gains (losses)		2,073		(5,139	)		3,502		(5,035	)
Other income		36,069		34,403			99,608		59,297

Total non-interest income		236,430		156,193			472,182		301,370

Personnel costs		199,991		135,191			401,934		269,830
Outside data processing and other services		30,186		25,701			64,547		47,515
Net occupancy		26,971		19,417			60,214		39,325
Equipment		25,740		17,157			49,534		35,376
Amortization of intangibles		19,327		2,519			38,244		5,039
Marketing		7,339		8,986			16,258		16,682
Professional services		13,752		8,101			22,842		14,583
Telecommunications		6,864		4,577			13,109		8,703
Printing and supplies		4,757		3,672			10,379		6,914
Other expense		42,876		19,334			71,223		42,760

Total non-interest expense		377,803		244,655			748,284		486,727

Income before income taxes		127,680		104,796			281,125		234,050
Provision for income taxes		26,328		24,275			52,705		57,803

Net income	$	101,352	$	80,521		$	228,420	$	176,247


Dividends declared on preferred shares		11,151		—			11,151		—


Net income applicable to common shares	$	90,201	$	80,521		$	217,269	$	176,247


Average common shares — basic		366,206		236,032			366,221		235,809
Average common shares — diluted		367,234		239,008			387,322		238,881

Per common share
Net income — basic	$	0.25	$	0.34		$	0.59	$	0.75
Net income — diluted		0.25		0.34			0.59		0.74
Cash dividends declared		0.1325		0.2650			0.3975		0.5300

See notes to unaudited condensed consolidated financial statements


Part I. Financial Information

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets at June 30, 2008, December 31, 2007, and June 30, 2007			61

Condensed Consolidated Statements of Income for the three and six months ended June 30, 2008 and 2007			62

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the six months ended			63
June 30, 2008 and 2007

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007			64

Notes to Unaudited Condensed Consolidated Financial Statements			65

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			3

Item 3. Quantitative and Qualitative Disclosures about Market Risk			86

Item 4. Controls and Procedures			86

Item 4T. Controls and Procedures			86

Part II. Other Information

Item 4. Submission of Matters to a Vote of Security Holders			86

Item 6. Exhibits			87

Signatures			88
EX-12.1
EX-12.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2


⁽¹⁾		High and low stock prices are intra-day quotes obtained from NASDAQ.