FORM 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 September 30, 2008

Commission File Number 1-34073

Huntington Bancshares Incorporated


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

41 South High Street, Columbus, Ohio 43287

Registrant’s telephone number (614) 480-8300

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, 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	Smaller reporting company o
		(Do not check if a smaller reporting company)

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 366,050,446 shares of Registrant’s common stock ($0.01 par value) outstanding on October 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: Auto Finance and Dealer Services 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, Michigan, Indiana, and West Virginia. 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), which 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” 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, 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) changes in economic conditions; (c) movements in interest rates and spreads; (d) competitive pressures on product pricing and services; (e) success and timing of other business strategies; (f) the nature, extent, and timing of governmental actions and reforms; and (g) extended disruption of vital infrastructure. The Emergency Economic Stabilization Act of 2008 (EESA) passed on October 3, 2008, could have an undetermined material impact on company performance depending on rules of participation that have yet to be finalized. 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 counterparties 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 and customer 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. (See “Risk Management and Capital” discussion for additional information regarding risk factors.) Additionally, more information on risk is set forth below, and 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.

Emergency Economic Stabilization Act of 2008

On October 3, 2008, the Emergency Economic Stabilization Act of 2008 (EESA) was enacted. EESA enables the federal government, under terms and conditions to be developed by the Secretary of the Treasury, to insure troubled assets, including mortgage-backed securities, and collect premiums from participating financial institutions. EESA includes, among other provisions: (a) the $700 billion Troubled Assets Relief Program (TARP), under which the Secretary of the Treasury is authorized to purchase, insure, hold, and sell a wide variety of financial instruments, particularly those that are based on or related to residential or commercial mortgages originated or issued on or before March 14, 2008; and (b) an increase in the amount of deposit insurance provided by the Federal Deposit Insurance Corporation (FDIC). Both of these specific provisions are discussed in the below sections.

We continue to evaluate the key provisions of EESA, as well as the related accounting, tax, and business issues and their impact on Huntington’s consolidated financial statements. At this time, we are uncertain as to the total impact EESA, other legislation, regulations, and pronouncements that may be enacted or adopted in response to the current worldwide economic uncertainty, may have on our financial condition, results of operations, liquidity, and stock price.

Troubled Assets Relief Program (TARP)

Under the TARP, the Department of Treasury has authorized a voluntary capital purchase program (CPP) to purchase up to $250 billion of senior preferred shares of qualifying financial institutions that elect to participate by November 14, 2008. A company that participates must adopt certain standards for executive compensation, including (a) prohibiting “golden parachute” payments as defined in EESA to senior Executive Officers; (b) requiring recovery of any compensation paid to senior Executive Officers based on criteria that is later proven to be materially inaccurate; and (c) prohibiting incentive compensation that encourages unnecessary and excessive risks that threaten the value of the financial institution.

On October 27, 2008, we announced that the Department of Treasury had preliminarily approved our application to participate in the TARP voluntary CPP. Our participation is subject to the standard terms and conditions of the program. We have been approved for approximately $1.4 billion in capital that will take the form of non-voting cumulative preferred stock that would pay cash dividends at the rate of 5% per annum for the first five years, and then pay cash dividends at the rate of 9% per annum thereafter. In addition, the Department of Treasury will receive warrants to purchase shares of our common stock having an aggregate market price equal to 15% of the preferred stock amount. The expected proceeds of the $1.4 billion would be allocated to the preferred stock and additional paid-in-capital. Any resulting discount on the preferred stock would be amortized, resulting in additional dilution to our common stock. The exercise price for the warrant, and the market price for determining the number of shares of common stock subject to the warrants, would be determined on the date of the preferred investment (calculated on a 20-trading day trailing average). The warrants would be immediately exercisable, in whole or in part, over a term of 10 years. The warrants would be included in our diluted average common shares outstanding.

Federal Deposit Insurance Corporation (FDIC)

The FDIC is an independent agency of the United States government that protects against the loss of insured deposits if any FDIC insured bank or savings association fails. All participants are assessed quarterly deposit insurance premiums.

As a participating FDIC insured bank, we were assessed quarterly deposit insurance premiums totaling $18.1 million for the first nine-month period of 2008. However, we received a one-time assessment credit from the FDIC (see “Business” discussion in the 2007 Form 10-K) which substantially offset our year-to-date 2008 deposit insurance premium and, therefore, only $1.8 million of deposit insurance premium expense was recognized for the first nine-month period of 2008. At September 30, 2008, our remaining assessment credit available to offset future FDIC insurance premiums was $0.2 million.

On October 7, 2008, the FDIC requested comment on a proposed rule that would increase the rates banks pay for deposit insurance. Specifically, the assessment rate schedule would be raised by 7 basis points (annualized) beginning January 1, 2009. The FDIC has also proposed changing the way the system measures risk among insured institutions in order to require riskier institutions to pay a larger assessment. Based on these proposed changes, as well as the full consumption of the one-time assessment credit (discussed above), we anticipate that our full-year 2009 deposit insurance premium expense will increase approximately $44 million compared with our expected full-year 2008 deposit insurance premium expense.

EESA temporarily raised the limit on federal deposit insurance coverage from $100,000 to $250,000 per depositor. Separate from EESA, in October 2008, the FDIC also announced the Temporary Liquidity Guarantee Program. Under one component of this program, the FDIC temporarily provides unlimited coverage for non-interest bearing transaction deposit accounts through December 31, 2009. The limits return to $100,000 on January 1, 2010. (See “Bank Liquidity” discussion for additional details regarding the Temporary Liquidity Guarantee Program.)

Critical Accounting Policies and Use of Significant Estimates

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of financial statements in conformity with GAAP requires us to establish critical accounting policies and make accounting estimates, assumptions, and judgments that affect amounts recorded and reported in our financial statements. Note 1 of the Notes to Consolidated Financial Statements included in our 2007 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. Also, based on recent market

developments, we now consider the results of our other-than-temporary-impairment (OTTI) analysis of securities available-for-sale to be a significant estimate.

Goodwill

We account 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.

We apply 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 interim impairment test of our goodwill as of June 30, 2008. Based upon the results of the test, no impairment to goodwill was required. No factors occurred during the 2008 third quarter that required an additional impairment test.

Securities

As described in Note 1 of the Notes to Consolidated Financial Statements in our 2007 Form 10-K, investments are reviewed quarterly for indicators of OTTI. This determination requires significant judgment. In making this judgment, we evaluate, among other factors, the expected cash flows of the security, the duration and extent to which the fair value of an investment is less than its cost, the historical and implicit volatility of the security, and our intent and ability to hold the investment until recovery, which may be maturity.

During the current quarter, we recognized OTTI of $76.6 million in our Alt-A mortgage loan-backed portfolio (see “Investment Portfolio” discussion within the “Credit Risk” section). Given the continued disruption in the financial markets, we may be required to recognize additional OTTI losses in future periods with respect to these or other securities held in our available-for-sale portfolio. Also, we have experienced an increase in unrealized losses primarily as a result of wider liquidity spreads on our asset-backed securities. At September 30, 2008, unrealized losses on our asset-backed securities totaled $209.2 million, up from unrealized losses of $35.2 million at December 31, 2007 and unrealized losses of $4.2 million at September 30, 2007.

The amount and timing of any additional impairment recognized will depend on the severity and duration of the decline in fair value of the securities, our estimation of the anticipated recovery period, and the expected cash flows of the security. (See Note 4 in the Notes to Unaudited Condensed Consolidated Financial Statements for additional discussion.)

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 year-to-date 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. Only year-to-date comparisons are impacted by the Sky Financial acquisition in this MD&A, as all quarterly periods presented are post-merger.

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 year-to-date 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. The quarterly amount was then multiplied by three to arrive at a year-to-date amount. 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” 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 third quarter net income of $75.1 million representing earnings per common share of $0.17. These results compared with net income of $101.4 million, or $0.25 per common share, in the 2008 second quarter. Comparisons with the prior quarter were significantly impacted by a number of factors that are discussed later in the “Significant Items” section.

During the 2008 third 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.

Given the current economic conditions, the decline in credit quality performance during the current quarter was anticipated, and the results were consistent with our expectations. Net charge-offs and provision levels continued to be elevated, however the increases were manageable. During the 2008 third quarter, the allowance for credit losses (ACL) increased 10 basis points from the prior quarter to 1.90% of total loans and leases. Nonaccrual loans (NALs) increased $50.9 million, or 10%, reflecting increased NALs in our commercial real estate (CRE) loans to single family home builders, and within our commercial and industrial (C&I) portfolio related to businesses that support residential development.

Our period end capital levels were strong. Our tangible equity ratio improved 8 basis points to 5.98% compared with the prior quarter, and is near our 6.00%-6.25% targeted range. This quarter’s performance permitted us to build capital levels even more, and we believe that we are well positioned given the current stresses in the financial markets. We expect our capital position will be strengthened further with our participation in the Department of Treasury’s voluntary CPP under TARP (see “Risk Factors” discussion within the “Introduction” section). Additionally, our period-end liquidity position was strong, as we have conservatively managed our liquidity position at both the parent company and bank levels. At September 30, 2008, the parent company had sufficient cash for operations and does not have any debt maturities for several years. Further, the Bank has a very manageable level of debt maturities during the next 12-month period.

The loan restructuring associated with our relationship with Franklin, completed during the 2007 fourth quarter, continued to perform consistent with the terms of the restructuring agreement. Cash flows exceeded the required debt service, the loans continued to perform with interest accruing, and there were no charge-offs or related provision for credit losses related to this credit during the quarter. Our exposure to Franklin declined $36 million, or 3%, compared with the prior quarter. We remain comfortable with our credit assumptions regarding the overall performance of this portfolio.

Fully taxable net interest income in the 2008 third quarter decreased $1.4 million, or less than 1%, compared with the prior quarter. This decrease was primarily the result of a $0.6 billion, or 1%, decline in average total earning assets, as the net interest margin was unchanged from the prior quarter at 3.29%.

Non-interest income in the 2008 third quarter decreased $68.6 million, or 29%, compared with the prior quarter. Comparisons with the prior quarter were affected by Significant Items (see “Significant Items”) that resulted in a net charge of $58.5 million. Mortgage banking income, after considering the impact of MSR hedging results (see “Significant Items”), declined 51% primarily relating to lower origination activity, and trust services income declined 6% reflecting the impact of lower market values on asset management revenues.

Expenses continue to be well controlled, with our efficiency ratio improving to 50.3% for the current quarter. Non-interest expense in the 2008 third quarter decreased $38.8 million, or 10%, compared with the prior quarter. Comparisons with the prior quarter were affected by Significant Items (see “Significant Items”) that resulted in a net positive impact of $19.2 million, and reduced restructuring/merger costs that resulted in a net positive impact of $14.6 million. Considering the impact of both of these items, the remaining components of non-interest expense decreased $5.1 million, or 1%, primarily reflecting a decline in personnel expense due to merger efficiencies.

Table 1 — Selected Quarterly Income Statement Data ⁽¹⁾


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

Interest income	$	685,728		$	696,675		$	753,411		$	814,398		$	851,155
Interest expense		297,092			306,809			376,587			431,465			441,522

Net interest income		388,636			389,866			376,824			382,933			409,633
Provision for credit losses		125,392			120,813			88,650			512,082			42,007

Net interest income (loss) after provision for credit losses		263,244			269,053			288,174			(129,149	)		367,626

Service charges on deposit accounts		80,508			79,630			72,668			81,276			78,107
Trust services		30,952			33,089			34,128			35,198			33,562
Brokerage and insurance income		34,309			35,694			36,560			30,288			28,806
Other service charges and fees		23,446			23,242			20,741			21,891			21,045
Bank owned life insurance income		13,318			14,131			13,750			13,253			14,847
Mortgage banking income (loss)		10,302			12,502			(7,063	)		3,702			9,629
Securities (losses) gains		(73,790	)		2,073			1,429			(11,551	)		(13,152	)
Other income (loss) ⁽²⁾		48,812			36,069			63,539			(3,500	)		31,830

Total non-interest income		167,857			236,430			235,752			170,557			204,674

Personnel costs		184,827			199,991			201,943			214,850			202,148
Outside data processing and other services		32,386			30,186			34,361			39,130			40,600
Net occupancy		25,215			26,971			33,243			26,714			33,334
Equipment		22,102			25,740			23,794			22,816			23,290
Amortization of intangibles		19,463			19,327			18,917			20,163			19,949
Marketing		7,049			7,339			8,919			16,175			13,186
Professional services		13,405			13,752			9,090			14,464			11,273
Telecommunications		6,007			6,864			6,245			8,513			7,286
Printing and supplies		4,316			4,757			5,622			6,594			4,743
Other expense⁽²⁾		24,226			42,876			28,347			70,133			29,754

Total non-interest expense		338,996			377,803			370,481			439,552			385,563

Income (loss) before income taxes		92,105			127,680			153,445			(398,144	)		186,737
Provision (benefit) for income taxes		17,042			26,328			26,377			(158,864	)		48,535

Net income (loss)	$	75,063		$	101,352		$	127,068		$	(239,280	)	$	138,202


Dividends declared on preferred shares		12,091			11,151			—			—			—


Net income (loss) applicable to common shares	$	62,972		$	90,201		$	127,068		$	(239,280	)	$	138,202

Average common shares — basic		366,124			366,206			366,235			366,119			365,895
Average common shares — diluted ⁽³⁾		367,361			367,234			367,208			366,119			368,280

Per common share

Net income (loss) — basic	$	0.17		$	0.25		$	0.35		$	(0.65	)	$	0.38
Net income (loss) — diluted		0.17			0.25			0.35			(0.65	)		0.38
Cash dividends declared		0.1325			0.1325			0.2650			0.2650			0.2650

Return on average total assets		0.55	%		0.73	%		0.93	%		(1.74	)%		1.02	%

Return on average total shareholders’ equity		4.7			6.4			8.7			(15.3	)		8.8

Return on average tangible shareholders’ equity ⁽⁴⁾		11.6			15.0			22.0			(30.7	)		19.7

Net interest margin⁽⁵⁾		3.29			3.29			3.23			3.26			3.52

Efficiency ratio⁽⁶⁾		50.3			56.9			57.0			73.5			57.7

Effective tax rate (benefit)		18.5			20.6			17.2			(39.9	)		26.0

Revenue — fully taxable equivalent (FTE)
Net interest income	$	388,636		$	389,866		$	376,824		$	382,933		$	409,633
FTE adjustment		5,451			5,624			5,502			5,363			5,712

Net interest income⁽⁵⁾		394,087			395,490			382,326			388,296			415,345
Non-interest income		167,857			236,430			235,752			170,557			204,674

Total revenue⁽⁵⁾	$	561,944		$	631,920		$	618,078		$	558,853		$	620,019


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

⁽²⁾		Automobile operating lease income and expense is included in “Other Income” and “Other Expense”, respectively.

⁽³⁾		For the three-month period ended September 30, 2008, and the three-month period ended June 30, 2008, the impact of the convertible preferred stock issued in April of 2008 totaling 47.6 million shares and 39.8 million shares, respectively, were excluded from the diluted share calculations. They were excluded because the results would have been higher than basic earnings per common share (anti-dilutive) for the periods.

⁽⁴⁾		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.

⁽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).

Table 2 — Selected Year to Date Income Statement Data ⁽¹⁾


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

Interest income	$	2,135,814		$	1,928,565		$	207,249			10.7	%
Interest expense		980,488			1,009,986			(29,498	)		(2.9	)

Net interest income		1,155,326			918,579			236,747			25.8
Provision for credit losses		334,855			131,546			203,309			N.M.

Net interest income after provision for credit losses		820,471			787,033			33,438			4.2

Service charges on deposit accounts		232,806			172,917			59,889			34.6
Trust services		98,169			86,220			11,949			13.9
Brokerage and insurance income		106,563			62,087			44,476			71.6
Other service charges and fees		67,429			49,176			18,253			37.1
Bank owned life insurance income		41,199			36,602			4,597			12.6
Mortgage banking income		15,741			26,102			(10,361	)		(39.7	)
Securities losses		(70,288	)		(18,187	)		(52,101	)		286.5
Other income⁽²⁾		148,420			91,127			57,293			62.9

Total non-interest income		640,039			506,044			133,995			26.5

Personnel costs		586,761			471,978			114,783			24.3
Outside data processing and other services		96,933			88,115			8,818			10.0
Net occupancy		85,429			72,659			12,770			17.6
Equipment		71,636			58,666			12,970			22.1
Amortization of intangibles		57,707			29,868			27,839			93.2
Marketing		23,307			25,856			(2,549	)		(9.9	)
Professional services		36,247			15,989			20,258			N.M.
Telecommunications		19,116			11,657			7,459			64.0
Printing and supplies		14,695			24,988			(10,293	)		(41.2	)
Other expense ⁽²⁾		95,449			72,514			22,935			31.6

Total non-interest expense		1,087,280			872,290			214,990			24.6

Income before income taxes		373,230			420,787			(47,557	)		(11.3	)
Provision for income taxes		69,747			106,338			(36,591	)		(34.4	)

Net income	$	303,483		$	314,449		$	(10,966	)		(3.5	)%

Dividends declared on preferred shares		23,242			—			23,242			—

Net income applicable to common shares	$	280,241		$	314,449		$	(34,208	)		(10.9	)%

Average common shares — basic		366,188			279,171			87,017			31.2
Average common shares — diluted ⁽³⁾		367,268			282,014			85,254			30.2	%

Per common share
Net income per common share — basic	$	0.77		$	1.13		$	(0.36	)		(31.9	)%
Net income per common share — diluted		0.76			1.12			(0.36	)		(32.1	)
Cash dividends declared		0.530			0.795			(0.265	)		(33.3	)

Return on average total assets		0.74	%		1.02	%		(0.28	)%
Return on average total shareholders’ equity		6.6			10.3			(3.7	)
Return on average tangible shareholders’ equity ⁽⁴⁾		15.9			16.8			(0.9	)
Net interest margin ⁽⁵⁾		3.27			3.40			(0.13	)
Efficiency ratio ⁽⁶⁾		54.7			58.2			(3.5	)
Effective tax rate ⁽⁵⁾		18.7			25.3			(6.6	)

Revenue — fully taxable equivalent (FTE)
Net interest income	$	1,155,326		$	918,579		$	236,747			25.8	%
FTE adjustment ⁽⁵⁾		16,577			13,886			2,691			19.4

Net interest income		1,171,903			932,465			239,438			25.7
Non-interest income		640,039			506,044			133,995			26.5

Total revenue	$	1,811,942		$	1,438,509		$	373,433			26.0	%


N.M., not a meaningful value.

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

⁽²⁾		Automobile operating lease income and expense is included in “Other Income” and “Other Expense”, respectively.

⁽³⁾		For the nine-month period ended September 30, 2008, the impact of the convertible preferred stock issued in April of 2008 totaling 29.1 million shares was excluded in 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.

⁽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. Our adopted practice methodology is outlined in the MD&A section appearing in our 2007 Form 10-K.

Significant Items Influencing Financial Performance Comparisons

Earnings comparisons from the beginning of 2007 through the 2008 third 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 Sky Financial on the 2008 year-to-date reported results compared with the 2007 year-to-date reported results 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 11):

(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	)		—
3Q’08		8,368		(6,468	)		1,900			1,235			—

2008 (year-to-date)	$	23,666	$	(41,871	)	$	(18,205	)	$	(11,833	)	$	(0.03	)

			Effective with 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.

	5.		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 and private equity investing included in other non-interest income, net securities gains and losses, net gains and losses from the sale of loans included in other non-interest income, and the impact from the extinguishment of debt included in other non-interest expense. 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			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	)
3Q’08		(73,790	)		3,399			—			21,364		(49,027	)		(31,868	)		(0.08	)

2008 (year-to-date)	$	(70,288	)	$	(3,878	)	$	(5,131	)	$	23,541	$	(55,756	)	$	(36,241	)	$	(0.09	)

			The 2008 third quarter securities losses total included an OTTI adjustment of $76.6 million in our Alt-A mortgage loan-backed portfolio (see “Investment Portfolio” discussion within the “Credit Risk” section).

	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 — Third Quarter

•

$3.7 million ($0.01 per common share) increase to provision for income taxes, representing an increase to the previously established capital loss carry-forward valuation allowance related to the current quarter’s decline in value of Visa^® shares held.

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 included in other non-interest income, (b) $2.6 million charge off of a receivable included in other non-interest expense, and (c) $2.5 million write-down of leasehold improvements in our Cleveland main office included in net occupancy expense.

2007 — Fourth Quarter

•

$8.9 million ($0.02 per common share) negative impact primarily due to increases to litigation reserves on existing cases included in other non-interest expense.

2007 — First Quarter

•

$1.9 million ($0.01 per common share) negative impact primarily due to increases to litigation reserves on existing cases included in other non-interest expense.

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
	September 30, 2008					June 30, 2008					September 30, 2007
(in millions)	After-tax		EPS			After-tax		EPS			After-tax		EPS

Net income — reported earnings	$	75.1				$	101.4				$	138.2
Earnings per share, after tax			$	0.17				$	0.25				$	0.38
Change from prior quarter — $				(0.08	)				(0.10	)				0.04
Change from prior quarter — %				(32.0	)%				(28.6	)%				11.8	%

Change from a year-ago — $			$	(0.21	)			$	(0.09	)			$	(0.27	)
Change from a year-ago — %				(55.3	)%				(26.5	)%				(41.5	)%


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

Net market-related losses	$	(47.1	)	$	(0.08	)	$	(6.8	)	$	(0.01	)	$	(18.0	)	$	(0.03	)
Deferred tax valuation allowance (provision) benefit ⁽³⁾		(3.7	)		(0.01	)		3.4			0.01			—			—
Merger and restructuring costs		—			—			(14.6	)		(0.03	)		(32.3	)		(0.06	)


	Nine Months Ended
	September 30, 2008					September 30, 2007
(in millions)	After-tax		EPS			After-tax		EPS

Net income — reported earnings	$	303.5				$	314.4
Earnings per share, after tax			$	0.76				$	1.12
Change from a year-ago — $				(0.36	)				(0.44	)
Change from a year-ago — %				(32.1	)%				(28.2	)%


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

Aggregate impact of Visa^{^®}IPO	$	37.5		$	0.07		$	—		$	—
Deferred tax valuation allowance benefit ⁽³⁾		10.8			0.03			—			—
Net market-related losses		(74.0	)		(0.13	)		(31.9	)		(0.07	)
Merger and restructuring costs		(21.8	)		(0.04	)		(40.7	)		(0.09	)
Asset impairment		(11.0	)		(0.02	)		—			—
Litigation losses		—			—			(1.9	)		—


⁽¹⁾		Refer to the “Significant Items” 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 Third Quarter versus 2007 Third Quarter

Fully taxable equivalent net interest income decreased $21.3 million, or 5%, from the year-ago quarter. This reflected the unfavorable impact of a 23 basis point decline in the net interest margin to 3.29%, with 8 basis points of the decline reflecting the 2007 fourth quarter restructuring of the Franklin credit. The negative impact from the decline in the net interest margin was partially offset by a $0.8 billion, or 2%, increase in average earning assets. The increase in average earning assets, reflected growth in average loans and leases, partially offset by a decline in other earnings assets.

Table 4 details the increases in average loans and leases and average deposits.

Table 4 — Average Loans/Leases and Deposits — 2008 Third Quarter vs. 2007 Third Quarter


	Third Quarter				Change
(in thousands)	2008		2007		Amount			Percent
Net interest income — FTE	$	394,087	$	415,345	$	(21,258	)		(5.1	)%


Average Loans and Deposits (in millions)
Loans/Leases
Commercial and industrial	$	13,629	$	13,036	$	593			4.5	%
Commercial real estate		9,816		8,980		836			9.3

Total commercial		23,445		22,016		1,429			6.5

Automobile loans and leases		4,624		4,354		270			6.2
Home equity		7,453		7,468		(15	)		(0.2	)
Residential mortgage		4,812		5,456		(644	)		(11.8	)
Other consumer		670		534		136			25.5

Total consumer		17,559		17,812		(253	)		(1.4	)

Total loans	$	41,004	$	39,828	$	1,176			3.0	%


Deposits
Demand deposits — non-interest bearing	$	5,080	$	5,384	$	(304	)		(5.6	)%
Demand deposits — interest bearing		4,005		3,808		197			5.2
Money market deposits		5,860		6,869		(1,009	)		(14.7	)
Savings and other domestic time deposits		4,911		5,127		(216	)		(4.2	)
Core certificates of deposit		11,883		10,451		1,432			13.7

Total core deposits		31,739		31,639		100			0.3
Other deposits		6,064		6,013		51			0.8

Total deposits	$	37,803	$	37,652	$	151			0.4	%

The $1.2 billion, or 3%, increase in average total loans and leases primarily reflected:

•

$1.4 billion, or 6%, increase in average total commercial loans, with growth reflected in both C&I and CRE loans. The $0.8 billion, or 9%, increase in average 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. The $0.6 billion, or 5%, growth in C&I loans reflected a combination of originations to existing borrowers and originations to new high credit quality customers. We have been able to attract new relationships that historically dealt exclusively with competitors. These “house account” types of relationships are typically the highest quality borrowers and bring the added benefit of significant new deposit and other non-credit relationships.

Partially offset by:

•

$0.3 billion, or 1%, decrease in average total consumer loans. This reflected a $0.6 billion, or 12%, decline in residential mortgages, reflecting loan sales in prior quarters. Average home equity loans were little changed. Partially offsetting the decline was a $0.3 billion, or 6%, growth in average automobile loans and leases. The increase was exclusively in the automobile loan segment, and we are confident in the underwriting strategies employed that generated the growth as our 2008 originations have shown lower levels of risk.

The $0.2 billion increase in average total deposits reflected growth in both average total core deposits, and to a lesser degree, other deposits. Changes from the year-ago period reflected the continuation of customers transferring funds from lower rate to higher rate accounts like certificates of deposits as short-term rates have fallen. Specifically, average core certificates of deposit increased $1.4 billion, or 14%, whereas average money market deposits and savings and other domestic time deposits decreased $1.0 billion and $0.2 billion, respectively. Average interest bearing demand deposits increased $0.2 billion, or 5%, whereas average non-interest bearing demand deposits declined $0.3 billion, or 6%, again reflecting customer preference for interest bearing accounts.

2008 Third Quarter versus 2008 Second Quarter

Compared with the 2008 second quarter, fully taxable equivalent net interest income decreased $1.4 million. This reflected a $0.6 billion, or 1%, decline in average earning assets, as the net interest margin was unchanged at 3.29%.

Table 5 details the slight decreases in average loans and leases and average deposits.

Table 5 — Average Loans/Leases and Deposits — 2008 Third Quarter vs. 2008 Second Quarter


	2008				Change
(in thousands)	Third Quarter		Second Quarter		Amount			Percent
Net interest income — FTE	$	394,087	$	395,490	$	(1,403	)		(0.4	)%


Average Loans and Deposits (in millions)
Loans/Leases
Commercial and industrial	$	13,629	$	13,631	$	(2	)		(0.0	)%
Commercial real estate		9,816		9,601		215			2.2

Total commercial		23,445		23,232		213			0.9

Automobile loans and leases		4,624		4,551		73			1.6
Home equity		7,453		7,365		88			1.2
Residential mortgage		4,812		5,178		(366	)		(7.1	)
Other consumer		670		699		(29	)		(4.1	)

Total consumer		17,559		17,793		(234	)		(1.3	)

Total loans	$	41,004	$	41,025	$	(21	)		(0.1	)%


Deposits
Demand deposits — non-interest bearing	$	5,080	$	5,061	$	19			0.4	%
Demand deposits — interest bearing		4,005		4,086		(81	)		(2.0	)
Money market deposits		5,860		6,267		(407	)		(6.5	)
Savings and other domestic time deposits		4,911		5,047		(136	)		(2.7	)
Core certificates of deposit		11,883		10,950		933			8.5

Total core deposits		31,739		31,411		328			1.0
Other deposits		6,064		6,616		(552	)		(8.3	)

Total deposits	$	37,803	$	38,027	$	(224	)		(0.6	)%

Average total loans and leases were essentially unchanged between quarters. However, average total commercial loans increased 1%, reflecting 2% growth in CRE loans, as total average C&I loans were little changed. The current quarter’s CRE growth was comprised primarily of new or increased loan facilities to existing borrowers. This growth was not associated with the single family home builder segment as exposure to this segment declined during the quarter. Average total consumer loans decreased $0.2 billion, or 1%, reflecting a $0.4 billion, or 7%, decline in average residential mortgages due to a full quarter’s impact of $473 million of the residential mortgages sold in the prior quarter. Average automobile loans and leases increased 2%, with average home equity loans increasing 1%. We remain very comfortable with our origination strategies in the consumer segments, and are confident that we are continuing to lend to high quality borrowers.

Average total deposits were $37.8 billion, down $0.2 billion, or 1%, from the prior quarter and reflected:

•

$0.6 billion, or 8%, decrease in average non-core deposits, primarily reflecting a decline in brokered deposits.

Partially offset by:

•

$0.3 billion, or 1%, increase in average total core deposits. The primary driver of the change was growth in higher rate core certificates of deposit, partially offset by a decline in lower rate money market accounts.

Tables 6 and 7 reflect quarterly average balance sheets and rates earned and paid on interest-earning assets and interest-bearing liabilities.

Table 6 — Consolidated Quarterly Average Balance Sheets


	Average Balances															Change
Fully taxable equivalent basis	2008									2007						3Q08 vs 3Q07
(in millions)	Third			Second			First			Fourth			Third			Amount			Percent

Assets
Interest bearing deposits in banks	$	321		$	256		$	293		$	324		$	292		$	29			9.9	%
Trading account securities		992			1,243			1,186			1,122			1,149			(157	)		(13.7	)
Federal funds sold and securities purchased under resale agreements		363			566			769			730			557			(194	)		(34.8	)
Loans held for sale		274			501			565			493			419			(145	)		(34.6	)
Investment securities:
Taxable		3,975			3,971			3,774			3,807			3,951			24			0.6
Tax-exempt		712			717			703			689			675			37			5.5

Total investment securities		4,687			4,688			4,477			4,496			4,626			61			1.3
Loans and leases:⁽¹⁾
Commercial:
Commercial and industrial		13,629			13,631			13,343			13,270			13,036			593			4.5
Commercial real estate:
Construction		2,090			2,038			2,014			1,892			1,815			275			15.2
Commercial		7,726			7,563			7,273			7,161			7,165			561			7.8

Commercial real estate		9,816			9,601			9,287			9,053			8,980			836			9.3

Total commercial		23,445			23,232			22,630			22,323			22,016			1,429			6.5

Consumer:
Automobile loans		3,856			3,636			3,309			3,052			2,931			925			31.6
Automobile leases		768			915			1,090			1,272			1,423			(655	)		(46.0	)

Automobile loans and leases		4,624			4,551			4,399			4,324			4,354			270			6.2
Home equity		7,453			7,365			7,274			7,297			7,468			(15	)		(0.2	)
Residential mortgage		4,812			5,178			5,351			5,437			5,456			(644	)		(11.8	)
Other loans		670			699			713			728			534			136			25.5

Total consumer		17,559			17,793			17,737			17,786			17,812			(253	)		(1.4	)

Total loans and leases		41,004			41,025			40,367			40,109			39,828			1,176			3.0
Allowance for loan and lease losses		(731	)		(654	)		(630	)		(474	)		(475	)		(256	)		(53.9	)

Net loans and leases		40,273			40,371			39,737			39,635			39,353			920			2.3

Total earning assets		47,641			48,279			47,657			47,274			46,871			770			1.6

Cash and due from banks		925			943			1,036			1,098			1,111			(186	)		(16.7	)
Intangible assets		3,441			3,449			3,472			3,440			3,337			104			3.1
All other assets		3,384			3,522			3,350			3,142			3,124			260			8.3

Total Assets	$	54,660		$	55,539		$	54,885		$	54,480		$	53,968		$	692			1.3	%


Liabilities and Shareholders’ Equity
Deposits:
Demand deposits — non-interest bearing	$	5,080		$	5,061		$	5,034		$	5,218		$	5,384		$	(304	)		(5.6	)%
Demand deposits — interest bearing		4,005			4,086			3,934			3,929			3,808			197			5.2
Money market deposits		5,860			6,267			6,753			6,845			6,869			(1,009	)		(14.7	)
Savings and other domestic deposits		4,911			5,047			5,004			5,012			5,127			(216	)		(4.2	)
Core certificates of deposit		11,883			10,950			10,790			10,666			10,451			1,432			13.7

Total core deposits		31,739			31,411			31,515			31,670			31,639			100			0.3
Other domestic deposits of $100,000 or more		1,991			2,145			1,989			1,739			1,584			407			25.7
Brokered deposits and negotiable CDs		3,025			3,361			3,542			3,518			3,728			(703	)		(18.9	)
Deposits in foreign offices		1,048			1,110			885			748			701			347			49.5

Total deposits		37,803			38,027			37,931			37,675			37,652			151			0.4
Short-term borrowings		2,131			2,854			2,772			2,489			2,542			(411	)		(16.2	)
Federal Home Loan Bank advances		3,139			3,412			3,389			3,070			2,553			586			23.0
Subordinated notes and other long-term debt		4,382			3,928			3,814			3,875			3,912			470			12.0

Total interest bearing liabilities		42,375			43,160			42,872			41,891			41,275			1,100			2.7

All other liabilities		884			963			1,104			1,160			1,103			(219	)		(19.9	)
Shareholders’ equity		6,321			6,355			5,875			6,211			6,206			115			1.9

Total Liabilities and Shareholders’ Equity	$	54,660		$	55,539		$	54,885		$	54,480		$	53,968		$	692			1.3	%


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

Table 7 — Consolidated Quarterly Net Interest Margin Analysis


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

Assets
Interest bearing deposits in banks		2.17	%		2.77	%		3.97	%		4.30	%		4.69	%
Trading account securities		5.45			5.13			5.27			5.72			6.01
Federal funds sold and securities purchased under resale agreements		2.02			2.08			3.07			4.59			5.26
Loans held for sale		6.54			5.98			5.41			5.86			5.13
Investment securities:
Taxable		5.54			5.50			5.71			5.98			6.09
Tax-exempt		6.80			6.77			6.75			6.74			6.78

Total investment securities		5.73			5.69			5.88			6.10			6.19
Loans and leases:⁽³⁾
Commercial:
Commercial and industrial		5.46			5.53			6.32			6.92			7.70
Commercial real estate:
Construction		4.69			4.81			5.86			7.24			7.70
Commercial		5.33			5.47			6.27			7.09			7.63

Commercial real estate		5.19			5.32			6.18			7.12			7.65

Total commercial		5.35			5.45			6.27			7.00			7.68

Consumer:
Automobile loans		7.13			7.12			7.25			7.31			7.25
Automobile leases		5.70			5.59			5.53			5.52			5.56

Automobile loans and leases		6.89			6.81			6.82			6.78			6.70
Home equity		6.19			6.43			7.21			7.81			7.94
Residential mortgage		5.83			5.78			5.86			5.88			6.06
Other loans		9.71			9.98			10.43			10.91			11.48

Total consumer		6.41			6.48			6.84			7.10			7.17

Total loans and leases		5.80			5.89			6.51			7.05			7.45

Total earning assets		5.77	%		5.85	%		6.40	%		6.88	%		7.25	%


Liabilities and Shareholders’ Equity
Deposits:
Demand deposits — non-interest bearing		—	%		—	%		—	%		—	%		—	%
Demand deposits — interest bearing		0.51			0.55			0.82			1.14			1.53
Money market deposits		1.66			1.76			2.83			3.67			3.78
Savings and other domestic deposits		1.74			1.83			2.27			2.54			2.54
Core certificates of deposit		4.05			4.37			4.68			4.83			4.98

Total core deposits		2.57			2.67			3.18			3.55			3.69
Other domestic deposits of $100,000 or more		3.47			3.77			4.38			5.00			4.89
Brokered deposits and negotiable CDs		3.37			3.38			4.43			5.24			5.42
Deposits in foreign offices		1.49			1.66			2.16			3.27			3.29

Total deposits		2.66			2.78			3.36			3.80			3.94
Short-term borrowings		1.42			1.66			2.78			3.74			4.10
Federal Home Loan Bank advances		2.92			3.01			3.94			5.03			5.31
Subordinated notes and other long-term debt		4.29			4.21			5.12			5.93			6.15

Total interest bearing liabilities		2.79	%		2.85	%		3.53	%		4.09	%		4.24	%

Net interest rate spread		2.98	%		3.00	%		2.87	%		2.79	%		3.01	%
Impact of non-interest bearing funds on margin		0.31			0.29			0.36			0.47			0.51

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


⁽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 Nine Months versus 2007 First Nine Months

Fully taxable equivalent net interest income increased $239.4 million, or 26%, from the first nine-month period of 2007. This reflected the favorable impact of an $11.2 billion, or 31%, increase in average earning assets. The increase in average earning assets, with $9.9 billion representing an increase in average loans and leases, was partially offset by a 13 basis point decline in the net interest margin to 3.27%. The increase in average earning assets, including loans and leases, was primarily Sky Financial merger-related.

Table 8 details the estimated merger-related impacts to our average loans and leases and average deposits.

Table 8 — Average Loans/Leases and Deposits — Estimated Merger Related Impacts — 2008 First Nine Months vs. 2007 First Nine Months


	Nine Months Ended									Merger
	September 30,				Change					Related		Non-merger Related
(in thousands)	2008		2007		Amount		Percent					Amount			Percent ⁽¹⁾
Net interest income — FTE	$	1,171,903	$	932,463	$	239,440		25.7	%	$	303,184	$	(63,744	)		(5.2	)%


Average Loans and Deposits (in millions)
Loans
Commercial and industrial	$	13,535	$	9,748	$	3,787		38.8	%	$	3,183	$	604			4.7	%
Commercial real estate		9,568		6,051		3,517		58.1			2,647		870			10.0

Total commercial		23,103		15,799		7,304		46	%		5,830		1,474			6.8

Automobile loans and leases		4,525		4,048		477		11.8	%		288		189			4.4
Home equity		7,364		5,794		1,570		27.1			1,590		(20	)		(0.3	)
Residential mortgage		5,113		4,771		342		7.2			741		(399	)		(7.2	)
Other consumer		695		461		234		50.8			95		139			25.0

Total consumer		17,697		15,074		2,623		17.4			2,714		(91	)		(0.5	)

Total loans	$	40,800	$	30,873	$	9,927		32.2	%	$	8,544	$	1,383			3.5	%


Deposits
Demand deposits — non-interest bearing	$	5,058	$	4,175	$	883		21.1	%	$	1,219	$	(336	)		(6.2	)%
Demand deposits — interest bearing		4,008		2,859		1,149		40.2			973		176			4.6
Money market deposits		6,292		5,946		346		5.8			664		(318	)		(4.8	)
Savings and other domestic time deposits		4,987		3,660		1,327		36.3			1,729		(402	)		(7.5	)
Core certificates of deposit		11,210		7,183		4,027		56.1			3,087		940			9.2

Total core deposits		31,555		23,823		7,732		32.5			7,672		60			0.2
Other deposits		6,366		5,017		1,349		26.9			895		454			7.7

Total deposits	$	37,921	$	28,840	$	9,081		31.5	%	$	8,567	$	514			1.4	%


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

The $1.4 billion, or 4%, non-merger-related increase in average total loans and leases primarily reflected:

•

$1.5 billion, or 7%, growth in average total commercial loans, with growth reflected in both the C&I and CRE portfolios. 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. The growth in C&I loans reflected a combination of originations to existing borrowers and originations to new high quality borrowers.

Partially offset by:

•

$0.1 billion, or 1%, decline in total average consumer loans reflecting a $0.4 billion, or 7%, decline in residential mortgages, due to loan sales. This decrease was partially offset by a $0.2 billion, or 4%, increase in average automobile loans and leases reflecting higher automobile loan originations.

Table 9 — Consolidated YTD Average Balance Sheets and Net Interest Margin Analysis


				YTD Average Balances									YTD Average Rates⁽²⁾
Fully taxable equivalent basis⁽¹⁾	Nine Months Ended Sept 30,						Change						Nine Months Ended September 30,
(in millions of dollars)	2008			2007			Amount			Percent			2008			2007

Assets
Interest bearing deposits in banks	$	290		$	187		$	103			55.1	%		2.96	%		4.93	%
Trading account securities		1,139			480			659			N.M.			5.26			5.94
Federal funds sold and securities purchased under resale agreements		565			545			20			3.7			2.52			5.26
Loans held for sale		446			318			128			40.3			5.86			5.61
Investment securities:
Taxable		3,907			3,601			306			8.5			5.58			6.11
Tax-exempt		711			632			79			12.5			6.77			6.71

Total investment securities		4,618			4,233			385			9.1			5.76			6.20
Loans and leases:⁽³⁾
Commercial:
Commercial and industrial		13,535			9,748			3,787			38.8			5.79			7.52
Commercial real estate:
Construction		2,047			1,412			635			45.0			5.14			7.88
Commercial		7,521			4,639			2,882			62.1			5.68			7.56

Commercial real estate		9,568			6,051			3,517			58.1			5.56			7.64

Total commercial		23,103			15,799			7,304			46.2			5.68			7.57

Consumer:
Automobile loans		3,601			2,492			1,109			44.5			7.16			7.11
Automobile leases		924			1,556			(632	)		(40.6	)		5.60			5.38

Automobile loans and leases		4,525			4,048			477			11.8			6.85			6.44
Home equity		7,364			5,794			1,570			27.1			6.60			7.72
Residential mortgage		5,113			4,771			342			7.2			5.83			5.76
Other loans		695			461			234			50.8			10.05			10.88

Total consumer		17,697			15,074			2,623			17.4			6.58			6.85

Total loans and leases		40,800			30,873			9,927			32.2			6.08			7.22

Allowance for loan and lease losses		(672	)		(351	)		(321	)		91.5

Net loans and leases		40,128			30,522			9,606			31.5

Total earning assets		47,858			36,636			11,222			30.6			6.01	%		7.08	%

Cash and due from banks		968			925			43			4.6
Intangible assets		3,454			1,540			1,914			N.M.
All other assets		3,419			2,670			749			28.1

Total Assets	$	55,027		$	41,420		$	13,607			32.9	%


Liabilities and Shareholders’ Equity
Deposits:
Demand deposits — non-interest bearing	$	5,058		$	4,175		$	883			21.1	%		—	%		—	%
Demand deposits — interest bearing		4,008			2,859			1,149			40.2			0.62			1.36
Money market deposits		6,292			5,946			346			5.8			2.11			4.00
Savings and other domestic time deposits		4,987			3,660			1,327			36.3			1.95			2.02
Core certificates of deposit		11,210			7,183			4,027			56.1			4.36			4.86

Total core deposits		31,555			23,823			7,732			32.5			2.80			3.56

Other domestic time deposits of $100,000 or more		2,042			1,266			776			61.3			3.87			5.14
Brokered deposits and negotiable CDs		3,309			3,146			163			5.2			3.75			5.48
Deposits in foreign offices		1,015			605			410			67.8			1.75			3.16

Total deposits		37,921			28,840			9,081			31.5			2.93			3.88
Short-term borrowings		2,584			2,163			421			19.5			1.99			4.29
Federal Home Loan Bank advances		3,312			1,675			1,637			97.7			3.30			4.97
Subordinated notes and other long-term debt		4,043			3,624			419			11.6			4.52			5.96

Total interest bearing liabilities		42,802			32,127			10,675			33.2			3.05			4.20

All other liabilities		983			1,018			(35	)		(3.4	)
Shareholders’ equity		6,184			4,100			2,084			50.8

Total Liabilities and Shareholders’ Equity	$	55,027		$	41,420		$	13,607			32.9	%

Net interest rate spread														2.96			2.88
Impact of non-interest bearing funds on margin														0.31			0.52

Net interest margin														3.27	%		3.40	%


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 Item 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 third quarter was $125.4 million, up $4.6 million from the prior quarter, and exceeded net charge-offs by $41.6 million. The provision for credit losses in the current quarter was $83.4 million higher than in the year-ago quarter. The provision for credit losses in the first nine-month period of 2008 was $334.9 million, an increase of $203.3 million from $131.5 million in the comparable year-ago period. The reported provision for credit losses for the first nine-month period of 2008 exceeded net charge-offs by $137.4 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 10 reflects non-interest income for each of the past five quarters:

Table 10 — Non-Interest Income


	2008								2007
(in thousands)	Third			Second		First			Fourth			Third

Service charges on deposit accounts	$	80,508		$	79,630	$	72,668		$	81,276		$	78,107
Trust services		30,952			33,089		34,128			35,198			33,562
Brokerage and insurance income		34,309			35,694		36,560			30,288			28,806
Other service charges and fees		23,446			23,242		20,741			21,891			21,045
Bank owned life insurance income		13,318			14,131		13,750			13,253			14,847
Mortgage banking income (loss)		10,302			12,502		(7,063	)		3,702			9,629
Securities (losses) gains		(73,790	)		2,073		1,429			(11,551	)		(13,152	)
Other income (loss)		48,812			36,069		63,539			(3,500	)		31,830

Total non-interest income	$	167,857		$	236,430	$	235,752		$	170,557		$	204,674


	Nine Months Ended						Change
	September 30,						YTD 2008 vs 2007
(in thousands)	2008			2007			Amount			Percent

Service charges on deposit accounts	$	232,806		$	172,917		$	59,889			34.6	%
Trust services		98,169			86,220			11,949			13.9
Brokerage and insurance income		106,563			62,087			44,476			71.6
Other service charges and fees		67,429			49,176			18,253			37.1
Bank owned life insurance income		41,199			36,602			4,597			12.6
Mortgage banking income		15,741			26,102			(10,361	)		(39.7	)
Securities losses		(70,288	)		(18,187	)		(52,101	)		N.M.
Other income		148,420			91,127			57,293			62.9

Total non-interest income	$	640,039		$	506,044		$	133,995			26.5	%

Table 11 details mortgage banking income and the net impact of MSR hedging activity for each of the past five quarters:

Table 11 — Mortgage Banking Income and Net Impact of MSR Hedging


	2008									2007						3Q08 vs 3Q07
(in thousands, except as noted)	Third			Second			First			Fourth			Third			Amount			Percent

Mortgage Banking Income

Origination and secondary marketing	$	7,647		$	13,098		$	9,332		$	5,879		$	8,375		$	(728	)		(8.7)	%
Servicing fees		11,838			11,166			10,894			11,405			10,811			1,027			9.5
Amortization of capitalized servicing⁽¹⁾		(6,234	)		(7,024	)		(6,914	)		(5,929	)		(6,571	)		337			5.1
Other mortgage banking income		3,519			5,959			4,331			4,113			3,016			503			16.7

Sub-total		16,770			23,199			17,643			15,468			15,631			1,139			7.3

MSR valuation adjustment⁽¹⁾		(10,251	)		39,031			(18,093	)		(21,245	)		(9,863	)		(388	)		3.9
Net trading gains (losses) related to MSR hedging		3,783			(49,728	)		(6,613	)		9,479			3,861			(78	)		(2.0	)

Total mortgage banking income (loss)	$	10,302		$	12,502		$	(7,063	)	$	3,702		$	9,629		$	673			7.0	%


Average trading account securities used to hedge MSRs (in millions)	$	941		$	1,190		$	1,139		$	1,073		$	1,102		$	(161	)		(14.6)	%
Capitalized mortgage servicing rights⁽²⁾		230,398			240,024			191,806			207,894			228,933			1,465			0.6
Total mortgages serviced for others (in millions)⁽²⁾		15,741			15,770			15,138			15,088			15,073			668			4.4
MSR % of investor servicing portfolio		1.46	%		1.52	%		1.27	%		1.38	%		1.52	%		(0.06	)%		(3.6	)


Net Impact of MSR Hedging
MSR valuation adjustment⁽¹⁾	$	(10,251	)	$	39,031		$	(18,093	)	$	(21,245	)	$	(9,863	)	$	(388	)		3.9	%
Net trading gains (losses) related to MSR hedging		3,783			(49,728	)		(6,613	)		9,479			3,861			(78	)		(2.0	)
Net interest income related to MSR hedging		8,368			9,364			5,934			3,192			2,357			6,011			N.M.

Net impact of MSR hedging	$	1,900		$	(1,333	)	$	(18,772	)	$	(8,574	)	$	(3,645	)	$	5,545			N.M.	%


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

Mortgage Banking Income

Origination and secondary marketing	$	30,077		$	20,086		$	9,991			49.7	%
Servicing fees		33,898			24,607			9,291			37.8
Amortization of capitalized servicing⁽¹⁾		(20,172	)		(14,658	)		(5,514	)		37.6
Other mortgage banking income		13,809			9,085			4,724			52.0

Sub-total		57,612			39,120			18,492			47.3

MSR valuation adjustment⁽¹⁾		10,687			5,114			5,573			N.M.
Net trading losses related to MSR hedging		(52,558	)		(18,132	)		(34,426	)		N.M.

Total mortgage banking income	$	15,741		$	26,102		$	(10,361	)		(39.7)	%


Average trading account securities used to hedge MSRs (in millions)	$	1,089		$	433		$	656			N.M.	%
Capitalized mortgage servicing rights⁽²⁾		230,398			228,933			1,465			0.6	%
Total mortgages serviced for others (in millions) ⁽²⁾		15,741			15,073			668			4.4
MSR % of investor servicing portfolio		1.46	%		1.52	%		(0.06	)		(14.9)	%

Net Impact of MSR Hedging

MSR valuation adjustment⁽¹⁾	$	10,687		$	5,114		$	5,573			N.M.	%
Net trading losses related to MSR hedging		(52,558	)		(18,132	)		(34,426	)		N.M.
Net interest income related to MSR hedging		23,666			2,605			21,061			N.M.

Net impact of MSR hedging	$	(18,205	)	$	(10,413	)	$	(7,792	)		74.8	%


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 Third Quarter versus 2007 Third Quarter

Non-interest income decreased $36.8 million, or 18%, from the year-ago quarter.

Table 12 — Non-Interest Income — 2008 Third Quarter vs. 2007 Third Quarter


													Change attributable to:
	Third Quarter						Change						Significant			Other
(in thousands)	2008			2007			Amount			Percent			Items			Amount			Percent

Service charges on deposit accounts	$	80,508		$	78,107		$	2,401			3.1	%	$	—		$	2,401			3.1	%
Trust services		30,952			33,562			(2,610	)		(7.8	)		—			(2,610	)		(7.8	)
Brokerage and insurance income		34,309			28,806			5,503			19.1			—			5,503			19.1
Other service charges and fees		23,446			21,045			2,401			11.4			—			2,401			11.4
Bank owned life insurance income		13,318			14,847			(1,529	)		(10.3	)		—			(1,529	)		(10.3	)
Mortgage banking income		10,302			9,629			673			7.0			(466	) ⁽¹⁾		1,139			11.8
Securities losses		(73,790	)		(13,152	)		(60,638	)		N.M.			(60,638	) ⁽²⁾		—			0.0
Other income		48,812			31,830			16,982			53.4			7,786	⁽²⁾		9,196			28.9

Total non-interest income	$	167,857		$	204,674		$	(36,817	)		(18.0)	%	$	(53,318	)	$	16,501			8.1	%


N.M., not a Meaningful Value.

⁽¹⁾		Refer to Significant Item #4 of the “Significant Items” discussion.

⁽²⁾		Refer to Significant Item #5 of the “Significant Items” discussion.

Of the $36.8 million, or 18%, decrease in total non-interest income, $53.3 million came from Significant Items (see “Significant Items” discussion). The remaining $16.5 million, or 8%, increase reflected:

	•		$9.2 million, or 29%, increase in other income, reflecting higher operating lease income, partially offset by declines in official check processing, merchant services, and derivatives income.

	•		$5.5 million, or 19%, increase in brokerage and insurance income, reflecting growth in annuity sales and the 2007 fourth quarter acquisition of an insurance agency.

	•		$2.4 million, or 3%, increase in service charges on deposit accounts, primarily reflecting strong growth in commercial service charges, partially offset by a decline in personal service charge income.

	•		$2.4 million, or 11%, increase in other service charges and fees, reflecting higher debit card volume.

Partially offset by:

•

$2.6 million, or 8%, decline in trust services income, reflecting the impact of lower market values on asset management revenues.

2008 Third Quarter versus 2008 Second Quarter

Non-interest income decreased $68.6 million, or 29%, from the second quarter.

Table 13 — Non-Interest Income — 2008 Third Quarter vs. 2008 Second Quarter


	Third			Second								Change attributable to:
	Quarter			Quarter		Change						Significant			Other
(in thousands)	2008			2008		Amount			Percent			Items			Amount			Percent

Service charges on deposit accounts	$	80,508		$	79,630	$	878			1.1	%	$	—		$	878			1.1	%
Trust services		30,952			33,089		(2,137	)		(6.5	)		—			(2,137	)		(6.5	)
Brokerage and insurance income		34,309			35,694		(1,385	)		(3.9	)		—			(1,385	)		(3.9	)
Other service charges and fees		23,446			23,242		204			0.9			—			204			0.9
Bank owned life insurance income		13,318			14,131		(813	)		(5.8	)		—			(813	)		(5.8	)
Mortgage banking income		10,302			12,502		(2,200	)		(17.6	)		4,229	⁽¹⁾		(6,429	)		(51.4	)
Securities (losses) gains		(73,790	)		2,073		(75,863	)		N.M.			(75,863	)⁽²⁾		—			0.0
Other income		48,812			36,069		12,743			35.3			13,139	⁽²⁾		(396	)		(1.1	)

Total non-interest income	$	167,857		$	236,430	$	(68,573	)		(29.0)	%	$	(58,495	)	$	(10,078	)		(4.3)	%


N.M., not a meaningful value.

⁽¹⁾		Refer to Significant Item #4 of the “Significant Items” discussion.

⁽²⁾		Refer to Significant Item #5 of the “Significant Items” discussion.

The $68.6 million decrease in total non-interest income included a net charge of $58.5 million from Significant Items (see “Significant Items” discussion). The remaining $10.1 million, or 4%, decline reflected:

	•		$6.4 million, or 51%, decline in mortgage banking income, primarily reflecting a 35% decline in origination activity, and lower gains on loan sales.

	•		$2.1 million, or 6%, decline in trust services income, reflecting the impact of lower market values on asset management revenues.

	•		$1.4 million, or 4%, decline in brokerage and insurance income, primarily reflecting seasonally lower insurance contingency fees.

2008 First Nine Months versus 2007 First Nine Months

Non-interest income for the first nine-month period of 2008 increased $134.0 million from the comparable year-ago period.

Table 14 — Non-Interest Income — Estimated Merger Related Impact — 2008 First Nine Months vs. 2007 First Nine Months


	Nine Months Ended												Change attributable to:
	September 30,						Change								Significant			Other
(in thousands)	2008			2007			Amount			Percent			Merger Related		Items			Amount			Percent ⁽¹⁾

Service charges on deposit accounts	$	232,806		$	172,917		$	59,889			34.6	%	$	48,220		—		$	11,669			5.3	%
Trust services		98,169			86,220			11,949			13.9			14,018		—			(2,069	)		(2.1	)
Brokerage and insurance income		106,563			62,087			44,476			71.6			34,122		—			10,354			10.8
Other service charges and fees		67,429			49,176			18,253			37.1			11,600		—			6,653			10.9
Bank owned life insurance income		41,199			36,602			4,597			12.6			3,614		—			983			2.4
Mortgage banking income		15,741			26,102			(10,361	)		(39.7	)		12,512		(28,853	)⁽²⁾		5,980			15.5
Securities losses		(70,288	)		(18,187	)		(52,101	)		286.5			566		(52,667	)⁽³⁾		—			—
Other income		148,420			91,127			57,293			62.9			12,780		20,794	⁽⁴⁾		23,719			22.8

Total non-interest income	$	640,039		$	506,044		$	133,995			26.5	%	$	137,432	$	(60,726	)	$	57,289			8.9	%


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

⁽²⁾		Refer to Significant Item #4 of the “Significant Items” discussion.

⁽³⁾		Refer to Significant Item #5 of the “Significant Items” discussion.

⁽⁴⁾		Refer to Significant Items #3, #5, and #6 of the “Significant Items” discussion.

The $134.0 million increase in total non-interest income reflected the $137.4 million of merger-related impacts, and the net charge of $60.7 million from Significant Items (see “Significant Items” discussion). The remaining $57.3 million, or 9%, increase included:

	•		$23.7 million, or 23%, increase in other income, reflecting primarily higher operating lease income.

	•		$11.7 million, or 5%, increase in service charges on deposit accounts, primarily reflecting strong growth in personal service charge income.

	•		$10.4 million, or 11%, increase in brokerage and insurance income, reflecting growth in annuity sales and the 2007 fourth quarter acquisition of an insurance agency.

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

Table 15 reflects non-interest expense for each of the past five quarters:

Table 15 — Non-Interest Expense


	2008						2007
(in thousands)	Third		Second		First		Fourth		Third

Salaries	$	151,982	$	163,595	$	159,946	$	178,855	$	166,719
Benefits		32,845		36,396		41,997		35,995		35,429

Personnel costs		184,827		199,991		201,943		214,850		202,148
Outside data processing and other services		32,386		30,186		34,361		39,130		40,600
Net occupancy		25,215		26,971		33,243		26,714		33,334
Equipment		22,102		25,740		23,794		22,816		23,290
Amortization of intangibles		19,463		19,327		18,917		20,163		19,949
Marketing		7,049		7,339		8,919		16,175		13,186
Professional services		13,405		13,752		9,090		14,464		11,273
Telecommunications		6,007		6,864		6,245		8,513		7,286
Printing and supplies		4,316		4,757		5,622		6,594		4,743
Other expense		24,226		42,876		28,347		70,133		29,754

Total non-interest expense	$	338,996	$	377,803	$	370,481	$	439,552	$	385,563


	Nine Months Ended September 30,				YTD 2008 vs 2007
(in thousands)	2008		2007		Amount			Percent

Salaries	$	475,523	$	378,399	$	97,124			25.7
Benefits		111,238		93,579		17,659			18.9

Personnel costs		586,761		471,978		114,783			24.3
Outside data processing and other services		96,933		88,115		8,818			10.0
Net occupancy		85,429		72,659		12,770			17.6
Equipment		71,636		58,666		12,970			22.1
Amortization of intangibles		57,707		24,988		32,719			N.M.
Marketing		23,307		29,868		(6,561	)		(22.0	)
Professional Services		36,247		25,856		10,391			40.2
Telecommunication		19,116		15,989		3,127			19.6
Printing and supplies		14,695		11,657		3,038			26.1
Other expense		95,449		72,514		22,935			31.6

Total non-interest expense	$	1,087,280	$	872,290	$	214,990			24.6	%

N.M., not a meaningful value.

2008 Third Quarter versus 2007 Third Quarter

Non-interest expense decreased $46.6 million, or 12%, from the year-ago quarter.

Table 16 — Non-Interest Expense — 2008 Third Quarter vs. 2007 Third Quarter


	Third		Third								Change attributable to:
	Quarter		Quarter		Change						Restructuring/			Significant			Other
(in thousands)	2008		2007		Amount			Percent			Merger Costs			Items			Amount			Percent ⁽¹⁾
Personnel costs	$	184,827	$	202,148	$	(17,321	)		(8.6	)%	$	(7,750	)	$	—		$	(9,571	)		(4.9	)%
Outside data processing and other services		32,386		40,600		(8,214	)		(20.2	)		(6,854	)		—			(1,360	)		(4.0	)
Net occupancy		25,215		33,334		(8,119	)		(24.4	)		(7,439	)		—			(680	)		(2.6	)
Equipment		22,102		23,290		(1,188	)		(5.1	)		(1,792	)		—			604			2.8
Amortization of intangibles		19,463		19,949		(486	)		(2.4	)		—			—			(486	)		(2.4	)
Marketing		7,049		13,186		(6,137	)		(46.5	)		(4,966	)		—			(1,171	)		(14.2	)
Professional services		13,405		11,273		2,132			18.9			(1,555	)		—			3,687			37.9
Telecommunications		6,007		7,286		(1,279	)		(17.6	)		(193	)		—			(1,086	)		(15.3	)
Printing and supplies		4,316		4,743		(427	)		(9.0	)		(456	)		—			29			0.7
Other expense ⁽²⁾		24,226		29,754		(5,528	)		(18.6	)		(1,255	)		(18,144	)⁽²⁾		13,871			48.7

Total non-interest expense	$	338,996	$	385,563	$	(46,567	)		(12.1	)%	$	(32,260	)	$	(18,144	)	$	3,837			1.1	%


⁽¹⁾		Calculated as other / (prior period + restructuring/merger costs)

⁽²⁾		Refer to Significant Item #5 of the “Significant Items” discussion.

Of the $46.6 million decline, $32.3 million represented Sky Financial merger/restructuring costs in the year-ago quarter and $18.1 million reflected Significant Items (see “Significant Items” discussion). The remaining $3.8 million, or 1%, increase reflected:

	•		$13.9 million, or 49%, increase in other expense, primarily reflecting an increase in operating lease expense ($8.8 million), with the remainder of the increase spread over a number of miscellaneous expense categories including other-real-estate-owned (OREO) losses ($2.8 million) and franchise and other taxes ($2.3 million).

	•		$3.7 million, or 38%, increase in professional services expenses, reflecting increased legal and collection costs.

Partially offset by:

	•		Expense reductions in various expense categories reflecting merger efficiencies.

	•		$9.6 million, or 5%, decline in personnel costs reflecting the benefit of merger and restructuring efficiencies, including the impact of a 1,422, or 12%, reduction in full-time equivalent staff from the year-ago period, as well as lower incentive compensation.

2008 Third Quarter versus 2008 Second Quarter

Non-interest expense decreased $38.8 million, or 10%, from the 2008 second quarter.

Table 17 — Non-Interest Expense — 2008 Third Quarter vs. 2008 Second Quarter


	Third		Second								Change attributable to:
	Quarter		Quarter		Change						Restructuring/			Significant			Other
(in thousands)	2008		2008		Amount			Percent			Merger Costs			Items			Amount			Percent ⁽¹⁾
Personnel costs	$	184,827	$	199,991	$	(15,164	)		(7.6	)%	$	(10,663	)	$	—		$	(4,501	)		(2.4	)%
Outside data processing and other services		32,386		30,186		2,200			7.3			898			—			1,302			4.2
Net occupancy		25,215		26,971		(1,756	)		(6.5	)		(1,813	)		—			57			0.2
Equipment		22,102		25,740		(3,638	)		(14.1	)		(2,813	)		—			(825	)		(3.6	)
Amortization of intangibles		19,463		19,327		136			0.7			—			—			136			0.7
Marketing		7,049		7,339		(290	)		(4.0	)		(23	)		—			(267	)		(3.6	)
Professional services		13,405		13,752		(347	)		(2.5	)		(91	)		—			(256	)		(1.9	)
Telecommunications		6,007		6,864		(857	)		(12.5	)		(3	)		—			(854	)		(12.4	)
Printing and supplies		4,316		4,757		(441	)		(9.3	)		(20	)		—			(421	)		(8.9	)
Other expense ⁽²⁾		24,226		42,876		(18,650	)		(43.5	)		(24	)		(19,187	)⁽²⁾		561			1.3

Total non-interest expense	$	338,996	$	377,803	$	(38,807	)		(10.3	)%	$	(14,552	)	$	(19,187	)	$	(5,068	)		(1.4	)%


⁽¹⁾		Calculated as other / (prior period + restructuring/merger costs)

⁽²⁾		Refer to Significant Item #5 of the “Significant Items” discussion.

Of the $38.8 million decline, $14.6 million represented second quarter Sky Financial merger/restructuring costs and $19.2 million related to Significant Items (see “Significant Items” discussion). The remaining $5.1 million, or 1%, decline primarily reflected a $4.5 million, or 2%, decline in personnel costs, as full-time equivalent staff decreased by 360, or 3%.

2008 First Nine Months versus 2007 First Nine Months

Non-interest expense for the first nine-month period of 2008 increased $215.0, or 25%, from the comparable year-ago period.

Table 18 — Non-Interest Expense — Estimated Merger Related Impact — 2008 First Nine Months vs. 2007 First Nine Months


	Nine Months Ended										Change Attributable to:
	September 30,				Change								Restructuring/			Significant			Other
(in thousands)	2008		2007		Amount			Percent			Merger Related		Merger Costs			Items			Amount			Percent ⁽¹⁾
Personnel costs	$	586,761	$	471,978	$	114,783			24.3	%	$	136,500	$	5,147					$	(26,864	)		(4.4	)%
Outside data processing and other services		96,933		88,115		8,818			10.0			24,524		(9,012	)					(6,694	)		(6.5	)
Net occupancy		85,429		72,659		12,770			17.6			20,368		(5,283	)	$	2,500	⁽²⁾		(4,815	)		(5.5	)
Equipment		71,636		58,666		12,970			22.1			9,598		1,117						2,255			3.3
Amortization of intangibles		57,707		24,988		32,719			N.M.			32,962		—						(243	)		(0.4	)
Marketing		23,307		29,868		(6,561	)		(22.0	)		8,722		(6,495	)					(8,788	)		(27.4	)
Professional services		36,247		25,856		10,391			40.2			5,414		(2,952	)					7,929			28.0
Telecommunications		19,116		15,989		3,127			19.6			4,448		404						(1,725	)		(8.3	)
Printing and supplies		14,695		11,657		3,038			26.1			2,748		(390	)					680			4.9
Other expense		95,449		72,514		22,935			31.6			26,096		(1,374	)		(27,933	)⁽³⁾		26,146			26.9

Total non-interest expense	$	1,087,280	$	872,290	$	214,990			24.6	%	$	271,380	$	(18,838	)	$	(25,433	)		(12,119	)		(1.1	)%


N.M., not a meaningful value

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

⁽²⁾		Refer to Significant Item #6 of the “Significant Items” discussion.

⁽³⁾		Refer to Significant Items #3, #5, and #6 of the “Significant Items” discussion.

Of the $215.0 million increase, $271.4 million pertained to merger-related expenses, partially offset by $18.8 million of lower merger/restructuring costs and $25.4 million lower expenses related to Significant Items (see “Significant Items” discussion). The net remaining $12.1 million, or 1%, decrease reflected:

	•		$26.9 million, or 4%, decline in personnel expense reflecting the benefit of merger and restructuring efficiencies.

	•		$8.8 million, or 27%, decline in marketing expense.

	•		$7.4 million, or 8%, decline in occupancy expense, reflecting merger efficiencies.

	•		$6.7 million, or 6%, decline in outside data processing and other services, reflecting merger efficiencies.

Partially offset by:

	•		$28.7 million, or 30%, increase in other expense reflecting higher operating lease expense, insurance expense, and OREO losses.

	•		$7.9 million, or 28%, increase in professional services, reflecting increased legal and collection costs.

As a participating FDIC insured bank, we were assessed quarterly deposit insurance premiums totaling $18.1 million for the first nine-month period of 2008. However, we received a one-time assessment credit from the FDIC (see 2007 Form 10-K) which substantially offset our year-to-date 2008 deposit insurance premium and, therefore, only $1.8 million of deposit insurance premium expense was recognized for the first nine-month period of 2008.

Provision for Income Taxes

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

The provision for income taxes in the 2008 third quarter was $17.0 million, resulting in an effective tax rate of 18.5%. The effective tax rates in prior quarter and year-ago quarters were 20.6% and 26.0% respectively. During the 2008 third quarter, the effective tax rate included a $3.7 million addition to provision for income taxes, representing an increase to the previously established capital loss carry-forward valuation allowance related to the current quarter’s decline in value of Visa^{^®}shares held. This compared with $3.4 million benefit to the 2008 second quarter 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. The effective tax rate for the 2008 fourth quarter is expected to be in the range of 18%-20%.

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 ending 2004 and 2005. Also, we are subject to ongoing tax examinations in various jurisdictions for other time periods.

During the 2008 third quarter, the Internal Revenue Service and other taxing jurisdictions have proposed various adjustments to our previously filed tax returns. We believe that the tax positions taken related to such proposed adjustments were correct and supported by applicable statutes, regulations, and judicial authority, and intend to vigorously defend them. It is possible that the ultimate resolution of the proposed adjustments, if unfavorable, may be material to the results of operations in the period it occurs. However, although no assurance can be given, we believe that the resolution of these examinations will not, individually or in the aggregate, have a material adverse impact on our consolidated financial position.

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 2007 Form 10-K, and subsequent filings with the SEC. 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 counterparties 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. We also have credit risk associated with investment securities and derivatives. Credit risk is mitigated through a combination of credit policies and processes, market risk management activities, and portfolio diversification.

Counterparty Risk

In the normal course of business, we engage with other financial counterparties for a variety of purposes including asset and liability management, mortgage banking, and for trading activities. As a result, we are exposed to credit risk, or the risk of losses if the counterparty fails to perform according to the terms of a contract or agreement.

We minimize counterparty risk through credit approvals, limits, and monitoring procedures similar to those used for our commercial portfolio (see “Commercial Credit” discussion), generally entering into transactions only with counterparties that carry high quality ratings, and obtain collateral when appropriate.

Credit Exposure Mix

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

As shown in Table 19, at September 30, 2008, commercial loans totaled $23.5 billion, and represented 57% of our total credit exposure. This portfolio was diversified between C&I and CRE loans (see “Commercial Credit” discussion).

Total consumer loans were $17.6 billion at September 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). Our home equity and residential mortgages portfolios represented $12.4 billion, or 30%, of our total loans and leases. These portfolios are discussed in greater detail below in the “Consumer Credit” section.

Table 19 — Loans and Leases Composition


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

By Type
Commercial:
Commercial and industrial	$	13,638,066	33.1	%	$	13,745,515	33.5	%	$	13,645,890	33.3	%	$	13,125,565	32.8	%	$	13,125,158	32.8	%
Commercial real estate:
Construction		2,111,027	5.1			2,135,979	5.2			2,058,105	5.0			1,961,839	4.9			1,876,075	4.7
Commercial		7,796,133	18.9			7,565,486	18.4			7,457,744	18.2			7,221,213	18.0			7,097,465	17.7

Commercial real estate		9,907,160	24.0			9,701,465	23.6			9,515,849	23.2			9,183,052	22.9			8,973,540	22.4

Total commercial		23,545,226	57.1			23,446,980	57.1			23,161,739	56.5			22,308,617	55.7			22,098,698	55.2

Consumer:
Automobile loans		3,917,576	9.5			3,758,715	9.2			3,491,369	8.5			3,114,029	7.8			2,959,913	7.4
Automobile leases		698,450	1.7			834,777	2.0			999,629	2.4			1,179,505	2.9			1,365,805	3.4
Home equity		7,496,875	18.2			7,410,393	18.1			7,296,448	17.8			7,290,063	18.2			7,317,545	18.3
Residential mortgage		4,854,260	11.8			4,901,420	11.9			5,366,414	13.1			5,447,126	13.6			5,505,340	13.8
Other loans		679,336	1.7			694,855	1.7			698,620	1.7			714,998	1.8			739,939	1.9

Total consumer		17,646,497	42.9			17,600,160	42.9			17,852,480	43.5			17,745,721	44.3			17,888,542	44.8

Total loans and leases	$	41,191,723	100.0	%	$	41,047,140	100.0	%	$	41,014,219	100.0	%	$	40,054,338	100.0	%	$	39,987,240	100.0	%


By Business Segment
Regional Banking:
Central Ohio	$	5,223,789	12.7	%	$	5,226,741	12.7	%	$	5,229,075	12.7	%	$	5,149,503	12.9	%	$	5,010,489	12.5	%
Northwest Ohio		2,179,160	5.3			2,238,454	5.5			2,280,255	5.6			2,280,648	5.7			2,314,424	5.8
Greater Cleveland		3,301,249	8.0			3,262,379	7.9			3,194,533	7.8			3,104,336	7.8			3,063,600	7.7
Greater Akron/Canton		2,598,991	6.3			2,583,536	6.3			2,555,695	6.2			2,477,467	6.2			2,530,292	6.3
Southern Ohio/Kentucky		3,021,163	7.3			2,966,035	7.2			2,900,259	7.1			2,668,073	6.7			2,555,900	6.4
Mahoning Valley		1,240,950	3.0			1,251,491	3.0			1,292,837	3.2			1,274,608	3.2			1,300,711	3.3
West Michigan		2,624,581	6.4			2,600,512	6.3			2,535,359	6.2			2,478,683	6.2			2,521,990	6.3
East Michigan		1,818,433	4.4			1,809,680	4.4			1,766,750	4.3			1,747,914	4.4			1,752,106	4.4
Pittsburgh		2,003,051	4.9			1,959,811	4.8			1,923,011	4.7			1,859,401	4.6			1,818,292	4.5
Central Indiana		1,585,247	3.8			1,527,627	3.7			1,507,934	3.7			1,421,401	3.5			1,420,084	3.6
West Virginia		1,221,503	3.0			1,213,033	3.0			1,158,915	2.8			1,155,719	2.9			1,125,628	2.8
Other Regional		5,866,427	14.3			5,837,079	14.2			6,259,617	15.3			6,287,871	15.6			6,645,158	16.6

Regional Banking		32,684,544	79.3			32,476,378	79.1			32,604,240	79.5			31,905,624	79.7			32,058,674	80.2
Auto Finance and Dealer Services		5,900,223	14.3			5,958,599	14.5			5,862,116	14.3			5,563,415	13.9			5,449,580	13.6
Private Financial and Capital Markets Group		2,606,956	6.4			2,612,163	6.4			2,547,863	6.2			2,585,299	6.4			2,478,986	6.2
Treasury / Other		—	—			—	—			—	—			—	—			—	—

Total loans and leases	$	41,191,723	100.0	%	$	41,047,140	100.0	%	$	41,014,219	100.0	%	$	40,054,338	100.0	%	$	39,987,240	100.0	%

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 changes to such criteria, in future periods. The continuous analysis and review process results in a determination of an appropriate ALLL amount for our commercial loan portfolio.

Our commercial loan portfolio, including commercial real estate, 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. Through December 2007, 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 substantially all payments made to Franklin on these individual mortgages.

At September 30, 2008, bank group loans totaled $1.456 billion, down $129 million from $1.585 billion at December 31, 2007 (see Table 20). This reduction reflected loan payments of $172 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 above the required debt service, allowing for accelerated principal paydowns of approximately $60 million of the total bank group debt during the first nine-month period of 2008.

At September 30, 2008, our exposure to Franklin net of charge-offs was $1.095 billion, down $93 million, or 8%, from $1.188 billion exposure at December 31, 2007 (see Table 20). In the 2008 fourth quarter, we expect our proportion of payments received to continue to increase to our pro-rata participation level, as satisfaction of certain terms of the restructuring agreement that provided for a more rapid amortization on a certain participant’s portion of the debt were met in August of 2008.

During the 2008 third quarter, this relationship continued to perform with interest being accrued. While the cash flow generated by the underlying collateral declined during the quarter due to the weakening economic environment, it continued to exceed the requirements of the 2007 fourth quarter restructuring agreement. The 2008 third quarter cash flows were also affected by lower OREO sales proceeds because of a slowdown in the operational foreclosure resolution processes. Franklin continued to actively restructure and modify existing delinquent loans in order to generate principal and interest payments in future periods. Franklin was also actively engaged in recovering against judgments they have filed in prior periods.

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

Table 20 — Commercial Loans to Franklin


										Participated			Previously			Huntington
(in thousands of dollars)	Franklin			Tribeca			Subtotal			to others			charged off			Total
Variable rate, term loan (Facility A)	$	513,335		$	363,252		$	876,587		$	(147,910	)	$	—		$	728,677
Variable rate, subordinated term loan (Facility B)		315,764			96,849			412,613			(68,296	)		—			344,317
Fixed rate, junior subordinated term loan (Facility C)		125,000			—			125,000			(8,224	)		(116,776	)		—
Line of credit facility		949			—			949			—			—			949
Other variable rate term loans		41,243			—			41,243			(20,622	)		—			20,621

Subtotal		996,291			460,101			1,456,392		$	(245,052	)	$	(116,776	)	$	1,094,564


Participated to others		(151,883	)		(93,169	)		(245,052	)

Total principal owed to Huntington		844,408			366,932			1,211,340
Previously charged off		(116,776	)		—			(116,776	)

Total book value of loans	$	727,632		$	366,932		$	1,094,564


	Bank Group						Huntington
				Loans
				Participated to						Cumulative Net
(in thousands of dollars)	Total Loans			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	)		—			—			—
Principal 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
Principal 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
Principal payments received		(55,693	)		19,845			(35,848	)		—			(35,848	)

Commercial loans, at September 30, 2008	$	1,456,392		$	(245,052	)	$	1,211,340		$	(116,776	)	$	1,094,564

At September 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 during the first nine-month period of 2008. The table below details our probability-of-default and loss-given-default performance assumptions for estimating anticipated cash flows from the Franklin loans that were used to determine the appropriate amount of specific ALLL for the Franklin loans. The calculation of our specific ALLL for the Franklin portfolio is dependent, among other factors, on the assumptions provided in the table, as well as the current one-month LIBOR rate on the underlying loans to Franklin. As LIBOR rates increase, the specific ALLL for the Franklin portfolio may also increase.

Table 21 — Franklin Performance Assumptions


		Huntington collateral performance assumptions
		September 30, 2008
	UPB ⁽¹⁾	Probability of Default			Loss Given Default
Purchased 2^nd mortgages	$0.8 billion		65	%		90	%
Purchased 1^st mortgages	$0.5 billion		70	%		40	%
Tribeca originated 1^st mortgages	$0.5 billion		70	%		10	%

Total	$1.8 billion


⁽¹⁾		As of June 30, 2008, unpaid principal balance of mortgage collateral supporting total bank debt, including OREO. Data is obtained from the June 30, 2008, 10-Q filing of Franklin.

Commercial Real Estate Portfolio

As shown in Table 22, commercial real estate loans totaled $9.9 billion and represented 24% of our total loan exposure at September 30, 2008.

Table 22 — Commercial Real Estate Loans by Property Type and Borrower Location


	At September 30, 2008
(in millions)	Ohio			Michigan			Pennsylvania			Indiana			West Virginia			Other			Total Amount

Retail properties	$	1,555		$	227		$	189		$	191		$	42		$	3		$	2,207		22.3	%
Single family home builders		1,155			228			92			73			35			13			1,596		16.1
Office		727			209			153			54			43			7			1,193		12.0
Multi family		851			82			108			99			29			14			1,183		11.9
Industrial and warehouse		723			202			58			83			26			3			1,095		11.1
Lines to real estate companies		685			172			68			22			11			1			959		9.7
Raw land and other land uses		520			116			93			44			18			—			791		8.0
Health care		266			41			51			1			4			—			363		3.7
Hotel		178			64			19			5			14			—			280		2.8
Other		192			13			16			7			6			6			240		2.4


Total	$	6,852		$	1,354		$	847		$	579		$	228		$	47		$	9,907		100.0	%


Net charge-offs (first nine-month period of 2008)	$	19.2		$	7.2		$	—		$	1.2		$	1.5		$	1.3		$	30.4
% of portfolio		0.39	%		0.67	%		—			—			0.89	%		0.36	%		0.42	%

Non-accrual loans	$	179.2		$	65.8		$	5.9		$	36.7		$	2.1		$	9.1		$	298.8
% of portfolio		2.62	%		4.86	%		0.70	%		6.34	%		0.92	%		19.36	%		3.02	%

Accruing loans past due 90 days or more	$	54.4		$	0.5		$	1.0		$	0.8		$	—		$	2.2		$	58.9
% of portfolio		0.79	%		0.04	%		0.12	%		0.14	%		—			4.68	%		0.59	%

We manage the risks inherent in this portfolio through origination policies, concentration limits, on-going loan level reviews, and continuous portfolio risk management activities. Our origination policies for this portfolio include loan product-type specific policies such as loan-to-value (LTV), debt service coverage ratios, and pre-leasing requirements, as applicable. Except for our mezzanine portfolio, we generally: (a) limit our loans to 80% of the appraised value of the commercial real estate, (b) require net operating cash flows to be 125% of required interest and principal payments, and (c) if the commercial real estate is non-owner occupied, require that at least 50% of the space of the project be pre-leased. We also may require more conservative loan terms, depending on the project.

Dedicated commercial real estate professionals located in our major metropolitan areas originated the majority of this portfolio. Appraisals from approved vendors are reviewed by an appraisal review group within Huntington to ensure the quality of the valuation used in the underwriting process. The portfolio is diversified by project type and loan size. This diversification is a significant piece of the credit risk management strategies employed for this portfolio. Our loan review

staff provides an assessment of the quality of the underwriting and structure and confirms that an appropriate internal risk rating has been assigned to the loan.

Appraisal values are updated as needed, in conformity with regulatory requirements. Given the stressed environment for some loan types, we have initiated on-going portfolio level reviews of segments such as single family home builders (see “Single Family Home Builder” discussion). These reviews often generate an updated appraisal based on the current occupancy or sales volume associated with the project being reviewed.

At the portfolio level, we actively monitor the concentrations and performance metrics of all loan types, with a focus on higher risk segments. Macro-level stress-test scenarios based on home-price depreciation trends for the builder segment are embedded in our performance expectations. Table 22 provides certain performance metrics for the commercial real estate loan portfolio by state. Michigan and Ohio have experienced the most stress historically as measured by delinquency and loss rates.

Single Family Home Builders

At September 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 $49 million, or 3%, decrease compared with the 2008 second quarter. We did not originate any new loans in this portfolio during the current quarter. This portfolio is included within our commercial real estate portfolio, discussed above.

The housing market across our geographic footprint remained 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. We make extensive use of portfolio assessment models to continuously monitor the quality of the portfolio, which may result in changes to future origination strategies. The continuous analysis and review process results in a determination of an appropriate ALLL amount for our consumer loan portfolio. 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.

As the performance of our automobile loan and lease portfolio changed during 2007, adjustments were made to our underwriting processes and modeling approach that resulted in increased average FICO score and lower LTV ratios. The positive effects have continued into the first nine-months of 2008 as originations during this period have shown lower levels of cumulative risk compared with 2007. Our automobile loan and lease portfolio is primarily located within our banking footprint, with no out-of-footprint state representing more than 10% of our 2008 originations, except Florida, which represented 13% of our automobile loan and lease originations during the first nine-month period of 2008. We have consistently operated in Florida for over 10 years.

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 23 — Selected Home Equity and Residential Mortgage Portfolio Data


	Home Equity Loans						Home Equity Lines of Credit						Residential Mortgages
	09/30/08			12/31/07			09/30/08			12/31/07			09/30/08			12/31/07
Ending Balance	$3.2 billion			$3.4 billion			$4.3 billion			$3.9 billion			$4.8 billion			$5.4 billion
Portfolio Weighted Average LTV ratio ⁽¹⁾		70	%		69	%		78	%		78	%		76	%		76	%
Portfolio Weighted Average FICO ⁽²⁾		727			732			719			724			706			709


(First Nine Months of 2008)	Home Equity Loans			Home Equity Lines of Credit			Residential Mortgages
Originations	$460 million			$1,529 million			$559 million
Origination Weighted Average LTV ratio ⁽¹⁾		66	%		74	%		74	%
Origination Weighted Average FICO⁽²⁾		741			754			736


⁽¹⁾		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.

⁽²⁾		Portfolio Weighted Average FICO reflects a currently updated customer credit scores whereas Origination Weighted Average FICO reflects the customer credit scores at the time of loan origination.

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 LTV ratios. Included in our home equity loan portfolio are $1.4 billion of loans where the loan is secured by a 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 September 30, 2008, unchanged from December 31, 2007.

We believe we have granted credit conservatively within this portfolio. We have not originated home equity loans or lines of credit that allow negative amortization, or any with an LTV ratio at origination greater than 100%. Our portfolio weighted average LTV ratio at origination as of September 30, 2008, was 70% for home equity loans and 78% for home equity lines of credit. 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 taken several actions to mitigate the risk profile of this portfolio. We stopped originating new production through brokers in 2007, a culmination of our strategy begun in early 2005 to reduce our exposure to the broker channel. Reducing our reliance on brokers also lowers 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. Also, we have focused production within our banking footprint. In 2008, a home-equity line-of-credit management program was initiated to reduce our exposure to higher-risk customers.

We continue to make appropriate origination policy 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 ratio 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 an 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 63% of our total residential mortgage loan portfolio at September 30, 2008. At September 30, 2008, ARM loans that were expected to have rates reset in 2009 totaled $878 million. Also, our residential mortgage portfolio has immaterial loan balances with teaser-rates, that is, loans with a lower introductory interest rates that generally increase after the introductory period has expired. Given the quality of our borrowers, the decline in interest rates during the first nine-month period of 2008, and the immaterial loan balances in our portfolio with teaser-rates, 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 $461.0 million of Alt-A mortgages in the residential mortgage loan portfolio at September 30, 2008, compared with $531.4 million at December 31, 2007. 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. At September 30, 2008, borrowers for Alt-A mortgages had an average current FICO score of 672 and the loans had an average LTV ratio of 88%. Total Alt-A net charge-offs were an annualized 3.05% during the 2008 third quarter, and an annualized 1.87% during the first nine-month period of 2008. Our exposure related to this product will decline in the future as we stopped originating these loans in 2007.

Interest-only loans comprised $702.1 million, or 14%, of residential real estate loans at September 30, 2008, compared with $856.4 million, or 16%, at December 31, 2007. Interest-only loans are underwritten to specific standards including minimum FICO credit scores, stressed debt-to-income ratios, and extensive collateral evaluation. At September 30, 2008, borrowers for interest-only loans had an average current FICO score of 725 and the loans had an average LTV ratio of 78%, compared with 729 and 79%, respectively, at December 31, 2007. Total interest-only net charge offs were an annualized 0.40% during the 2008 third quarter and 0.22% during the first nine-month period of 2008. 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 third 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.

Credit quality performance in the 2008 third quarter was generally consistent with our expectations, reflecting the negative impact of the continued economic weakness across our Midwest markets. These economic factors influenced the performance of net charge-offs (NCOs) and NALs, as well as an expected commensurate significant increase in the provision for credit losses (see “Provision for Credit Losses” discussion) that increased 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 Item 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 24 reflects period-end NALs, NPAs, and past due loans and leases detail for each of the last five quarters.

Table 24 — Nonaccruing Loans (NALs), Nonperforming Assets (NPAs) and Past Due Loans and Leases


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

Non-accrual loans and leases:
Commercial and industrial	$	174,207		$	161,345		$	101,842		$	87,679		$	82,960
Commercial real estate		298,844			261,739			183,000			148,467			95,587
Residential mortgage		85,163			82,882			66,466			59,557			47,738
Home equity		27,727			29,076			26,053			24,068			23,111

Total NALs		585,941			535,042			377,361			319,771			249,396

Restructured loans ⁽¹⁾		364,939			368,379			1,157,361			1,187,368			—
Other real estate:
Residential		59,302			59,119			63,675			60,804			49,555
Commercial		14,176			13,259			10,181			14,467			19,310

Total other real estate		73,478			72,378			73,856			75,271			68,865
Impaired loans held for sale ⁽²⁾		13,503			14,759			66,353			73,481			100,485
Other NPAs ⁽³⁾		2,397			2,557			2,836			4,379			16,296

Total NPAs	$	1,040,258		$	993,115		$	1,677,767		$	1,660,270		$	435,042


NALs as a % of total loans and leases		1.42	%		1.30	%		0.92	%		0.80	%		0.62	%

NPA ratio ⁽⁴⁾		2.52			2.41			4.08			4.13			1.08

Accruing loans and leases past due 90 days or more	$	191,518		$	136,914		$	152,897		$	140,977		$	115,607

Accruing loans and leases past due 90 days or more as a percent of total loans and leases		0.46	%		0.33	%		0.37	%		0.35	%		0.29	%


⁽¹⁾		Restructured loans represent loans to 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. 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 $50.1 million, or 10%. The majority of this increase was primarily in the C&I and CRE portfolios, with the single family home builder segment representing approximately $26 million of the increase. The increase was a result of a number of small relationships, as only two loans exceeded $5 million.

The $47.1 million, or 5%, increase in NPAs, which include NALs, from the end of the prior quarter reflected:

•

$50.1 million, or 10%, increase in NALs (discussed above)

Partially offset by:

•

$3.4 million reduction in restructured Franklin loans, reflecting loan payments.

Compared with December 31, 2007, NPAs, which include NALs, decreased $620.0 million, or 37%, reflecting:

	•		$822.4 million, or 69%, reduction in Franklin loans, primarily reflecting the removal of the Tranche A portion of the total Franklin loans from NPAs during the 2008 second quarter.

	•		$60.0 million, or 82%, reduction in impaired loans held-for-sale, primarily reflecting loans sales and payments.

Partially offset by:

•

$266.2 million, or 83%, increase in NALs primarily reflecting the overall economic weakness in our markets. The increases were primarily in our C&I and CRE portfolios, reflecting the continued softness in the residential real estate development markets.

The over 90-day delinquent, but still accruing, ratio was 0.46% at September 30, 2008, up from 0.33% at June 30, 2008, and from 0.29% at the end of the year-ago quarter. The 13 basis point increase in the 90-day delinquent ratio from June 30, 2008, reflected a 21 basis point increase in the total commercial loan 90-day delinquent ratio to 0.35% from 0.14%, and a 2 basis point increase in the total consumer loan 90-day delinquent ratio to 0.61% from 0.59%.

The significant increase in the over 90-day delinquent, but still accruing, C&I and CRE loans reflected maturity issues including loans that have matured where we are working with our borrowers to ensure mutually beneficial arrangements are secured given the economic conditions. C&I 90-day delinquencies increased 11 basis points, with a 34 basis point increase in the CRE segment.

The consumer loan 90-day past due performance was relatively stable, with the home equity portfolio delinquencies declining 5 basis points. The increase in the automobile loan and lease portfolio delinquencies represented normal seasonal patterns. The increase in residential mortgage delinquencies was consistent with our performance expectations for the portfolio.

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 were not material in any period presented.

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

Table 25 — Non-Performing Assets (NPAs) Activity


	2008									2007
(in thousands)	Third			Second			First			Fourth			Third

NPAs, beginning of period	$	993,115		$	1,677,767		$	1,660,270		$	435,042		$	261,185
New NPAs		175,345			256,308			141,090			211,134			92,986
Restructured loans ⁽¹⁾		—			(762,033	)		—			1,187,368			—
Acquired NPAs		—			—			—			—			144,492
Returns to accruing status		(9,104	)		(5,817	)		(13,484	)		(5,273	)		(8,829	)
Loan and lease losses		(52,792	)		(40,808	)		(27,896	)		(62,502	)		(28,031	)
Payments		(46,759	)		(73,040	)		(68,753	)		(30,756	)		(17,589	)
Sales		(19,547	)		(59,262	)		(13,460	)		(74,743	)		(9,172	)

NPAs, end of period	$	1,040,258		$	993,115		$	1,677,767		$	1,660,270		$	435,042


⁽¹⁾		Restructured loans represent loans to 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 Item 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 26 reflects activity in the ALLL and AULC for each of the last five quarters.

Table 26 — Quarterly Credit Reserves Analysis


	2008									2007
(in thousands)	Third			Second			First			Fourth			Third

Allowance for loan and lease losses, beginning of period	$	679,403		$	627,615		$	578,442		$	454,784		$	307,519
Acquired allowance for loan and lease losses		—			—			—			—			188,128
Loan and lease losses		(96,388	)		(78,084	)		(60,804	)		(388,506	)		(57,466	)
Recoveries of loans previously charged off		12,637			12,837			12,355			10,599			10,360

Net loan and lease losses		(83,751	)		(65,247	)		(48,449	)		(377,907	)		(47,106	)

Provision for loan and lease losses		125,086			117,035			97,622			503,781			36,952
Allowance for loans transferred to held-for-sale		—			—			—			(2,216	)		(30,709	)

Allowance for loan and lease losses, end of period	$	720,738		$	679,403		$	627,615		$	578,442		$	454,784


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

Acquired AULC		—			—			—			—			11,541
(Reduction in) provision for unfunded loan commitments and letters of credit losses		306			3,778			(8,972	)		8,301			5,055

Allowance for unfunded loan commitments and letters of credit, end of period	$	61,640		$	61,334		$	57,556		$	66,528		$	58,227

Total allowances for credit losses	$	782,378		$	740,737		$	685,171		$	644,970		$	513,011


Allowance for loan and lease losses (ALLL) as % of:
Transaction reserve		1.54	%		1.45	%		1.34	%		1.27	%		0.97	%
Economic reserve		0.21			0.21			0.19			0.17			0.17

Total loans and leases		1.75	%		1.66	%		1.53	%		1.44	%		1.14	%

Nonaccrual loans and leases (NALs)⁽¹⁾		123	%		127	%		166	%		181	%		182	%

Total allowances for credit losses (ACL) as % of:
Total loans and leases		1.90	%		1.80	%		1.67	%		1.61	%		1.28	%
NALs ⁽¹⁾		134			138			182			202			206


⁽¹⁾		Beginning in the 2007 fourth quarter, the ALLL includes a specific reserve of $115.3 million related to Franklin, which remains an accruing loan.

Table 27 reflects activity in the ALLL and AULC for the first nine-month periods of 2008 and 2007.

Table 27 — Year to Date Credit Reserves Analysis


	Nine Months Ended September 30,
(in thousands)	2008			2007
Allowance for loan and lease losses, beginning of period	$	578,442		$	272,068
Acquired allowance for loan and lease losses		—			188,128
Loan and lease losses		(235,276	)		(129,437	)
Recoveries of loans previously charged off		37,829			29,713

Net loan and lease losses		(197,447	)		(99,724	)
Provision for loan and lease losses		339,743			125,021
Allowance for loans transferred to held-for-sale		—			(30,709	)

Allowance for loan and lease losses, end of period	$	720,738		$	454,784


Allowance for unfunded loan commitments and letters of credit, beginning of period	$	66,527		$	40,161
Acquired AULC		—			11,541
(Reduction in) provision for unfunded loan commitments and letters of credit losses		(4,888	)		6,525

Allowance for unfunded loan commitments and letters of credit, end of period	$	61,639		$	58,227

Total allowances for credit losses	$	782,377		$	513,011


Allowance for loan and lease losses (ALLL) as % of:
Transaction reserve		1.54	%		0.97	%
Economic reserve		0.21			0.17

Total loans and leases		1.75	%		1.14	%

Nonaccrual loans and leases (NALs) ⁽¹⁾		123	%		182	%

Total allowances for credit losses (ACL) as % of:
Total loans and leases		1.90	%		1.28	%
NALs ⁽¹⁾		134			206


⁽¹⁾		Beginning in the 2007 fourth quarter, the ALLL includes a specific reserve of $115.3 million related to Franklin, which remains an accruing loan.

The ALLL increases of $41.3 million and $142.3 million compared with June 30, 2008 and December 31, 2007, respectively, primarily reflected the impact of the continued economic weakness across our Midwest markets. As new non-accruals are identified, we conduct formal impairment testing that may result in an increase to our ALLL. A significant portion of the increases in the ALLL has been a result of this impairment testing process. At September 30, 2008, the specific ALLL related to Franklin was $115.3 million, unchanged from June 30, 2008.

We have an established process to determine the adequacy of the ALLL that relies on a number of analytical tools and benchmarks. No single statistic or measurement, in itself, determines the adequacy of the ALLL. The ALLL is comprised of two components: The transaction reserve and the economic reserve. Changes to the transaction reserve component of the ALLL are impacted by changes in the estimated loss inherent in our loan portfolios. For example, our process requires increasingly higher level of reserves as a loan’s internal classification moves from higher quality rankings to lower, and vice versa. This movement across the credit scale is called migration.

During the 2008 third quarter, the transaction component of the ALLL increased to 1.54% at September 30, 2008, from 1.45% at the end of the prior quarter, and from 1.27% at 2007 year-end. This reflected the continued downward migration

in the credit quality of loans, reflecting the negative impact of the continued economic weakness on both the borrowers’ ability to repay, as well as declining collateral values. This downward migration from the end of the prior quarter was most pronounced in our East Michigan and Northwest Ohio regions, while the downward migration from 2007 year-end was most pronounced in our Central Ohio, Greater Cleveland, and Northwest Ohio regions.

The estimated loss factors assigned to credit exposures across our portfolios 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 nine-month period of 2008. In the aggregate, these changes did not have a significant impact to the provision for credit losses for the first nine-month period of 2008.

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

Table 28 reflects net loan and lease charge-off detail for each of the last five quarters.

Table 28 — Quarterly Net Charge-Off Analysis


	2008									2007
(in thousands)	Third			Second			First			Fourth			Third

Net charge-offs by loan and lease type:
Commercial:
Commercial and industrial ⁽¹⁾	$	29,646		$	12,361		$	10,732		$	323,905		$	12,641
Commercial real estate:
Construction		3,539			575			122			6,800			2,157
Commercial		7,446			14,524			4,153			13,936			2,506

Commercial real estate		10,985			15,099			4,275			20,736			4,663

Total commercial		40,631			27,460			15,007			344,641			17,304

Consumer:
Automobile loans		9,813			8,522			8,008			7,347			5,354
Automobile leases		3,532			2,928			3,211			3,046			2,561

Automobile loans and leases		13,345			11,450			11,219			10,393			7,915
Home equity ⁽²⁾		15,828			17,345			15,215			12,212			10,841
Residential mortgage		6,706			4,286			2,927			3,340			4,405
Other loans ⁽²⁾		7,241			4,706			4,081			7,321			6,641

Total consumer		43,120			37,787			33,442			33,266			29,802

Total net charge-offs	$	83,751		$	65,247		$	48,449		$	377,907		$	47,106


Net charge-offs — annualized percentages:
Commercial:
Commercial and industrial ⁽¹⁾		0.87	%		0.36	%		0.32	%		9.76	%		0.39	%
Commercial real estate:
Construction		0.68			0.11			0.02			1.44			0.48
Commercial		0.39			0.77			0.23			0.78			0.14

Commercial real estate		0.45			0.63			0.18			0.92			0.21

Total commercial		0.69			0.47			0.27			6.18			0.31

Consumer:
Automobile loans		1.02			0.94			0.97			0.96			0.73
Automobile leases		1.84			1.28			1.18			0.96			0.72

Automobile loans and leases		1.15			1.01			1.02			0.96			0.73
Home equity ⁽²⁾		0.85			0.94			0.84			0.67			0.58
Residential mortgage		0.56			0.33			0.22			0.25			0.32
Other loans ⁽²⁾		4.32			2.69			2.29			4.02			4.97

Total consumer		0.98			0.85			0.75			0.75			0.67

Net charge-offs as a % of average loans		0.82	%		0.64	%		0.48	%		3.77	%		0.47	%


⁽¹⁾		The 2007 fourth quarter includes charge-offs totaling $397 million associated with the Franklin restructuring. These charge-offs were reduced by the unamortized discount associated with the loans, and by other amounts received from Franklin totaling $88.5 million, resulting in net charge-offs totaling $308.5 million.

⁽²⁾		During the 2008 third quarter, we reclassified certain previously reported 2008 first and second quarter charge-offs from other consumer loans to home equity loans.

Current quarter C&I NCOs reflected the impact of charging-off two relationships totaling $11 million, with the rest of the increase spread among smaller loans across the portfolio. Current quarter CRE NCOs were consistent with our expectations and reflected smaller dollar activity and the resolution of previously identified NALs.

Both automobile loan and automobile lease NCOs continued to be negatively impacted by declines in used car prices. While there was some evidence of used car price stabilization, the overall market remained under stress as consumer spending on vehicles declined. While both the loan and lease segments were negatively impacted by general economic weakness, the reported automobile lease NCO annualized percentage was also negatively affected by declining balances. Although we anticipate that automobile loan and lease NCOs will remain under pressure due to continued economic weakness in our markets, we believe that our focus on high quality borrowers over the last several years will continue to result in better performance relative to other peer bank automobile portfolios.

The home equity portfolio continued to be negatively impacted by the general economic and housing market slowdown. The impact was evident across our footprint, but performance was most impacted in our West Michigan and East Michigan regions, particularly the Detroit market. Given that we have: (a) no exposure to the very volatile west coast market, (b) insignificant exposure to the Florida markets, resulting from loans made to our Private Banking customers in that area, (c) less than 10% of the portfolio originated via the broker channel, and (d) conservatively assessed the borrowers’ ability to repay at the time of underwriting, we continue to believe our home equity NCO experience will compare favorably relative to the industry.

The residential mortgage portfolio remained under the same economic and housing related pressures as the home equity portfolio, and we expect to see additional stress in our markets in future periods. However, as our origination strategy specifically excluded the riskier mortgage structures, we believe that our performance throughout this cycle will compare favorably on a relative basis to the industry. In addition, loss mitigation strategies have been in place for over a year and are helping to successfully mitigate risks in our ARM portfolio.

Table 29 reflects net loan and lease charge-off detail for the first nine-month periods of 2008 and 2007.

Table 29 — Year To Date Net Charge-Off Analysis


	Nine Months Ended September 30,
(in thousands)	2008			2007

Net charge-offs by loan and lease type:
Commercial:
Commercial and industrial	$	52,739		$	21,935
Commercial real estate:
Construction		4,236			5,054
Commercial		26,123			13,314

Commercial real estate		30,359			18,368

Total commercial		83,098			40,303

Consumer:
Automobile loans		26,343			9,838
Automobile leases		9,671			7,461

Automobile loans and leases		36,014			17,299
Home equity		48,388			22,214
Residential mortgage		13,919			8,031
Other loans		16,028			11,877

Total consumer		114,349			59,421

Total net charge-offs	$	197,447		$	99,724


Net charge-offs — annualized percentages:
Commercial:
Commercial and industrial		0.52	%		0.30	%
Commercial real estate:
Construction		0.28			0.48
Commercial		0.46			0.38

Commercial real estate		0.42			0.40

Total commercial		0.48			0.34

Consumer:
Automobile loans		0.98			0.53
Automobile leases		1.40			0.64

Automobile loans and leases		1.06			0.57
Home equity		0.88			0.51
Residential mortgage		0.36			0.22
Other loans		3.07			3.44

Total consumer		0.86			0.53

Net charge-offs as a % of average loans		0.65	%		0.43	%

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 to which we are exposed.

Within our securities available-for-sale portfolio are asset-backed securities. At September 30, 2008, the securities in this portfolio had a fair value that was $209.2 million less than their book value (net of impairment), resulting from increased liquidity spreads and extended duration. Table 30 details our asset-backed securities exposure:

Table 30 — Asset-Backed Securities Exposure
(in thousands of dollars)

September 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

472,874

382,469

A+

560,654

547,358

AAA

Pooled trust preferred securities

299,039

180,276

BBB+

301,231

279,175

Other securities⁽¹⁾

2,397

B-

7,769

7,956

BB-

Total

774,310

565,142

869,654

834,489


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

Our Alt-A mortgage securities were purchased in 2006. The assets backing these securities are either 10/1 ARMs or 15- or 30- year fixed-rate loans, and none of the securities are backed by option ARMs. Our pooled trust preferred securities were purchased between 2003 and 2005, and consist of 16 pools with 400 separate issues. A total of 80% of these securities are either first- or second- tier bank trust preferred securities, and none of the securities are backed by REIT trust-preferred securities. The remaining 20% are backed by senior tranche insurance company trust-preferred securities. A rigorous cash flow analysis of the Alt-A mortgage securities and the first- and second- tier bank trust preferred securities was conducted to test for any OTTI. During the 2008 third quarter, we estimated that the cash flows from eight Alt-A mortgage backed securities would fall short of the required contractual interest principal payments over the estimated remaining life of these securities. As such, OTTI was recognized.

No OTTI was recognized in either the pooled trust preferred securities portfolio or the other securities portfolio as we believe all impairment within these portfolios to be temporary. However, during the current quarter, we recognized OTTI of $76.6 million in the Alt-A mortgage loan-backed portfolio relating to eight of the 25 securities held in that portfolio.

Table 31 provides additional detail regarding our Alt-A mortgage loan-backed portfolio at September 30, 2008.

Table 31 — Alt-A Mortgage Loan Backed Portfolio
(in thousands of dollars)


	September 30, 2008
	Impaired			Unimpaired			Total
Par value	$	212,062		$	342,844		$	554,906


Book value	$	134,821		$	338,053		$	472,874
Unrealized losses		—			(90,405	)		(90,405	)

Fair value	$	134,821		$	247,648		$	382,469


Cumulative OTTI	$	76,553		$	—		$	—

Weighted average: ⁽¹⁾
Fair value		64	%		72	%		69	%
Collateral LTV		73			71			72
Expected loss		2.4			0.0			0.9


⁽¹⁾		Based on par values.

Market Risk

Market risk represents the risk of loss due to changes in market values of assets and liabilities. We incur market risk in the normal course of business through exposures to market interest rates, foreign exchange rates, equity prices, credit spreads, and expected lease residual values. We have identified two primary sources of market risk: interest rate risk and price risk. Interest rate risk is our primary market risk.

Interest Rate Risk

Interest rate risk 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 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 September 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 September 30, 2008, and December 31, 2007. All of the positions were within the board of directors’ policy limits.

Table 32 — 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	%

September 30, 2008		-2.3	%	-0.7	%	+0.5	%	+0.8	%
December 31, 2007		-3.0	%	-1.3	%	+1.4	%	+2.2	%

The change to net interest income at risk reported as of September 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 slower growth in fixed rate loans and a shift in deposits towards fixed rate time deposits from money market accounts, offset by the impact of slower prepayments on mortgage assets.

The primary simulations for economic value of equity (EVE) at risk assume immediate “+/-100” and “+/-200” basis point parallel shifts in market interest rates beyond the interest rate change implied by the current yield curve. The table below outlines the September 30, 2008, results compared with December 31, 2007.

Table 33 — 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	%

September 30, 2008		+0.4	%	+1.5	%	-4.1	%	-8.9	%
December 31, 2007		-0.3	%	+1.1	%	-4.4	%	-10.8	%

The change to EVE at risk reported as of September 30, 2008 compared with December 31, 2007 reflected the impact of fixed-rate deposit growth, partially offset by slower prepayments on mortgage assets.

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 September 30, 2008, we had a total of $230.4 million of MSRs representing the right to service $15.7 billion in mortgage loans. (See Note 5 of the Notes to the Unaudited Condensed Consolidated Financial Statements for additional discussion regarding MSRs.)

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 September 30, 2008, we had a total of $47.8 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 nine-month period of 2008:

Table 34 — Equity Investment Activity
(in thousands of dollars)


	Balance at		New		Returns of						Balance at
	December 31, 2007		Investments		Capital			Gain / (Loss)			September 30, 2008
Type:
Public equity	$	16,583	$	—	$	—		$	(2,384	)	$	14,199
Private equity		20,202		5,472		(391	)		(1,494	)		23,789
Direct investment		11,962		1,893		(473	)		(3,587	)		9,795

Total	$	48,747	$	7,365	$	(864	)	$	(7,465	)	$	47,783

The equity investment losses in the first nine-month period of 2008 reflected a $5.9 million venture capital loss during the 2008 first quarter, and $3.9 million of 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 nine-month period 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 and customer 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 nine-month period of 2008 resulting from the disruptions caused by the crises of investment banking firms and subsequent forced portfolio liquidations from a variety of investment funds. As a result, liquidity premiums and credit spreads widened significantly and many investors remained invested in lower risk investments such as U.S. 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

Table 35 — Deposit Composition


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

By Type
Demand deposits — non-interest bearing	$	5,135,164	13.7	%	$	5,253,156	13.8	%	$	5,160,068	13.5	%	$	5,371,747	14.2	%	$	4,984,663	13.0	%
Demand deposits — interest bearing		4,052,032	10.8			4,074,202	10.7			4,040,747	10.6			4,048,873	10.7			3,982,102	10.4
Money market deposits		5,565,439	14.8			6,170,640	16.2			6,681,412	17.5			6,643,242	17.6			6,721,963	17.5
Savings and other domestic deposits		4,816,038	12.8			5,198,488	13.6			5,267,364	13.8			5,163,287	13.7			5,286,236	13.8
Core certificates of deposit		12,156,660	32.4			11,273,807	29.6			10,582,394	27.8			10,736,146	28.4			10,611,821	27.6

Total core deposits		31,725,333	84.5			31,970,293	83.9			31,731,985	83.2			31,963,295	84.6			31,586,785	82.3
Other domestic deposits of $100,000 or more		1,948,899	5.2			1,949,059	5.1			1,976,021	5.2			1,676,058	4.4			1,505,657	3.9
Brokered deposits and negotiable CDs		2,925,440	7.8			3,100,955	8.1			3,361,957	8.8			3,376,854	8.9			3,701,726	9.6
Deposits in foreign offices		969,384	2.5			1,104,119	2.9			1,046,378	2.8			726,714	2.0			1,610,197	4.2

Total deposits	$	37,569,056	100.0	%	$	38,124,426	100.0	%	$	38,116,341	100.0	%	$	37,742,921	99.9	%	$	38,404,365	100.0	%

Total core deposits:
Commercial	$	8,007,619	25.2	%	$	8,471,809	26.5	%	$	8,715,690	27.5	%	$	9,017,852	28.2	%	$	9,017,474	28.5	%
Personal		23,717,714	74.8			23,498,484	73.5			23,016,295	72.5			22,945,443	71.8			22,569,311	71.5

Total core deposits	$	31,725,333	100.0	%	$	31,970,293	100.0	%	$	31,731,985	100.0	%	$	31,963,295	100.0	%	$	31,586,785	100.0	%


By Business Segment
Regional Banking:
Central Ohio	$	6,136,030	16.3	%	$	6,618,913	17.4	%	$	6,665,031	17.5	%	$	6,319,899	16.7	%	$	5,922,566	15.4	%
Northwest Ohio		2,690,720	7.3			2,775,959	7.3			2,798,377	7.3			2,836,309	7.5			2,839,877	7.4
Greater Cleveland		3,248,385	7.2			3,334,461	8.7			3,263,713	8.6			3,201,791	8.5			3,074,412	8.0
Greater Akron/Canton		3,270,480	8.6			3,186,097	8.4			3,228,245	8.5			3,188,682	8.4			3,249,922	8.5
Southern Ohio / Kentucky		2,643,955	8.7			2,655,612	7.0			2,676,381	7.0			2,628,879	7.0			2,625,958	6.8
Mahoning Valley		2,263,719	7.0			2,258,802	5.9			2,337,816	6.1			2,333,794	6.2			2,324,259	6.1
West Michigan		3,021,528	6.0			2,946,401	7.7			2,937,318	7.7			2,918,709	7.7			2,965,334	7.7
East Michigan		2,663,131	8.0			2,513,804	6.6			2,445,148	6.4			2,444,269	6.5			2,422,248	6.3
Pittsburgh		2,749,254	7.1			2,527,984	6.6			2,555,309	6.7			2,536,007	6.7			2,555,209	6.7
Central Indiana		1,902,232	7.3			1,973,110	5.2			1,881,781	4.9			1,894,940	5.0			1,909,499	5.0
West Virginia		1,723,002	5.1			1,658,034	4.3			1,584,233	4.2			1,589,520	4.2			1,559,909	4.1
Other Regional		711,649	1.9			851,169	2.2			782,844	2.1			788,703	2.1			632,177	1.6

Regional Banking		33,024,085	87.9			33,300,346	87.3			33,156,196	87.0			32,681,502	86.6			32,081,370	83.5
Auto Finance and Dealer Services		67,040	0.2			56,517	0.1			55,557	0.1			58,196	0.2			63,399	0.2
Private Financial and Capital Markets Group		1,552,591	4.1			1,666,608	4.4			1,542,631	4.0			1,626,043	4.3			1,630,675	4.2
Treasury / Other⁽¹⁾		2,925,340	7.8			3,100,955	8.2			3,361,957	8.9			3,377,180	8.9			4,628,921	12.1

Total deposits	$	37,569,056	100.0	%	$	38,124,426	100.0	%	$	38,116,341	100.0	%	$	37,742,921	100.0	%	$	38,404,365	100.0	%


⁽¹⁾		Comprised largely of national market deposits.

Core deposits may increase our need for liquidity as certificates of deposit mature or are withdrawn before maturity and as non-maturity deposits, such as checking and savings account balances, are withdrawn. Additionally, we are exposed to the risk that customers with large deposit balances will withdraw all or a portion of such deposits as the FDIC establishes certain limits on the amount of insurance coverage provided to depositors (see “Emergency Economic Stabilization Act of 2008” discussion). At September 30, 2008, we had approximately $12.4 billion of uninsured deposits. To mitigate the uninsured deposit risk, we have joined the Certificate of Deposit Account Registry Service (CDARS), a program that allows customers to invest up to $50 million in certificates of deposit through one participating financial institution, with the entire amount being covered by FDIC insurance.

To the extent that we are unable to obtain sufficient liquidity through core deposits, we may 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 (TAF). As of September 30, 2008, a total of $8.3 billion of commercial loans and home equity lines of credit were pledged to these facilities. As of September 30, 2008, TAF borrowings totaled $0.2 billion, with $6.4 billion of borrowing capacity available from both facilities. Additionally, the Bank had a $4.4 billion borrowing capacity at the Federal Home Loan Bank of Cincinnati, of which $0.9 billion remained unused at September 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 2008 second 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. These actions result in approximately $1.0 billion of national market maturities over the next 12 months. We anticipate that these maturities can be met through core deposit growth, Federal Home Loan Bank advances, and normal national market funding sources, including brokered deposits and additional securitizations.

As previously discussed, the FDIC introduced the Temporary Liquidity Guarantee Program in October 2008. One component of this program guarantees certain newly issued senior unsecured debt. We are currently in the process of evaluating the impact of this program.

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

Parent Company Liquidity

At September 30, 2008, the parent company had $279.7 million in cash or cash equivalents, compared with $153.5 million at December 31, 2007. Quarterly cash dividends paid on our common stock totaled $242.5 million for the first nine-month period of 2008. Table 38 provides additional detail regarding dividends declared per common share. Additional cash demands of $48.5 million, are required in both the 2008 fourth quarter and the 2009 first quarter, representing quarterly cash dividends declared on our common stock that are not payable until after September 30, 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. (See Note 7 of the Notes to Unaudited Condensed Consolidated Financial Statements for additional information.) Cash dividends paid on the Series A Preferred Stock totaled $11.2 million for the first nine-month period of 2008. An additional cash demand of $12.2 million is required in the 2008 fourth quarter, representing a quarterly cash dividend declared on our Series A Preferred Stock that is not payable until after September 30, 2008.

Based on a regulatory dividend limitation, the Bank could not have declared and paid a dividend to the parent company at September 30, 2008, without regulatory approval. During the 2008 third quarter, the parent company requested, and the Office of the Comptroller of the Currency (OCC) granted approval, to have the bank dividend, in-kind, certain assets of the bank. As a result of this dividend, we do not anticipate the parent company will receive any cash dividends from the Bank in 2008. However, we do anticipate the resumption of cash bank dividends to the parent company beginning in the 2009 first quarter. 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.

With the exception of the common and preferred dividends previously discussed, the parent company does not have any significant cash demands. There are no debt maturities until 2013, when a debt maturity of $50 million is payable.

Considering our participation in the TARP voluntary CPP (see “Risk Factors” discussion within the “Introduction” section), anticipated earnings, capital raised from the 2008 second quarter preferred-stock issuance, other factors discussed above, and other analyses that we have performed, 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 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 September 30, 2008, for the parent company and the Bank were:

Table 36 — Credit Ratings

September 30, 2008

Senior Unsecured

Notes

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

Investors 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 September 30, 2008, we had $1.6 billion of standby letters of credit outstanding, of which 48% were collateralized. Included in this $1.6 billion total are letters of credit issued by the Bank that support $0.7 billion of securities that were issued by our customers and sold by The Huntington Investment Company (HIC), our broker-dealer subsidiary. If the Bank’s short-term credit ratings were downgraded, the Bank could be required to obtain funding in order to purchase the entire amount of these securities pursuant to its letters of credit. Due to lower demand, investors have begun returning these securities either to HIC for re-marketing or to the Bank for redemption. Pursuant to the letters of credit issued by the Bank, the Bank repurchased, in October 2008, $266.2 million of these securities representing: (a) $57.2 million that were returned to HIC, and held in its securities portfolio, as of September 30, 2008, and (b) $209.0 million that were returned to the Bank for redemption by the current investors of the securities in October 2008.

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 September 30, 2008, December 31, 2007, and September 30, 2007, we had commitments to sell residential real estate loans of $485.6 million, $555.9 million, and $466.1 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.

As shown in Table 37, our consolidated tangible equity to assets ratio was 5.98% at September 30, 2008, an increase from 5.08% at December 31, 2007, and 5.90% at June 30, 2008. The 8 basis point increase from June 30, 2008, primarily reflected a decrease in total assets, and to a lesser extent, a decrease in goodwill and other intangible assets.

Table 37 — Capital Adequacy


		“Well-
		Capitalized”			2008									2007
(in millions)		Minimums			September 30,			June 30,			March 31,			December 31,			September 30,
Total risk-weighted assets⁽¹⁾	Consolidated				$	46,608		$	46,602		$	46,546		$	46,044		$	45,931
	Bank					45,883			46,346			46,333			45,731			45,444

Tier 1 leverage ratio ⁽¹⁾	Consolidated		5.00	%		7.99	%		7.88	%		6.83	%		6.77	%		7.57	%
	Bank		5.00			6.36			6.37			6.24			5.99			6.23

Tier 1 risk-based capital ratio ⁽¹⁾	Consolidated		6.00			8.80			8.82			7.56			7.51			8.35
	Bank		6.00			7.01			7.10			6.89			6.64			6.99

Total risk-based capital ratio ⁽¹⁾	Consolidated		10.00			12.03			12.05			10.87			10.85			11.58
	Bank		10.00			10.25			10.32			10.39			10.17			10.42

Tangible equity / asset ratio	Consolidated					5.98			5.90			4.92			5.08			5.70

Tangible common equity / asset ratio	Consolidated					4.88			4.80			4.92			5.08			5.70

Tangible equity / risk-weighted assets ratio ⁽¹⁾	Consolidated					6.59			6.58			5.57			5.67			6.46

Average equity / average assets	Consolidated					11.56			11.44			10.70			11.40			11.50


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

The Bank is primarily supervised and regulated by the OCC, which establishes regulatory capital guidelines for banks similar to those established for bank holding companies by the Federal Reserve Board. 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 September 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 $0.5 billion and $0.1 billion, 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 $0.9 billion, respectively.

Our participation in the TARP voluntary CPP (see “Risk Factors” discussion within the “Introduction” section) is expected to increase our Tier 1 leverage ratio, Tier 1 risk-based capital ratio, and total risk-based capital ratio by approximately three percentage points.

Shareholders’ equity totaled $6.4 billion at September 30, 2008. This represented an increase compared with $5.9 billion at December 31, 2007, primarily reflecting the prior quarter’s issuance of an aggregate $569 million of Series A Preferred Stock. The Series A Preferred Stock pays, as declared by our board of directors, dividends in cash at a rate of 8.50% per annum, payable quarterly. 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 paid 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.

Table 38 — Quarterly Common Stock Summary


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

Common stock price, per share
High ⁽¹⁾	$	13.500	$	11.750	$	14.870	$	18.390	$	22.930
Low⁽¹⁾		4.370		4.940		9.640		13.500		16.050
Close		7.990		5.770		10.750		14.760		16.980
Average closing price		7.510		8.783		12.268		16.125		18.671

Dividends, per share
Cash dividends declared per common share	$	0.1325	$	0.1325	$	0.2650	$	0.2650	$	0.2650

Common shares outstanding
Average — basic		366,124		366,206		366,235		366,119		365,895
Average — diluted ⁽²⁾		367,361		367,234		367,208		366,119		368,280
Ending		366,069		366,197		366,226		366,262		365,898

Book value per share	$	15.86	$	15.87	$	16.13	$	16.24	$	17.08
Tangible book value per share		6.84		6.82		7.08		7.13		8.10

Common share repurchases
Number of shares repurchased		—		—		—		—		—


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

⁽²⁾		For the three-month period ended September 30, 2008, and the three-month period ended June 30, 2008, the impact of the convertible preferred stock issued in April of 2008 totaling 47.6 and 39.8 million shares, respectively, were excluded from the diluted share calculations. They was excluded because the results would have been higher than basic earnings per common share (anti-dilutive) for the periods.

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 15 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, Auto Finance and Dealer Services (AFDS), 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 AFDS.

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 third quarter results are compared with 2008 second 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, and (b) the comparisons of the first nine-month period of 2008 to the first nine-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, and (c) the comparisons of the 2008 third quarter to the 2007 third quarter are skewed as the current general economic environment is significantly different than during the 2007 third quarter. As a result, we believe that a more meaningful analysis of our core activities is obtained by comparisons to the prior quarter; as such comparisons are less affected by the impact of the overall economic changes.

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.

Net Income by Business Segment

The company reported net income of $75.1 million in the 2008 third quarter. This compared with a net income of $101.4 million in the 2008 second quarter, a decrease of $26.3 million. The breakdown of net income for the 2008 third quarter by business segment is as follows:

	§		Regional Banking: $121.2 million ($3.7 million increase compared with 2008 second quarter)

	§		AFDS: $0.1 million loss ($8.0 million decrease compared with 2008 second quarter)

	§		PFCMG: $21.1 million ($11.6 million increase compared with 2008 second quarter)

	§		Treasury/Other: $67.1 million loss ($33.6 million decline compared with 2008 second 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 11 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 almost 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 September 30, 2008, Retail Banking accounted for 50% and 82% 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 Third Quarter versus 2008 Second Quarter

Table 39 — Key Performance Indicators for Regional Banking


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

Net interest income	$	366,466		$	366,001		$	465			0.1	%
Provision for credit losses		100,319			104,660			(4,341	)		(4.1	)
Non-interest income		140,936			148,264			(7,328	)		(4.9	)
Non-interest expense		220,628			228,826			(8,198	)		(3.6	)
Provision for income taxes		65,259			63,273			1,986			3.1

Net Income	$	121,196		$	117,506		$	3,690			3.1	%

Total average earning assets (in millions)	$	32,782		$	33,060		$	(278	)		(0.8)	%
Total average loans/leases (in millions)		32,479			32,557			(78	)		(0.2	)
Total average deposits (in millions)		33,132			33,095			37			0.1
Net interest margin		4.46	%		4.46	%		—	%		—
Net charge-offs (NCOs)	$	69,073		$	51,286		$	17,787			34.7
NCOs as a % of average loans and leases		0.85	%		0.63	%		0.22	%		34.9
Return on average equity		20.4			20.4			—			---	%
Retail banking # DDA households (eop)		898,966			897,023			1,943			0.2	%
Retail banking # new relationships 90-day cross-sell (average)		2.23			2.54			(0.31	)		(12.2	)
Small business # business DDA relationships (eop)		106,538			105,337			1,201			1.1
Small business # new relationships 90-day cross-sell (average)		2.07			2.11			(0.04	)		(1.9	)
Mortgage banking closed loan volume (in millions)	$	680		$	1,127		$	(447	)		(39.7	)


eop — End of Period.

Regional Banking contributed $121.2 million of the company’s net income in the 2008 third quarter. This compared with net income of $117.5 million in the 2008 second quarter, and represented an increase of $3.7 million.

Fully taxable equivalent net interest income was essentially unchanged from the prior quarter as total average earning assets and the net interest margin were essentially flat. This reflected an increase in consumer deposit spreads, offset by a decrease in commercial loan spreads, as well as a decrease in commercial deposit balances.

Total average loans and leases were little changed compared with the prior quarter primarily reflecting growth in our commercial portfolios, and to a lesser extent, our home equity portfolio. The loan growth was centered in the Pittsburgh and Southern Ohio regions. The increase in home equity loans reflected borrowers moving into this product, as lower rates were available. These increases were offset by declines in some of our other consumer portfolios, particularly our residential mortgage portfolio reflecting a $473 million loan sale in the prior quarter.

Average deposits were also essentially flat compared with the prior quarter. Consumer deposits increased $499.6 million, or 2.3%, compared with the prior quarter. However, despite an increase in the number of DDA households during the quarter, consumer transaction deposits decreased $111.7 million, or 3%, reflecting lower economic stimulus deposits in the current quarter, as well as the continuation of customers transferring funds to higher rate accounts such as certificates of deposit as short-term rates declined. Commercial deposits decreased $343.2 million, or 4%, primarily reflecting our initiative to reduce collateralized public fund non-transaction account deposit balances. However, commercial transaction deposits increased $85.1 million, or 2%, reflecting an increase in small business DDA relationships. Foreign deposits declined during the quarter primarily reflecting the anticipated $159.5 million decline in one customer account.

The provision for credit losses decreased to $100.3 million in the current quarter compared with $104.7 million in the prior quarter primarily reflecting lower economic reserve adjustments as consumer confidence within our footprint improved during the current quarter. NCOs totaled $69.1 million, or an annualized 0.85% of average loans and leases, in the 2008 third quarter compared with $51.3 million, or an annualized 0.63% of average loans and leases, in the 2008 second 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 decreased $7.3 million, or 5%, primarily reflecting: (a) $4.2 million decrease in derivative net fee sharing reflecting decreased commercial real estate transactions, and (b) $2.1 million decrease in mortgage banking income primarily reflecting a $2.1 million gain in the prior quarter relating to the sale of $473 million in residential real estate loans, as well as a $5.5 million decline in origination and secondary marketing fees driven by a decline in closed loan volume, partially offset by a $4.2 million improvement in the net hedging impact of MSRs.

Non-interest expense decreased $8.2 million, or 4%, reflecting: (a) $3.5 million decrease in personnel expense resulting from the impact of a reduction of 158, or 2%, full-time equivalent staff during the quarter reflecting the benefit of continued merger efficiencies and a restructuring in which two regions were collapsed and 13 banking offices were consolidated, (b) $3.6 million decline in allocated indirect expense related to merger efficiencies, and (c) $1.5 million decline in losses on the sale of OREO.

Auto Finance and Dealer Services (AFDS)
(This section should be read in conjunction with Significant Item 1.)

Objectives, Strategies, and Priorities

Our AFDS line of business provides a variety of banking products and services to more than 3,700 automotive dealerships within our primary banking markets, as well as in Arizona, Florida, Nevada, New Jersey, New York, Tennessee, and Texas. AFDS 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. AFDS’ 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 AFDS 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 Third Quarter versus 2008 Second Qu


Part I. Financial Information

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets at September 30, 2008, December 31, 2007, and September 30, 2007			67

Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2008 and 2007			68

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended September 30, 2008 and 2007			69

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2008 and 2007			70

Notes to Unaudited Condensed Consolidated Financial Statements			71

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk			95

Item 4. Controls and Procedures			95

Item 4T. Controls and Procedures			95

Part II. Other Information

Item 1. Legal Proceedings			95

Item 1A. Risk Factors			95

Item 6. Exhibits			96

Signatures			97
EX-10.1
EX-10.2
EX-10.3
EX-10.4
EX-12.1
EX-12.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2