UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) 
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY PERIOD ENDED June 30, 2011

Commission File Number 1-34073

Huntington Bancshares Incorporated

Maryland		31-0724920
(State or other jurisdiction of incorporation or organization)		(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 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 863,323,099 shares of Registrant’s common stock ($0.01 par value) outstanding on June 30, 2011.

 

 

HUNTINGTON BANCSHARES INCORPORATED

INDEX

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)			78
Condensed Consolidated Balance Sheets at June 30, 2011, December 31, 2010, and June 30, 2010			78
Condensed Consolidated Statements of Income for the three months and six months ended June 30, 2011 and 2010			79
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the six months ended June 30, 2011 and 2010			80
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010			81
Notes to Unaudited Condensed Consolidated Financial Statements			82
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			5
Executive Overview			6
Discussion of Results of Operations			9
Risk Management and Capital:
Credit Risk			31
Market Risk			51
Liquidity Risk			54
Operational Risk			57
Compliance Risk			58
Capital			58
Business Segment Discussion			62
Additional Disclosures			76
Item 3. Quantitative and Qualitative Disclosures about Market Risk			133
Item 4. Controls and Procedures			133
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			133
Item 1A. Risk Factors			133
Item 6. Exhibits			133
Signatures			135
Exhibit 12.1
Exhibit 12.2
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

Glossary of Acronyms and Terms

The following listing provides a comprehensive reference of common acronyms and terms used throughout the document:

2010 Form 10-K		Annual Report on Form 10-K for the year ended December 31, 2010
ABL		Asset Based Lending
ACL		Allowance for Credit Losses
AFCRE		Automobile Finance and Commercial Real Estate
ALCO		Asset & Liability Management Committee
ALLL		Allowance for Loan and Lease Losses
ARM		Adjustable Rate Mortgage
ARRA		American Recovery and Reinvestment Act of 2009
ASC		Accounting Standards Codification
ATM		Automated Teller Machine
AULC		Allowance for Unfunded Loan Commitments
AVM		Automated Valuation Methodology
C&I		Commercial and Industrial
CDARS		Certificate of Deposit Account Registry Service
CDO		Collateralized Debt Obligations
CDs		Certificates of Deposit
CFPB		Bureau of Consumer Financial Protection
CMO		Collateralized Mortgage Obligations
CPP		Capital Purchase Program
CRE		Commercial Real Estate
DDA		Demand Deposit Account
DIF		Deposit Insurance Fund
Dodd-Frank Act		Dodd-Frank Wall Street Reform and Consumer Protection Act
EESA		Emergency Economic Stabilization Act of 2008
EPS		Earnings Per Share
ERISA		Employee Retirement Income Security Act
EVE		Economic Value of Equity
FASB		Financial Accounting Standards Board
FDIC		Federal Deposit Insurance Corporation
FDICIA		Federal Deposit Insurance Corporation Improvement Act of 1991
FFIEC		Federal Financial Institutions Examination Council
FHA		Federal Housing Administration
FHFA		Federal Housing Finance Agency
FHLB		Federal Home Loan Bank
FHLMC		Federal Home Loan Mortgage Corporation
FICA		Federal Insurance Contributions Act
FICO		Fair Isaac Corporation
FNMA		Federal National Mortgage Association
Franklin		Franklin Credit Management Corporation
FSP		Financial Stability Plan
FTE		Fully-Taxable Equivalent
FTP		Funds Transfer Pricing
GAAP		Generally Accepted Accounting Principles in the United States of America

GSIFI		Globally Systemically Important Financial Institution
GSE		Government Sponsored Enterprise
HASP		Homeowner Affordability and Stability Plan
HCER Act		Health Care and Education Reconciliation Act of 2010
IPO		Initial Public Offering
IRS		Internal Revenue Service
ISE		Interest Sensitive Earnings
LIBOR		London Interbank Offered Rate
LTV		Loan to Value
MD&A		Management’s Discussion and Analysis of Financial Condition and Results of Operations
MRC		Market Risk Committee
MSR		Mortgage Servicing Rights
NALs		Nonaccrual Loans
NAV		Net Asset Value
NCO		Net Charge-off
NPAs		Nonperforming Assets
NSF / OD		Nonsufficient Funds and Overdraft
OCC		Office of the Comptroller of the Currency
OCI		Other Comprehensive Income (Loss)
OCR		Optimal Customer Relationship
OLEM		Other Loans Especially Mentioned
OREO		Other Real Estate Owned
OTTI		Other-Than-Temporary Impairment
Plan		Huntington Bancshares Retirement Plan
Reg E		Regulation E, of the Electronic Fund Transfer Act
REIT		Real Estate Investment Trust
SAD		Special Assets Division
SBA		Small Business Administration
SEC		Securities and Exchange Commission
SERP		Supplemental Executive Retirement Plan
SIFIs		Systemically Important Financial Institutions
Sky Financial		Sky Financial Group, Inc.
SRIP		Supplemental Retirement Income Plan
Sky Trust		Sky Bank and Sky Trust, National Association
TAGP		Transaction Account Guarantee Program
TARP		Troubled Asset Relief Program
TARP Capital		Series B Preferred Stock
TCE		Tangible Common Equity
TDR		Troubled Debt Restructured Loan
TLGP		Temporary Liquidity Guarantee Program
Treasury		U.S. Department of the Treasury
UCS		Uniform Classification System
Unizan		Unizan Financial Corp.
UPB		Unpaid Principal Balance
USDA		U.S. Department of Agriculture
VA		U.S. Department of Veteran Affairs
VIE		Variable Interest Entity
WGH		Wealth Advisors, Government Finance, and Home Lending

PART I. FINANCIAL INFORMATION

When we refer to “we,” “our,” and “us” in this report, we mean Huntington Bancshares Incorporated and our consolidated subsidiaries, unless the context indicates that we refer only to the parent company, Huntington Bancshares Incorporated. When we refer to the “Bank” in this report, we mean our only bank subsidiary, The Huntington National Bank, and its subsidiaries.

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

INTRODUCTION

We are a multi-state diversified regional bank holding company organized under Maryland law in 1966 and headquartered in Columbus, Ohio. Through the Bank, we have 145 years of servicing the financial needs of our customers. Through our subsidiaries, we provide full-service commercial and consumer banking services, mortgage banking services, automobile financing, equipment leasing, investment management, trust services, brokerage services, customized insurance service programs, and other financial products and services. Our over 600 banking offices are located in Indiana, Kentucky, Michigan, Ohio, Pennsylvania, and West Virginia. Selected financial services and other activities are also conducted in various other states. International banking services are available through the headquarters office in Columbus, Ohio and a limited purpose office located in the Cayman Islands and another limited purpose office located in Hong Kong. Our foreign banking activities, in total or with any individual country, are not significant.

This MD&A provides information we believe necessary for understanding our financial condition, changes in financial condition, results of operations, and cash flows. The MD&A included in our 2010 Form 10-K should be read in conjunction with this MD&A as this discussion provides only material updates to the 2010 Form 10-K. This MD&A should also be read in conjunction with the financial statements, notes and other information contained in this report.

Our discussion is divided into key segments:

•

Executive Overview - Provides a summary of our current financial performance, and business overview, including our thoughts on the impact of the economy, legislative and regulatory initiatives, and recent industry developments. This section also provides our outlook regarding our expectations for the remainder of 2011.

•

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. Key consolidated average balance sheet and income statement trends are also discussed in this section.

•

Risk Management and Capital - Discusses credit, market, liquidity, operational, and compliance 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.

•

Business Segment Discussion - Provides an overview of financial performance for each of our major business segments and provides additional discussion of trends underlying consolidated financial performance.

•

Additional Disclosures - Provides comments on important matters including forward-looking statements, critical accounting policies and use of significant estimates, recent accounting pronouncements and developments, and acquisitions.

A reading of each section is important to understand fully the nature of our financial performance and prospects.

EXECUTIVE OVERVIEW

Summary of 2011 Second Quarter Results

For the quarter, we reported net income of $145.9 million, or $0.16 per common share, compared with $126.4 million, or $0.14 per common share, in the prior quarter (see Table 1).

Fully-taxable equivalent net interest income was $407.2 million for the quarter, down $1.1 million, or less than 1%, from the prior quarter. The decline primarily reflected a 1% (3% annualized) decrease in average earning assets and a 2 basis point decline in the fully-taxable equivalent net interest margin to 3.40% from 3.42%.

The provision for credit losses in the 2011 second quarter was $35.8 million, down $13.6 million, or 28% from the prior quarter. The decline in provision expense reflected a combination of lower NCOs and the reduction of Criticized loans throughout the entire loan and lease portfolio. The reduction in Criticized loans reflected the resolution of problem credits for which reserves had previously been established. The current quarter’s provision for credit losses was $61.7 million less than total NCOs.

Total noninterest income increased $18.8 million, or 8%, from the prior quarter. This reflected an increase in other income due to higher market related gains and capital markets income, service charges on deposit accounts due to higher NSF / OD fees, electronic banking reflecting higher activity levels, and bank owned life insurance income.

Total noninterest expense declined $2.3 million, or 1%, from the prior quarter. This reflected a decrease in other expense due to the prior quarter’s additions to litigation reserves. Partially offsetting this decline were increases in professional services for costs supporting regulatory and litigation efforts, deposit and other insurance, outside data processing and other services due to higher appraisal costs and system upgrade expenses, and marketing expense reflecting higher advertising costs.

Credit quality performance in the 2011 second quarter reflected continued improvement in the overall loan portfolio. NCOs and nonaccrual loans declined 41% and 3%, respectively, from the prior quarter. The NAL, NPA and Criticized asset ratios all showed continued improvement in the quarter. The ALLL and ACL coverage ratios fell slightly to 2.74% and 2.84%, from 2.96% and 3.07%, respectively, but remain sufficient and appropriate. NPAs fell by 5% in the quarter.

On July 21, 2011, we announced that our board of directors had declared a quarterly common stock cash dividend of $0.04 per common share, up from the prior quarterly dividend of $0.01. The dividend is payable on October 3, 2011, to shareholders of record on September 19, 2011. We are very pleased that our financial strength and performance have improved to the point that enabled us to take this action.

Business Overview

General

Our general business objectives are: (1) grow revenue and profitability, (2) improve cross-sell and share-of-wallet across all business segments, (3) grow key fee businesses (existing and new), (4) improve credit quality, including lower NCOs and NALs, (5) reduce noncore CRE exposure, and (6) continue to improve our overall management of risk.

Throughout last year, and continuing into this year, we are taking advantage of what we view as an opportunity to make significant investments in strategic initiatives to position us for more profitable and sustainable long-term growth. This includes implementing our “Fair Play” banking philosophy value proposition for our consumer customers, increasing share-of-wallet, investing in expanding existing business, and launching new businesses.

Our emphasis on cross-sell, coupled with consumer customers increasingly being attracted by the benefits offered through our “Fair Play” banking philosophy, with programs such as 24-Hour Grace^® on overdrafts and more recently the launch of Asterisk-Free Checking™ and Huntington Plus Checking™, is having a positive effect. The percentage of consumer households with over four products at the end of the 2011 second quarter was 71.3%, up from 69.4% at the end of last year. And for the first half of this year, consumer checking account households grew at a 9.9% annualized rate, up from 6.8% for full year 2010.

Economy

Borrower and consumer confidence and the sustainability of the slow economic recovery remain major factors impacting growth opportunities for the remainder of 2011. Unfortunately, during the first half of 2011, a number of issues have emerged that could negatively impact the recovery. These additional risks include the U.S. debt ceiling discussions, the budget issues in local governments, and the continued economic and political instability in Europe as well as the political instability in the Middle East with its ramifications on the cost of oil translating to higher gas prices. In addition, above average office vacancy rates in large metropolitan areas indicate the possibility for some continued softness in commercial real estate in 2011. Within our footprint states of Indiana, Kentucky, Michigan, Ohio, Pennsylvania, and West Virginia, real estate has generally remained weak, in line with national trends, reflecting capacity overhang created by weakness in economic growth prior to the recovery. However, there are some signs that our footprint states have been experiencing cyclical recovery in line with, and in certain instances stronger than, the national average. They include:

•

From January 2009 through May 2011, an increase in total payroll for all footprint states, with all but West Virginia (one of our smaller regions) exceeding the national average.

•

Manufacturing that is expected to continue to improve, although near-term weakness is likely as a result of the negative impact of high energy prices on demand and supply bottlenecks created by the crisis in Japan.

•

From May 2010 to May 2011, unemployment rates declined for all of our footprint states.

•

Since its low in January 2009, exports have grown faster than the U.S. average in all footprint states except Kentucky.

•

State and local fiscal conditions will likely remain tight in the next year, although rising tax revenue should gradually reduce strains.

For now, we continue to believe the economy is likely to remain fragile and not show much growth throughout the remainder of 2011.

Legislative and Regulatory

Regulatory reforms continue to be adopted which impose additional restrictions on current business practices. Recent actions affecting us included an amendment to Reg E relating to certain overdraft fees for consumer deposit accounts and the rules and regulations that have been issued pursuant to the Dodd-Frank Act.

Durbin Amendment — The Durbin Amendment to the Dodd-Frank Act instructed the Federal Reserve to establish the rate merchants pay banks for electronic clearing of debit card transactions (i.e., the interchange rate). The Federal Reserve recently issued its final rule establishing standards for debit card interchange fees and prohibiting network exclusivity arrangements and routing restrictions. The final rule establishes standards for assessing whether debit card interchange fees received by debit card issuers are reasonable and proportional to the costs incurred by issuers for electronic debit transactions. Under the final rule, the maximum permissible interchange fee that an issuer may receive for an electronic debit transaction will be the sum of 21 cents per transaction, 1 cent fraud prevention adjustment, and 5 basis points multiplied by the value of the transaction. This provision regarding debit card interchange fees will become effective on October 1, 2011. Based on the final rule, we expect our 2011 fourth quarter electronic banking income to decline from the 2011 second quarter level by approximately 50%.

Recent Industry Developments

Foreclosure Documentation — On June 30, 2011, the OCC issued OCC Bulletin 2011-29 clarifying their expectations for the oversight and management of mortgage foreclosure activities by national banks and directing national banks to perform a self-assessment no later than September 30, 2011. We believe that, with the self-assessments Huntington has performed and is currently performing, we are in compliance with the OCC expectation for self-assessment.

Mortgage Servicing Rights — MSR fair values are estimated based on residential mortgage servicing revenue in excess of estimated market costs to service the underlying loans. Historically, the estimated market cost to service has been stable. Due to changes in the regulatory environment related to loan servicing and foreclosure activities, costs to service may potentially increase, however the potential impact on the market costs to service remains uncertain. Certain large residential mortgage loan servicers entered into consent orders with banking regulators in April 2011, which require the banks to remedy deficiencies and unsafe or unsound practices and to enhance residential mortgage servicing and foreclosure processes. It is unclear what impact this may ultimately have on market costs to service. At June 30, 2011, we estimated a 25% increase to our loan servicing market cost assumption would result in a fair value impairment charge of approximately $8.3 million.

Representation and Warranty Reserve —We primarily conduct our loan sale and securitization activity with FNMA and FHLMC. In connection with these and other sale and securitization transactions, we make representations and warranties that the loans meet certain criteria, such as collateral type and underwriting standards. We may be required to repurchase individual loans and / or indemnify these organizations against losses due to material breaches of these representations and warranties. At June 30, 2011, we had a reserve for such losses of $24.5 million, which is included in accrued expenses and other liabilities.

Expectations

The lack of prospects for meaningful economic improvement, higher interest rates, and wider spreads between short-term and long-term interest rates over the remainder of this year is a challenge. Further, borrower and consumer confidence remain fragile. And while we now have clarity on the amount and timing of the pending reduction in debit card interchange fees, this nevertheless represents a reduction in fee income. All of these combined represent meaningful revenue growth headwinds.

Net income is expected to grow from the current quarter level throughout the rest of the year, primarily reflecting modest revenue growth and disciplined expense control.

We believe the momentum we are seeing in loan and low cost deposit growth will continue. This, coupled with a stable net interest margin, is expected to contribute to modest growth in net interest income. Our C&I portfolio is expected to continue to show meaningful growth. We believe period-end balances in our C&I and automobile loan portfolios position us for continued growth in average balances for these portfolios as we head into the third quarter.

We anticipate our total core deposits will increase, reflecting continued growth in consumer households and business relationships. Further, we expect the shift toward lower-cost noninterest-bearing and interest-bearing demand deposit accounts will continue.

Noninterest income is expected to grow modestly in the 2011 second half. The primary driver is expected to be service charge income as the benefits from our “Fair Play” banking philosophy continue to gain momentum commensurate with consumer household growth and increased product penetration. Mortgage banking income will likely show only modest, if any, growth throughout the second half of the year. As described above, electronic banking income in the fourth quarter is expected to decline by approximately 50% as the new interchange fee structure will be implemented October 1, 2011. We also expect to see continued growth in the earnings contribution from other key fee income activities including capital markets, treasury management services, and brokerage, reflecting the impact of our cross-sell and product penetration initiatives throughout the company, as well as the positive impact from strategic initiatives.

In addition, expense levels are expected to remain relatively stable.

Nonaccrual loans and net charge-offs are expected to continue to decline throughout the year.

We anticipate the effective tax rate for the remainder of the year to approximate 35% of income before income taxes less approximately $40.0 million of permanent tax differences over the remainder of 2011 primarily related to tax-exempt income, tax-advantaged investments, and general business credits.

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 Unaudited Condensed Consolidated Balance Sheet and Statement of Income trends are discussed. 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 “Business Segment Discussion.”

Table 1 — Selected Quarterly Income Statement Data (1)

		2011								2010
(dollar amounts in thousands, except per share amounts)		Second				First				Fourth				Third				Second
Interest income		$	492,137			$	501,877			$	528,291			$	534,669			$	535,653
Interest expense			88,800				97,547				112,997				124,707				135,997
Net interest income			403,337				404,330				415,294				409,962				399,656
Provision for credit losses			35,797				49,385				86,973				119,160				193,406
Net interest income after provision for credit losses			367,540				354,945				328,321				290,802				206,250
Service charges on deposit accounts			60,675				54,324				55,810				65,932				75,934
Mortgage banking income			23,835				22,684				53,169				52,045				45,530
Trust services			30,392				30,742				29,394				26,997				28,399
Electronic banking			31,728				28,786				28,900				28,090				28,107
Insurance income			16,399				17,945				19,678				19,801				18,074
Brokerage income			20,819				20,511				16,953				16,575				18,425
Bank owned life insurance income			17,602				14,819				16,113				14,091				14,392
Automobile operating lease income			7,307				8,847				10,463				11,356				11,842
Securities gains (losses)			1,507				40				(103	)			(296	)			156
Other income			45,503				38,247				33,843				32,552				28,784
Total noninterest income			255,767				236,945				264,220				267,143				269,643
Personnel costs			218,570				219,028				212,184				208,272				194,875
Outside data processing and other services			43,889				40,282				40,943				38,553				40,670
Net occupancy			26,885				28,436				26,670				26,718				25,388
Deposit and other insurance expense			23,823				17,896				23,320				23,406				26,067
Professional services			20,080				13,465				21,021				20,672				24,388
Equipment			21,921				22,477				22,060				21,651				21,585
Marketing			20,102				16,895				16,168				20,921				17,682
Amortization of intangibles			13,386				13,370				15,046				15,145				15,141
OREO and foreclosure expense			4,398				3,931				10,502				12,047				4,970
Automobile operating lease expense			5,434				6,836				8,142				9,159				9,667
Other expense			29,921				48,083				38,537				30,765				33,377
Total noninterest expense			428,409				430,699				434,593				427,309				413,810
Income before income taxes			194,898				161,191				157,948				130,636				62,083
Provision (benefit) for income taxes			48,980				34,745				35,048				29,690				13,319
Net income		$	145,918			$	126,446			$	122,900			$	100,946			$	48,764
Dividends on preferred shares			7,704				7,703				83,754				29,495				29,426
Net income applicable to common shares		$	138,214			$	118,743			$	39,146			$	71,451			$	19,338
Average common shares — basic			863,358				863,359				757,924				716,911				716,580
Average common shares — diluted (2)			867,469				867,237				760,582				719,567				719,387
Net income per common share — basic		$	0.16			$	0.14			$	0.05			$	0.10			$	0.03
Net income per common share — diluted			0.16				0.14				0.05				0.10				0.03
Cash dividends declared per common share			0.01				0.01				0.01				0.01				0.01
Return on average total assets			1.11	%			0.96	%			0.90	%			0.76	%			0.38	%
Return on average common shareholders’ equity			11.6				10.3				3.8				7.4				2.1
Return on average tangible common shareholders’ equity (3)			13.3				12.7				5.6				10.0				3.8
Net interest margin (4)			3.40				3.42				3.37				3.45				3.46
Efficiency ratio (5)			62.7				64.7				61.4				60.6				59.4
Effective tax rate			25.1				21.6				22.2				22.7				21.5
Revenue — FTE
Net interest income		$	403,337			$	404,330			$	415,294			$	409,962			$	399,656
FTE adjustment			3,834				3,945				3,708				2,631				2,490
Net interest income (4)			407,171				408,275				419,002				412,593				402,146
Noninterest income			255,767				236,945				264,220				267,143				269,643
Total revenue (4)		$	662,938			$	645,220			$	683,222			$	679,736			$	671,789

(1)		Comparisons for presented periods are impacted by a number of factors. Refer to Significant Items.
(2)		For periods presented prior to their repurchase, the impact of the convertible preferred stock issued in 2008 and the warrants issued to the U.S. Department of the Treasury in 2008 related to Huntington’s participation in the voluntary Capital Purchase Program was excluded from the diluted share calculation because the result was more than basic earnings per common share (anti-dilutive) for those periods. The convertible preferred stock and warrants were repurchased in December 2010 and January 2011, respectively.
(3)		Net income excluding expense for amortization of intangibles 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.
(4)		On a fully-taxable equivalent (FTE) basis assuming a 35% tax rate.
(5)		Noninterest expense less amortization of intangibles and goodwill impairment divided by the sum of FTE net interest income and noninterest income excluding securities gains (losses).

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

		Six Months Ended June 30,								Change
(dollar amounts in thousands, except per share amounts)		2011				2010				Amount				Percent
Interest income		$	994,014			$	1,082,432			$	(88,418	)			(8)	%
Interest expense			186,347				288,883				(102,536	)			(35	)
Net interest income			807,667				793,549				14,118				2
Provision for credit losses			85,182				428,414				(343,232	)			(80	)
Net interest income after provision for credit losses			722,485				365,135				357,350				98
Service charges on deposit accounts			114,999				145,273				(30,274	)			(21	)
Mortgage banking income			46,519				70,568				(24,049	)			(34	)
Trust services			61,134				56,164				4,970				9
Electronic banking			60,514				53,244				7,270				14
Insurance income			34,344				36,934				(2,590	)			(7	)
Brokerage income			41,330				35,327				6,003				17
Bank owned life insurance income			32,421				30,862				1,559				5
Automobile operating lease income			16,154				24,145				(7,991	)			(33	)
Securities gains			1,547				125				1,422				1,138
Other income			83,750				57,853				25,897				45
Total noninterest income			492,712				510,495				(17,783	)			(3	)
Personnel costs			437,598				378,517				59,081				16
Outside data processing and other services			84,171				79,752				4,419				6
Net occupancy			55,321				54,474				847				2
Deposit and other insurance expense			41,719				50,822				(9,103	)			(18	)
Professional services			33,545				47,085				(13,540	)			(29	)
Equipment			44,398				42,209				2,189				5
Marketing			36,997				28,835				8,162				28
Amortization of intangibles			26,756				30,287				(3,531	)			(12	)
OREO and foreclosure expense			8,329				16,500				(8,171	)			(50	)
Automobile operating lease expense			12,270				19,733				(7,463	)			(38	)
Other expense			78,004				63,689				14,315				22
Total noninterest expense			859,108				811,903				47,205				6
Income before income taxes			356,089				63,727				292,362				459
Provision (benefit) for income taxes			83,725				(24,774	)			108,499				N.R.
Net income		$	272,364			$	88,501			$	183,863				208	%
Dividends declared on preferred shares			15,407				58,783				(43,376	)			(74	)
Net income applicable to common shares		$	256,957			$	29,718			$	227,239				765	%
Average common shares — basic			863,358				716,450				146,908				21	%
Average common shares — diluted (2)			867,353				718,990				148,363				21
Per common share
Net income per common share — basic		$	0.30			$	0.04			$	0.26				650	%
Net income per common share — diluted			0.30				0.04				0.26				650
Cash dividends declared			0.02				0.02				—				—
Return on average total assets			1.03	%			0.35	%			0.68	%			194	%
Return on average common shareholders’ equity			11.0				1.6				9.4				588
Return on average tangible common shareholders’ equity (3)			13.4				3.2				10.2				319
Net interest margin (4)			3.41				3.47				(0.06	)			(2	)
Efficiency ratio (5)			63.7				59.7				4.0				7
Effective tax rate (benefit)			23.5				(38.9	)			62.4				N.R.
Revenue — FTE
Net interest income		$	807,667			$	793,549			$	14,118				2	%
FTE adjustment			7,779				4,738				3,041				64
Net interest income (4)			815,446				798,287				17,159				2
Noninterest income			492,712				510,495				(17,783	)			(3	)
Total revenue (4)		$	1,308,158			$	1,308,782			$	(624	)			—	%

N.R. — Not relevant, as denominator of calculation is a loss in prior period compared with income in current period.

(1)		Comparisons for presented periods are impacted by a number of factors. Refer to Significant Items.

(2)		For all periods presented, the impact of the convertible preferred stock issued in 2008 and the warrants issued to the U.S. Department of the Treasury in 2008 related to Huntington’s participation in the voluntary Capital Purchase Program was excluded from the diluted share calculation because the result was more than basic earnings per common share (anti-dilutive) for the periods. The convertible preferred stock and warrants were repurchased in December 2010 and January 2011, respectively.
(3)		Net income excluding expense for amortization of intangibles 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.
(4)		On a fully-taxable equivalent (FTE) basis assuming a 35% tax rate.
(5)		Noninterest expense less amortization of intangibles and goodwill impairment divided by the sum of FTE net interest income and noninterest income excluding securities gains (losses).

Significant Items

Definition of Significant Items

From time-to-time, revenue, expenses, or taxes, are impacted by items judged by us to be outside of ordinary banking activities and / or by items that, while they may be associated with ordinary banking activities, are so unusually large that their outsized impact is believed by us at that time to be infrequent or short-term in nature. We refer to such items as Significant Items. Most often, these Significant Items result from factors originating outside the Company; e.g., regulatory actions / assessments, windfall gains, changes in accounting principles, one-time tax assessments / refunds, litigation actions, etc. In other cases, they may result from our decisions associated with significant corporate actions out of the ordinary course of business; e.g., merger / restructuring charges, recapitalization actions, goodwill impairment, etc.

Even though certain revenue and expense items are naturally subject to more volatility than others due to changes in market and economic environment conditions, as a general rule volatility alone does not define a Significant Item. For example, changes in the provision for credit losses, gains / losses from investment activities, asset valuation writedowns, etc., reflect ordinary banking activities and are, therefore, typically excluded from consideration as a Significant Item.

We believe the disclosure of Significant Items provides a better understanding of our performance and trends to ascertain which of such items, if any, to include or exclude from an analysis of our performance; i.e., within the context of determining how that performance differed from expectations, as well as how, if at all, to adjust estimates of future performance accordingly. To this end, we adopted a practice of listing Significant Items in our external disclosure documents (e.g., earnings press releases, investor presentations, Forms 10-Q and 10-K).

Significant Items for any particular period are not intended to be a complete list of items that may materially impact current or future period performance.

Significant Items Influencing Financial Performance Comparisons

Earnings comparisons were impacted by the Significant Items summarized below.

1.

Litigation Reserve. During the 2011 first quarter, $17.0 million of additions to litigation reserves were recorded as other noninterest expense. This resulted in a negative impact of $0.01 per common share.

2.

Franklin Relationship. Our relationship with Franklin was acquired in the Sky Financial acquisition in 2007. Significant events relating to this relationship following the acquisition, and the impacts of those events on our reported results were as follows:

•

On March 31, 2009, we restructured our relationship with Franklin. During the 2010 first quarter, a $38.2 million ($0.05 per common share) net tax benefit was recognized, primarily reflecting the increase in the net deferred tax asset relating to the assets acquired from the March 31, 2009 restructuring.

•

During the 2010 second quarter, the remaining portfolio of Franklin-related loans ($333.0 million of residential mortgages, and $64.7 million of home equity loans) was transferred to loans held for sale. At the time of the transfer, the loans were marked to the lower of cost or fair value, less costs to sell, of $323.4 million, resulting in $75.5 million of charge-offs, and the provision for credit losses commensurately increased $75.5 million ($0.07 per common share).

The following table 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

		Three Months Ended
		June 30, 2011								March 31, 2011								June 30, 2010
(dollar amounts in thousands, except per share amounts)		After-tax				EPS				After-tax				EPS				After-tax				EPS
Net income		$	145,918							$	126,446							$	48,764
Earnings per share, after-tax						$	0.16							$	0.14							$	0.03
Change from prior quarter — $							0.02								0.09								0.02
Change from prior quarter — %							14.3	%							180.0	%							200.0	%
Change from year-ago — $						$	0.13							$	0.13							$	0.43
Change from year-ago — %							433	%							1,300	%							(107.5	)%
Significant Items — favorable (unfavorable) impact:		Earnings (1)				EPS				Earnings (1)				EPS				Earnings (1)				EPS
Franklin-related loans transferred to held for sale		$	—			$	—			$	—			$	—			$	(75,500	)		$	(0.07	)
Litigation reserves addition			—				—				(17,028	)			(0.01	)			—				—

(1)		Pretax unless otherwise noted.

		Six Months Ended
		June 30, 2011								June 30, 2010
(dollar amounts in thousands)		After-tax				EPS				After-tax				EPS
Net income		$	272,364							$	88,501
Earnings per share, after-tax						$	0.30							$	0.04
Change from a year-ago — $							0.26								6.51
Change from a year-ago — %							650	%							101	%
Significant Items — favorable (unfavorable) impact:		Earnings (1)				EPS				Earnings (1)				EPS
Franklin-related loans transferred to held for sale		$	—			$	—			$	(75,500	)		$	(0.07	)
Net tax benefit recognized (2)			—				—				38,222				0.05
Litigation reserves addition			(17,028	)			(0.01	)			—				—

(1)		Pretax unless otherwise noted.
(2)		After-tax.

Pretax, Pre-provision Income Trends

One non-GAAP performance measurement that we believe is useful in analyzing our underlying performance trends is pretax, pre-provision income. This is the level of pretax earnings adjusted to exclude the impact of: (a) provision expense, (b) investment securities gains/losses, which are excluded because securities market valuations may become particularly volatile in times of economic stress, (c) amortization of intangibles expense, which is excluded because the return on tangible common equity is a key measurement we use to gauge performance trends, and (d) certain other items identified by us (see Significant Items) that we believe may distort our underlying performance trends.

The following table reflects pretax, pre-provision income for each of the past five quarters:

Table 4 — Pretax, Pre-provision Income (1)

		2011								2010
(dollar amounts in thousands)		Second				First				Fourth				Third				Second
Income before income taxes		$	194,898			$	161,191			$	157,948			$	130,636			$	62,083
Add: Provision for credit losses			35,797				49,385				86,973				119,160				193,406
Less: Securities gains (losses)			1,507				40				(103	)			(296	)			156
Add: Amortization of intangibles			13,386				13,370				15,046				15,145				15,141
Less: Litigation reserves addition			—				(17,028	)			—				—				—
Total pretax, pre-provision income		$	242,574			$	240,934			$	260,070			$	265,237			$	270,474
Change in total pretax, pre-provision income:
Prior quarter change — amount		$	1,640			$	(19,136	)		$	(5,167	)		$	(5,237	)		$	18,645
Prior quarter change — percent			1	%			(7	)%			(2	)%			(2	)%			7	%

(1)		Pretax, pre-provision income is a non-GAAP financial measure. Any ratio utilizing this financial measure is also non-GAAP. This financial measure has been included as it is considered to be an important metric with which to analyze and evaluate our results of operations and financial strength. Other companies may calculate this financial measure differently.

Pretax, pre-provision income was $242.6 million in the 2011 second quarter, up $1.6 million, or 1%, from the prior quarter. As discussed in the sections that follow, the increase from the prior quarter primarily reflected higher revenue partially offset by higher noninterest expense after consideration of the prior quarter Significant Item.

Net Interest Income / Average Balance Sheet

2011 Second Quarter versus 2010 Second Quarter

Fully-taxable equivalent net interest income increased $5.0 million, or 1%, from the year-ago quarter. This reflected the benefit of a $1.4 billion, or 3%, increase in average earning assets and a 6 basis points decline in the FTE net interest margin. The increase in average earning assets reflected a combination of factors including:

•

$1.4 billion, or 4%, increase in average total loans and leases.

•

$0.3 billion, or 3%, increase in average total available-for-sale and other securities and held-to-maturity securities.

The 6 basis points decline in the FTE net interest margin reflected a reduction in derivatives income, lower loan and securities yields, partially offset by the positive impacts of increases in low cost deposits and improved deposit pricing.

The following table details the change in our average loans and leases and deposits:

Table 5 — Average Loans/Leases and Deposits — 2011 Second Quarter vs. 2010 Second Quarter

		Second Quarter								Change
(dollar amounts in millions)		2011				2010				Amount				Percent
Loans/Leases
Commercial and industrial		$	13,370			$	12,244			$	1,126				9	%
Commercial real estate			6,233				7,364				(1,131	)			(15	)
Total commercial			19,603				19,608				(5	)			—
Automobile			5,954				4,634				1,320				28
Home equity			7,874				7,544				330				4
Residential mortgage			4,566				4,608				(42	)			(1	)
Other loans			538				695				(157	)			(23	)
Total consumer			18,932				17,481				1,451				8
Total loans and leases		$	38,535			$	37,089			$	1,446				4	%
Deposits
Demand deposits — noninterest-bearing		$	7,806			$	6,849			$	957				14	%
Demand deposits — interest-bearing			5,565				5,971				(406	)			(7	)
Money market deposits			12,879				11,103				1,776				16
Savings and other domestic time deposits			4,778				4,677				101				2
Core certificates of deposit			8,079				9,199				(1,120	)			(12	)
Total core deposits			39,107				37,799				1,308				3
Other deposits			2,147				2,568				(421	)			(16	)
Total deposits		$	41,254			$	40,367			$	887				2	%

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

•

$1.3 billion, or 28%, increase in the average automobile portfolio. Automobile lending is a core competency and continued area of growth. The growth from the year-ago quarter exhibited further penetration within our historical geographic footprint, as well as the positive impact of our expansion into Eastern Pennsylvania and selected New England states. Origination quality remained high.

•

$1.1 billion, or 9%, increase in the average C&I portfolio. Growth from the year-ago quarter reflected the benefits from our strategic initiatives including large corporate, asset based lending, automobile floor plan lending, and equipment finance. In addition, traditional middle-market loans continued to grow despite line utilization rates that remained well below historical norms.

•

$0.3 billion, or 4%, increase in average home equity portfolio, reflecting continued slower runoff due to the low interest rate environment.

Partially offset by:

•

$1.1 billion, or 15%, decrease in average CRE loans reflecting the continued execution of our plan to reduce the CRE exposure, primarily in the noncore CRE segment. This reduction is expected to continue through 2011, reflecting normal amortization, paydowns, refinancing, and restructures.

The $0.9 billion, or 2%, increase in average total deposits from the year-ago quarter reflected:

•

$1.3 billion, or 3%, growth in average total core deposits. The drivers of this change were a $1.8 billion, or 16%, growth in average money market deposits, and a $1.0 billion, or 14%, growth in average noninterest-bearing demand deposits. These increases were partially offset by a $1.1 billion, or 12%, decline in average core certificates of deposit and a $0.4 billion, or 7%, decrease in average interest-bearing demand deposits.

Partially offset by:

•

$0.4 billion, or 16%, decline in other deposits including a $0.2 billion, or 11%, decline in average brokered deposits and negotiable CDs, and a $0.2 billion, or 29%, decrease in other domestic deposits of $250,000 or more, which reflected a strategy of reducing such noncore funding.

2011 Second Quarter versus 2011 First Quarter

FTE net interest income decreased $1.1 million, or less than 1%, from the 2011 first quarter. This reflected a 1% (3% annualized) decrease in average earning assets and a decrease in the FTE net interest margin to 3.40% from 3.42%. The decrease in average earning assets reflected a combination of factors including:

•

$0.5 billion, or 5% (22% annualized), decrease in average available-for-sale and other and held-to-maturity securities given the low level of interest rates and the incremental cost to grow interest-bearing deposits. Certain higher cost deposits were allowed to mature without replacement, resulting in a reduction to the securities portfolio.

•

$0.2 billion decline in loans held for sale as our mortgage pipeline slowed considerably during the current quarter and sales of prior originations were completed.

The 2 basis points decline in the FTE net interest margin reflected a reduction in derivatives income and lower loan yields, partially offset by the positive impact of increases in low cost deposits and improved deposit pricing.

The following table details the change in our average loans / leases and deposits:

Table 6 — Average Loans/Leases and Deposits — 2011 Second Quarter vs. 2011 First Quarter

		2011								Change
(dollar amounts in millions)		Second Quarter				First Quarter				Amount				Percent
Loans/Leases
Commercial and industrial		$	13,370			$	13,121			$	249				2	%
Commercial real estate			6,233				6,524				(291	)			(4	)
Total commercial			19,603				19,645				(42	)			—
Automobile			5,954				5,701				253				4
Home equity			7,874				7,728				146				2
Residential mortgage			4,566				4,465				101				2
Other consumer			538				559				(21	)			(4	)
Total consumer			18,932				18,453				479				3
Total loans and leases		$	38,535			$	38,098			$	437				1	%
Deposits
Demand deposits — noninterest-bearing		$	7,806			$	7,333			$	473				6	%
Demand deposits — interest-bearing			5,565				5,357				208				4
Money market deposits			12,879				13,492				(613	)			(5	)
Savings and other domestic time deposits			4,778				4,701				77				2
Core certificates of deposit			8,079				8,391				(312	)			(4	)
Total core deposits			39,107				39,274				(167	)			—
Other deposits			2,147				2,390				(243	)			(10	)
Total deposits		$	41,254			$	41,664			$	(410	)			(1)	%

The $0.4 billion, or 1% (5% annualized), increase in average total loans and leases reflected:

•

$0.2 billion, or 2% (8% annualized), growth in the average C&I portfolio. The growth in the C&I portfolio during the second quarter came from several business lines including business banking, large corporate, middle market, asset based lending, and equipment finance. The growth was also evident across our geographic footprint, further contributing to the diversity of the portfolio. Non-automobile floorplan C&I utilization rates were little changed from the end of the prior quarter. In contrast, automobile floor plan utilization rates were down, primarily reflecting the slowdown in production by Japanese manufacturers.

•

$0.3 billion, or 4% (18% annualized), growth in the average automobile portfolio. We continued to originate very high quality loans with attractive returns. We focus on larger, multi-franchised, well-capitalized dealers that are rarely reliant on the success of one franchise to generate profitability. While the used automobile market remained very strong, we increased our originations of new vehicle loans, which reflected a reduction by the captive finance companies in the number and magnitude of incentive programs offered through dealers due to supply concerns.

Partially offset by:

•

$0.3 billion, or 4% (18% annualized), decline in average CRE loans, primarily as a result of our on-going strategy to reduce our exposure to the commercial real estate market. We were successful in reducing exposure across virtually all of the CRE project types that we actively manage through our concentration management process. The decline in noncore CRE accounted for the vast majority of the decline in the total CRE portfolio. The noncore CRE portfolio declines reflected paydowns, refinancing, and NCOs. The core CRE portfolio continued to exhibit high quality characteristics with minimal downgrade or NCO activity.

The $0.4 billion, or 1% (4% annualized), decrease in average total deposits from the 2011 first quarter reflected:

•

$0.6 billion, or 5% (18% annualized), decline in average money market deposits, reflecting lowered pricing on our money market accounts.

•

$0.3 billion, or 4% (15% annualized), decrease in average core certificates of deposit as rates offered on new certificates of deposits declined.

Partially offset by:

•

$0.5 billion, or 6% (26% annualized), increase in average noninterest-bearing demand deposit accounts. This was driven primarily by growth in commercial noninterest-bearing demand deposits related to government finance and business banking.

•

$0.2 billion, or 4% (16% annualized), growth in interest-bearing demand deposits, primarily driven by consumer checking account growth.

Tables 7 and 8 reflect quarterly average balance sheets and rates earned and paid on interest-earning assets and interest-bearing liabilities.

Table 7 — Consolidated Quarterly Average Balance Sheets

																						Change
		2011								2010												2Q11 vs. 2Q10
(dollar amounts in millions)		Second				First				Fourth				Third				Second				Amount				Percent
Assets
Interest-bearing deposits in banks		$	131			$	130			$	218			$	282			$	309			$	(178	)			(58)	%
Trading account securities			112				144				297				110				127				(15	)			(12	)
Federal funds sold and securities purchased under resale agreement			21				—				—				—				—				—				—
Loans held for sale			181				420				779				663				323				(142	)			(44	)
Available-for-sale and other securities:
Taxable			8,428				9,108				9,747				8,876				8,369				59				1
Tax-exempt			436				445				449				365				389				47				12
Total available-for-sale and other securities			8,864				9,553				10,196				9,241				8,758				106				1
Held-to-maturity securities — taxable			174				—				—				—				—				174				—
Loans and leases: (1)
Commercial:
Commercial and industrial			13,370				13,121				12,767				12,393				12,244				1,126				9
Commercial real estate:
Construction			554				611				716				989				1,279				(725	)			(57	)
Commercial			5,679				5,913				6,082				6,084				6,085				(406	)			(7	)
Commercial real estate			6,233				6,524				6,798				7,073				7,364				(1,131	)			(15	)
Total commercial			19,603				19,645				19,565				19,466				19,608				(5	)			—
Consumer:
Automobile			5,954				5,701				5,520				5,140				4,634				1,320				28
Home equity			7,874				7,728				7,709				7,567				7,544				330				4
Residential mortgage			4,566				4,465				4,430				4,389				4,608				(42	)			(1	)
Other consumer			538				559				576				653				695				(157	)			(23	)
Total consumer			18,932				18,453				18,235				17,749				17,481				1,451				8
Total loans and leases			38,535				38,098				37,800				37,215				37,089				1,446				4
Allowance for loan and lease losses			(1,128	)			(1,231	)			(1,323	)			(1,384	)			(1,506	)			378				(25	)
Net loans and leases			37,407				36,867				36,477				35,831				35,583				1,824				5
Total earning assets			48,018				48,345				49,290				47,511				46,606				1,412				3
Cash and due from banks			1,068				1,299				1,187				1,618				1,509				(441	)			(29	)
Intangible assets			652				665				679				695				710				(58	)			(8	)
All other assets			4,160				4,291				4,313				4,277				4,384				(224	)			(5	)
Total assets		$	52,770			$	53,369			$	54,146			$	52,717			$	51,703			$	1,067				2	%
Liabilities and Shareholders’ Equity
Deposits:
Demand deposits — noninterest-bearing		$	7,806			$	7,333			$	7,188			$	6,768			$	6,849			$	957				14	%
Demand deposits — interest-bearing			5,565				5,357				5,317				5,319				5,971				(406	)			(7	)
Money market deposits			12,879				13,492				13,158				12,336				11,103				1,776				16
Savings and other domestic deposits			4,778				4,701				4,640				4,639				4,677				101				2
Core certificates of deposit			8,079				8,391				8,646				8,948				9,199				(1,120	)			(12	)
Total core deposits			39,107				39,274				38,949				38,010				37,799				1,308				3
Other domestic time deposits of $250,000 or more			467				606				737				690				661				(194	)			(29	)
Brokered deposits and negotiable CDs			1,333				1,410				1,575				1,495				1,505				(172	)			(11	)
Deposits in foreign offices			347				374				443				451				402				(55	)			(14	)
Total deposits			41,254				41,664				41,704				40,646				40,367				887				2
Short-term borrowings			2,112				2,134				2,134				1,739				966				1,146				119
Federal Home Loan Bank advances			97				30				112				188				212				(115	)			(54	)
Subordinated notes and other long-term debt			3,249				3,525				3,558				3,672				3,836				(587	)			(15	)
Total interest-bearing liabilities			38,906				40,020				40,320				39,477				38,532				374				1
All other liabilities			913				994				993				952				924				(11	)			(1	)
Shareholders’ equity			5,145				5,022				5,645				5,520				5,398				(253	)			(5	)
Total liabilities and shareholders’ equity		$	52,770			$	53,369			$	54,146			$	52,717			$	51,703			$	1,067				2	%