Edgar Filing: HUNTINGTON BANCSHARES INC/MD

Huntington Bancshares 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, 2006

Commission File Number 0-2525

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

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

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

There were 237,631,000 shares of Registrant’s without par value common stock outstanding on October 31, 2006.

Huntington Bancshares Incorporated

INDEX


Part I. Financial Information

Item 1.	Financial Statements (Unaudited)

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

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

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

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

	Notes to Unaudited Condensed Consolidated Financial Statements	7

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

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	96

Item 4.	Controls and Procedures	96

Part II. Other Information

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	96

Item 6.	Exhibits	97

Signatures		98
EX-31.A
EX-31.B
EX-32.A
EX-32.B

Part 1. Financial Information

Item 1. Financial Statements

Huntington Bancshares Incorporated

Condensed Consolidated Balance Sheets


	2006			2005
(in thousands, except number of shares)	September 30,			December 31,			September 30,
	*(Unaudited)*						(Unaudited)
Assets
Cash and due from banks	$	848,088		$	966,445		$	803,425
Federal funds sold and securities purchased under resale agreements		370,418			74,331			78,325
Interest bearing deposits in banks		59,333			22,391			22,379
Trading account securities		122,621			8,619			191,418
Loans held for sale		276,304			294,344			449,096
Investment securities		4,643,901			4,526,520			4,304,898
Loans and leases		26,361,502			24,472,166			24,496,287
Allowance for loan and lease losses		(280,152	)		(268,347	)		(253,943	)

Net loans and leases		26,081,350			24,203,819			24,242,344

Automobile operating lease assets		54,551			189,003			247,389
Bank owned life insurance		1,083,033			1,001,542			993,407
Premises and equipment		367,709			360,677			358,876
Goodwill		571,521			212,530			212,530
Other intangible assets		61,239			4,956			5,173
Accrued income and other assets		1,121,880			899,628			853,728

Total Assets	$	35,661,948		$	32,764,805		$	32,762,988


Liabilities and Shareholders’ Equity Liabilities
Deposits	$	24,738,395		$	22,409,675		$	22,349,122
Short-term borrowings		1,532,504			1,889,260			1,502,566
Federal Home Loan Bank advances		1,221,669			1,155,647			1,155,656
Other long-term debt		2,592,188			2,418,419			2,795,431
Subordinated notes		1,275,883			1,023,371			1,034,343
Deferred federal income tax liability		615,291			743,655			768,344
Accrued expenses and other liabilities		556,272			567,277			534,851

Total Liabilities		32,532,202			30,207,304			30,140,313


Shareholders’ equity
Preferred stock — authorized 6,617,808 shares; none outstanding		—			—			---
Common stock — without par value; authorized 500,000,000 shares; issued 257,866,255 shares; outstanding 237,921,076; 224,106,172 and 229,005,823 shares, respectively.		2,556,168			2,491,326			2,490,919
Less 19,945,179; 33,760,083 and 28,860,432 treasury shares at cost, respectively		(445,359	)		(693,576	)		(575,941	)
Accumulated other comprehensive income (loss)		32,076			(22,093	)		(21,839	)
Retained earnings		986,861			781,844			729,536

Total Shareholders’ Equity		3,129,746			2,557,501			2,622,675

Total Liabilities and Shareholders’ Equity	$	35,661,948		$	32,764,805		$	32,762,988

See notes to unaudited condensed consolidated financial statements

Huntington Bancshares Incorporated

Condensed Consolidated Statements of Income
(Unaudited)


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(in thousands, except per share amounts)	2006			2005		2006			2005

Interest and fee income
Loans and leases
Taxable	$	462,709		$	366,550	$	1,307,979		$	1,044,486
Tax-exempt		555			322		1,584			1,017
Investment securities Taxable		60,437			38,507		173,397			114,097
Tax-exempt		6,137			5,523		17,743			14,171
Other		9,150			9,956		24,975			25,518

Total interest income		538,988			420,858		1,525,678			1,199,289

Interest expenses
Deposits		194,623			119,376		515,969			313,103
Short-term borrowings		17,161			10,901		52,795			22,815
Federal Home Loan Bank advances		15,565			7,351		47,130			24,697
Subordinated notes and other long-term debt		56,326			41,593		148,596			119,939

Total interest expense		283,675			179,221		764,490			480,554

Net interest income		255,313			241,637		761,188			718,735
Provision for credit losses		14,162			17,699		49,447			50,468

Net interest income after provision for credit losses		241,151			223,938		711,741			668,267

Automobile operating lease income		8,580			27,822		37,771			110,481
Service charges on deposit accounts		48,718			44,817		137,165			125,751
Trust services		22,490			19,671		66,444			56,980
Brokerage and insurance income		14,697			13,948		44,235			40,518
Bank owned life insurance income		12,125			10,104		32,971			30,347
Other service charges and fees		12,989			11,449		37,570			32,860
Mortgage banking (loss) income		(2,166	)		21,116		36,021			30,801
Securities (losses) gains		(57,332	)		101		(57,387	)		715
Gains on sales of automobile loans		863			502		1,843			756
Other income		36,946			11,210		83,830			55,751

Total non-interest income		97,910			160,740		420,463			484,960

Automobile operating lease expense		5,988			21,637		27,317			86,667
Personnel costs		133,823			117,476		403,284			365,547
Net occupancy		18,109			16,653		54,002			53,152
Outside data processing and other services		18,664			18,062		58,084			54,945
Equipment		17,249			15,531		51,761			47,031
Professional services		6,438			8,323		18,095			27,129
Marketing		7,846			6,364		25,521			19,134
Telecommunications		4,818			4,512		14,633			14,195
Printing and supplies		3,416			3,102		10,254			9,489
Amortization of intangibles		2,902			203		6,969			611
Other expense		23,177			21,189		63,284			61,565

Total non-interest expense		242,430			233,052		733,204			739,465

Income before income taxes		96,631			151,626		399,000			413,762
Provision (benefit) for income taxes		(60,815	)		43,052		25,494			102,244

Net income	$	157,446		$	108,574		373,506			311,518


Average common shares — basic		237,672			229,830		236,790			231,290
Average common shares — diluted		240,896			233,456		239,933			234,727

Per common share
Net income — basic	$	0.66		$	0.47	$	1.58		$	1.35
Net income — diluted		0.65			0.47		1.56			1.33
Cash dividends declared		0.250			0.215		0.75			0.63

See notes to unaudited condensed consolidated financial statements

Huntington Bancshares Incorporated

Condensed Consolidated Statements of Changes in Shareholders’ Equity


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

Nine Months Ended September 30, 2005 (Unaudited):
Balance, beginning of period		257,866	$	2,484,204			(26,261	)	$	(499,259	)	$	(10,903	)	$	563,596		$	2,537,638
Comprehensive Income:
Net income																311,518			311,518
Unrealized net losses on investment securities arising during the period, net of reclassification of net realized gains													(18,304	)					(18,304	)
Unrealized gains on cash flow hedging derivatives													7,368						7,368

Total comprehensive income																			300,582

Cash dividends declared ($0.63 per share)																(145,578	)		(145,578	)
Treasury shares purchased							(4,416	)		(108,610	)								(108,610	)
Stock options exercised				3,172			1,729			33,353									36,525
Other				3,543			88			(1,425	)								2,118


Balance, end of period (Unaudited)		257,866	$	2,490,919			(28,860	)	$	(575,941	)	$	(21,839	)	$	729,536		$	2,622,675


Nine Months Ended September 30, 2006 (Unaudited):
Balance, beginning of period		257,866	$	2,491,326			(33,760	)	$	(693,576	)	$	(22,093	)	$	781,844		$	2,557,501
Comprehensive Income:
Net income																373,506			373,506
Cumulative effect of change in accounting principle for servicing financial assets, net of tax of $6,521																12,110			12,110
Unrealized net gains on investment securities arising during the period, net of reclassification of net realized losses													46,332						46,332
Unrealized gains on cash flow hedging derivatives													7,837						7,837

Total comprehensive income																			439,785

Cash dividends declared ($0.75 per share)																(180,599	)		(180,599	)
Shares issued pursuant to acquisition				53,366			25,350			522,390									575,756
Recognition of the fair value of share-based compensation				13,430															13,430
Treasury shares purchased							(12,931	)		(303,898	)								(303,898	)
Stock options exercised				(2,073	)		1,439			30,911									28,838
Other				119			(43	)		(1,186	)								(1,067	)


Balance, end of period (Unaudited)		257,866	$	2,556,168			(19,945	)	$	(445,359	)	$	32,076		$	986,861		$	3,129,746

See notes to unaudited condensed consolidated financial statements.

Huntington Bancshares Incorporated

Condensed Consolidated Statements of Cash Flows
(Unaudited)


	Nine Months Ended
	September 30,
(in thousands of dollars)	2006			2005

Operating activities
Net income	$	373,506		$	311,518
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		88,402			138,899
Deferred income tax benefit		(166,168	)		(9,422	)
(Increase) decrease in trading account securities		(36,535	)		118,212
Pension contribution		(29,800	)		(63,600	)
Reversal of tax reserves		(84,541	)		—
Originations of loans held for sale		(1,934,660	)		(1,603,271	)
Principal payments on and proceeds from loans held for sale		1,931,216			1,685,272
Losses (gains) on investment securities		57,387			(715	)
Other, net		(154,275	)		(243,971	)

Net cash provided by operating activities		44,532			332,922


Investing activities
(Increase) decrease in interest bearing deposits in banks		(33,846	)		19
Net cash received in acquisition of Unizan		66,507			—
Proceeds from:
Maturities and calls of investment securities		461,680			333,605
Sales of investment securities		1,330,257			1,715,426
Purchases of investment securities		(1,645,140	)		(2,146,993	)
Net loan and lease originations, excluding sales		(275,766	)		(1,332,014	)
Purchases of equipment for operating lease assets		(17,149	)		(16,546	)
Proceeds from sale of operating lease assets		106,448			239,194
Proceeds from sale of premises and equipment		5,695			189
Purchases of premises and equipment		(28,327	)		(42,069	)
Proceeds from sales of other real estate		10,786			47,755

Net cash used for investing activities		(18,855	)		(1,201,434	)


Financing activities
Increase in deposits		632,079			1,587,653
(Decrease) increase in short-term borrowings		(435,896	)		295,333
Proceeds from issuance of subordinated notes		250,000			—
Proceeds from Federal Home Loan Bank advances		2,312,050			809,589
Maturity of Federal Home Loan Bank advances		(2,339,341	)		(925,021	)
Proceeds from issuance of long-term debt		935,000			—
Maturity of long-term debt		(765,777	)		(1,308,145	)
Tax benefits in excess of recognized compensation cost for share-based payments		904			—
Dividends paid on common stock		(161,906	)		(142,422	)
Repurchases of common stock		(303,898	)		(108,610	)
Net proceeds from issuance of common stock		28,838			36,525

Net cash provided by financing activities		152,053			244,902

Change in cash and cash equivalents		177,730			(623,610	)
Cash and cash equivalents at beginning of period		1,040,776			1,505,360

Cash and cash equivalents at end of period	$	1,218,506		$	881,750


Supplemental disclosures:
Income taxes paid	$	282,418		$	146,911
Interest paid		457,404			447,864
Non-cash activities
Common stock dividends accrued, paid in subsequent quarter		47,700			39,167
Stock issued for purchase acquisition		575,756			—

See notes to unaudited condensed consolidated financial statements.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 – Basis of Presentation

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

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

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

Note 2 – New Accounting Pronouncements

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

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

FASB Statement No. 155, Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140 (Statement No. 155) – On February 16, 2006, the FASB issued Statement No. 155, which amends Statement No. 133 to simplify the accounting for certain derivatives embedded in other financial instruments (hybrid financial instruments) by permitting these hybrid financial instruments to be carried at fair value. Statement No. 155 also establishes a requirement to evaluate interests in securitized financial assets, including collateralized mortgage obligations and mortgage-backed securities, to identify embedded derivatives that would need to be separately accounted for from the financial asset.

On October 25, 2006, the FASB addressed the application of Statement No. 155 to collateralized mortgage obligations and mortgage-backed securities. The FASB expects to issue an exposure draft of a derivatives implementation group issue in November regarding its conclusions. Based on the FASB’s preliminary conclusions regarding the applicability of Statement No. 155 to collateralized mortgage obligations and mortgage-backed securities, Management does not believe that the pending proposed implementation issue will have a significant impact to its financial position or its results of operations.

Huntington adopted Statement No. 155 effective January 1, 2006, with no impact to reported financial results.

FASB Statement No. 156, Accounting for Servicing of Financial Assets – an amendment of FASB Statement No. 140 (Statement No. 156) – In March 2006, the FASB issued Statement No. 156, an amendment of Statement No. 140. This Statement requires all separately recognized servicing rights be initially measured at fair value, if practicable. For each class of separately recognized servicing assets and liabilities, this statement permits Huntington to choose either to report servicing assets and liabilities at fair value or at amortized cost. Under the fair value approach, servicing assets and liabilities are recorded at fair value at each reporting date with changes in fair value recorded in earnings in the period in which the changes occur. Under the amortized cost method, servicing assets and liabilities are amortized in proportion to and over the period of estimated net servicing income or net servicing loss and are assessed for impairment based on fair value at each reporting date. The statement is effective for fiscal years beginning after September 15, 2006, and allows early adoption as of the beginning of a fiscal year for which the entity has not previously issued interim financial statements. Huntington elected to adopt the provisions of Statement No. 156 for mortgage servicing rights effective January 1, 2006, and has recorded mortgage servicing right assets using the fair value provision of the standard. The adoption of Statement No. 156 resulted in an $18.6 million increase in the carrying value of mortgage servicing right assets as of January 1, 2006. The cumulative effect of this change was $12.1 million, net of taxes, which is reflected as an increase in retained earnings in the Condensed Consolidated Statement of Shareholders’ Equity. (See Note 6.)

FASB Statement No. 157, Fair Value Measurements (Statement No. 157) – In September 2006, the FASB issued Statement No. 157. This Statement establishes a common definition for fair value to be applied to GAAP guidance requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. Statement No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact this Statement will have on its consolidated financial position and results of operations.

FASB Statement No. 158, Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132R (Statement No. 158) – In September 2006, the FASB issued Statement No. 158, as an amendment to FASB Statements No. 87, 88, 106 and 132R. Statement No. 158 requires an employer to recognize in its statement of financial position the overfunded or underfunded status of its defined benefit plans and to recognize as a component of other comprehensive income, net of tax, any unrecognized transition obligations and assets, the actuarial gains and losses and prior service costs and credits that arise during the period. The recognition provisions of Statement No. 158 are to be applied prospectively and are effective for fiscal years ending after December 15, 2006. Management estimates that, based on the carrying value of its net pension asset at December 31, 2005, Statement No. 158 would result in a write-down of its pension asset by $155.7 million pre-tax, which would decrease other comprehensive income by $101.2 million in the period ended December 31, 2006.

FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes – In July 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes. This Interpretation of FASB Statement No. 109, Accounting for Income Taxes, contains guidance on the recognition and measurement of uncertain tax positions. Huntington will be required to recognize the impact of a tax position if it is more likely than not that it will be sustained upon examination, based upon the technical merits of the position. The effective date for application of this interpretation is for periods beginning after December 15, 2006. The cumulative effect of applying the provisions of this Interpretation must be reported as an adjustment to the opening balance of retained earnings for that fiscal period. Huntington is currently evaluating the impact this Interpretation will have on its consolidated financial statements.

Note 3 – Formal Regulatory Supervisory Agreements

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

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

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

Note 4 – Business Combination

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

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

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


(in thousands)	March 1, 2006

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

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

Purchase accounting adjustments:
Loans and leases		17,466
Premises and equipment		(202	)
Accrued income and other assets		257
Deposits		748
Subordinated notes		2,845
Deferred federal income tax liability		11,838
Accrued expenses and other liabilities		8,494

Goodwill and other intangible assets		422,243
Less other intangible assets:
Core deposit intangible		(45,000	)
Other identifiable intangible assets		(18,252	)

Other intangible assets		(63,252	)

Goodwill	$	358,991

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

Goodwill resulting from the transaction totaled $359.0 million and was assigned to Regional Banking and the Private Financial and Capital Markets Group (PFCMG) in the amount of $341.0 million and $18.0 million, respectively.

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


(in thousands)	March 1, 2006

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

Net loans and leases		1,642,819

Bank owned life insurance		48,521
Premises and equipment		21,603
Goodwill		358,991
Other intangible assets		63,252
Accrued income and other assets		22,012

Total assets		2,527,254

Liabilities
Deposits		1,696,124
Short-term borrowings		79,140
Federal Home Loan Bank advances		102,950
Subordinated notes		23,464
Deferred federal income tax liability		11,838
Accrued expenses and other liabilities		37,945

Total liabilities		1,951,461

Purchase price	$	575,793

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


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands, except per share amounts)	2006			2005			2006			2005
Net interest income	$	255,313		$	259,055		$	772,800		$	770,987
Provision for credit losses		(14,162	)		(19,364	)		(50,557	)		(55,465	)

Net interest income after provision for credit losses		241,151			239,691			722,243			715,522

Non-interest income		97,910			167,916			425,247			506,490
Non-interest expense		(242,430	)		(250,680	)		(745,050	)		(793,003	)

Income before income taxes		96,631			156,927			402,440			429,009
Provision (benefit) for income taxes		60,815			(44,560	)		(27,491	)		(106,581	)

Net income	$	157,446		$	112,367		$	374,949		$	322,428

Net income per common share
Basic	$	0.66		$	0.44		$	1.55		$	1.26
Diluted		0.65			0.43			1.53			1.24

Average common shares outstanding
Basic		237,672			255,135			242,423			256,554
Diluted		240,896			258,889			245,566			260,121

The pro forma results include amortization of fair value adjustments on loans, deposits, and debt, and amortization of newly created intangibles and post-merger acquisition related charges. The pro forma number of average common shares outstanding includes adjustments for shares issued for the acquisition and the impact of additional dilutive securities but does not assume any incremental share repurchases. The pro forma results presented do not reflect cost savings, or revenue enhancements anticipated from the acquisition, and are not necessarily indicative of what actually would have occurred if the acquisition had been completed as of the beginning of the periods presented, nor are they necessarily indicative of future consolidated results.

Note 5 – Goodwill and Other Intangible Assets

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


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

Balance, January 1, 2006	$	199,971	$	—	$	12,559	$	—	$	212,530
Goodwill acquired during the period		341,024		—		17,967		—		358,991

Balance, September 30, 2006	$	540,995	$	—	$	30,526	$	—	$	571,521

As further described in Note 4, goodwill acquired during 2006 was a result of the completion of the merger with Unizan. In accordance with FASB Statement No. 142, Goodwill and Other Intangible Assets, goodwill is not amortized, but is evaluated for impairment on an annual basis at September 30^th of each year.

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


	September 30, 2006
	Gross		Accumulated			Net
(in thousands)	Carrying Amount		Amortization			Carrying Value
Other intangible assets:
Leasehold purchased	$	23,655	$	(19,427	)	$	4,228
Core deposit intangible		45,000		(5,268	)		39,732
Borrower relationship		6,570		(274	)		6,296
Trust customers		11,430		(562	)		10,868
Other		382		(267	)		115

Total other intangible assets	$	87,037	$	(25,798	)	$	61,239

Amortization expense of other intangible assets for the three months ended September 30, 2006, and 2005, was $2.9 million and $0.2 million, respectively. Amortization expense of other intangible assets for the nine months ended September 30, 2006 and 2005 was $7.0 million and $0.6 million, respectively.

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


	Amortization
(in thousands)	Expense

Fiscal year:
2007	$	9,815
2008		8,653
2009		7,748
2010		6,949
2011		6,177

Note 6 – Loan Sales and Securitizations

Automobile loans

Huntington sold $185.4 million and $213.4 million of automobile loans in the third quarters of 2006 and 2005, resulting in pre-tax gains of $0.9 million and $0.5 million, respectively. For the nine-month periods ended September 30, 2006 and 2005, sales of automobile loans totaled $573.6 million and $266.9 million, resulting in pre-tax gains of $1.8 million and $0.8 million, respectively.

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

Changes in the carrying value of automobile loan servicing rights for the three months and nine months ended September 30, 2006 and 2005, and the fair value at the end of each period were as follows:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2006			2005			2006			2005

Carrying value, beginning of period	$	8,985		$	14,262		$	10,805		$	20,286
New servicing assets		1,289			976			3,651			1,308
Amortization		(1,794	)		(2,754	)		(5,976	)		(9,044	)
Impairment charges		—			—			—			(66	)

Carrying value, end of period	$	8,480		$	12,484		$	8,480		$	12,484


Fair value, end of period	$	10,826		$	13,072		$	10,826		$	13,072

Huntington has retained servicing responsibilities on sold automobile loans and receives annual servicing fees from 0.55% to 1.00% of the outstanding loan balances. Servicing income, net of amortization of capitalized servicing assets, amounted to $3.8 million for both the three months ended September 30, 2006 and 2005, respectively. For the nine months ended September 30, 2006 and 2005, servicing income was $10.6 million and $8.8 million, respectively.

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

Residential Mortgage Loans

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

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

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


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

Fair value, beginning of period	$	136,244			109,890
New servicing assets created		8,273			21,484
Servicing assets acquired		—			2,474
Change in fair value during the period due to:
Time decay ⁽¹⁾		(1,065	)		(3,049	)
Payoffs ⁽²⁾		(3,419	)		(8,260	)
Changes in valuation inputs or assumptions ⁽³⁾		(10,716	)		6,778

Fair value, end of period	$	129,317		$	129,317

N/A, Not applicable


⁽¹⁾		Represents decrease in value due to passage of time, including the impact from both regularly scheduled loan principal payments and partial loan paydowns.

⁽²⁾		Represents decrease in value associated with loans that paid off during the period.

⁽³⁾		Represents value change in value resulting primarily from market-driven changes in interest rates.

MSRs do not trade in an active, open market with readily observable prices. While sales of MSRs occur, the precise terms and conditions are typically not readily available. Therefore, the fair value of MSRs is estimated using a discounted future cash flow model. The model considers portfolio characteristics, contractually specified servicing fees and assumptions related to prepayments, delinquency rates, late charges, other ancillary revenues, costs to service, and other economic factors. Changes in the assumptions used may have a significant impact on the valuation of MSRs.

A summary of key assumptions and the sensitivity of the MSR value at September 30, 2006 to changes in these assumptions follows:


				Decline in fair value
				due to
				10%			20%
				adverse			adverse
(in thousands)	Actual			change			change
Constant pre-payment rate		12.19	%	$	(5,711	)	$	(11,018	)
Discount rate		9.38			(4,752	)		(9,171	)

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

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

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


	Three			Nine
	Months Ended			Months Ended
	September 30,			September 30,
(in thousands)	2005			2005
Balance, beginning of period	$	(11,246	)	$	(4,775	)
Impairment charges		(4,308	)		(15,719	)
Impairment recovery		14,765			19,705

Balance, end of period	$	(789	)	$	(789	)

Below is a summary of servicing fee income earned during the three and nine months ended September 30, 2006 and 2005.


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2006		2005		2006		2005

Servicing fees	$	6,077	$	5,532	$	17,997	$	16,390
Late fees		649		499		1,810		1,508
Ancillary fees		206		232		547		499

Total fee income	$	6,932	$	6,263	$	20,354	$	18,397

Note 7 — Investment Securities

Listed below are the contractual maturities (under 1 year, 1-5 years, 6-10 years and over 10 years) of investment securities at September 30, 2006, December 31, 2005, and September 30, 2005:


	September 30, 2006				December 31, 2005				September 30, 2005
	Amortized				Amortized				Amortized
(in thousands)	Cost		Fair Value		Cost		Fair Value		Cost		Fair Value

U.S. Treasury
Under 1 year	$	799	$	802	$	—	$	—	$	—	$	—
1-5 years		20,464		20,479		23,446		22,893		23,951		23,501
6-10 years		—		—		753		782		249		260
Over 10 years		—		—		—		—		—		—

Total U.S. Treasury		21,263		21,281		24,199		23,675		24,200		23,761

Federal agencies
Mortgage backed securities
Under 1 year		4,091		4,096		—		—		—		—
1-5 years		8,409		8,487		31,058		30,047		32,779		32,129
6-10 years		1,701		1,705		—		—		—		—
Over 10 years		1,354,964		1,356,884		1,278,540		1,248,975		1,059,544		1,035,760

Total mortgage-backed Federal agencies		1,369,165		1,371,172		1,309,598		1,279,022		1,092,323		1,067,889

Other agencies
Under 1 year		44,610		44,610		—		—		—		—
1-5 years		288,744		288,744		296,945		286,754		535,147		519,494
6-10 years		—		—		52,440		49,712		73,848		70,258
Over 10 years		—		—		—		—		—		—

Total other Federal agencies		333,354		333,354		349,385		336,466		608,995		589,752

Total Federal agencies		1,702,519		1,704,526		1,658,983		1,615,488		1,701,318		1,657,641

Municipal securities
Under 1 year		42		42		65		65		65		65
1-5 years		9,808		9,852		145		145		166		165
6-10 years		162,659		162,433		144,415		143,597		134,432		134,140
Over 10 years		414,717		419,356		400,156		401,043		404,542		405,519

Total municipal securities		587,226		591,683		544,781		544,850		539,205		539,889

Private label CMO
Under 1 year		—		—		—		—		—		—
1-5 years		—		—		—		—		—		—
6-10 years		—		—		—		—		—		—
Over 10 years		753,266		756,009		402,959		393,569		412,003		404,274

Total private label CMO		753,266		756,009		402,959		393,569		412,003		404,274

Asset backed securities
Under 1 year		—		—		—		—		—		—
1-5 years		30,000		30,061		31,663		31,659		32,970		32,970
6-10 years		—		—		—		—		—		—
Over 10 years		1,365,139		1,374,535		1,757,031		1,757,121		1,463,760		1,466,301

Total asset backed securities		1,395,139		1,404,596		1,788,694		1,788,780		1,496,730		1,499,271

Other
Under 1 year		3,400		3,400		1,700		1,700		400		400
1-5 years		5,843		5,813		10,997		11,051		11,604		11,774
6-10 years		692		693		2,062		2,063		1,555		1,536
Over 10 years		44		44		44		43		104,211		104,460
Non-marketable equity securities		148,923		148,923		89,661		89,661		—		—
Marketable equity securities		6,559		6,933		55,058		55,640		61,545		61,892

Total other		165,461		165,806		159,522		160,158		179,315		180,062

Total investment securities	$	4,624,874	$	4,643,901	$	4,579,138	$	4,526,520	$	4,352,771	$	4,304,898

Duration in years⁽¹⁾				3.3				2.8				2.8

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

Subsequent to the end of the quarter, the Company initiated a review of its investment securities portfolio. Management determined that $2.1 billion of securities, primarily consisting of U.S. Treasury and Agency securities as well as certain other asset-backed securities, were other-than-temporarily impaired and, as of September 30, 2006 recognized the unrealized losses of $57.5 million associated with these securities. Based upon its assessment, Management does not believe any other individual unrealized loss at September 30, 2006, represents an other-than-temporary impairment. In addition, Huntington has the ability to hold these securities for a time necessary, including to maturity, to recover the amortized cost. There were no securities classified as held to maturity at September 30, 2006.

At September 30, 2006 non marketable equity securities includes $121.1 million of stock of the Federal Home Loan Bank of Cincinnati and $27.4 of stock of the Federal Reserve Bank.

Note 8 – Other Comprehensive Income

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


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2006			2005			2006			2005

Unrealized gains and losses on investment securities arising during the period:
Unrealized net gains (losses)	$	69,481		$	(36,215	)	$	14,258		$	(27,499	)
Related tax (expense) benefit		(24,708	)		12,729			(5,228	)		9,660

Net		44,773			(23,486	)		9,030			(17,839	)

Reclassification adjustment for net losses (gains) from sales of investment securities realized during the period:
Realized net losses (gains)		57,332			(101	)		57,387			(715	)
Related tax (benefit) expense		(20,066	)		35			(20,085	)		250

Net		37,266			(66	)		37,302			(465	)


Total unrealized net gains (losses) on investment securities arising during the period, net of reclassification of net realized gains and losses		82,039			(23,552	)		46,332			(18,304	)


Unrealized (losses) gains on cash flow hedging derivatives arising during the period:
Unrealized net (losses) gains		(9,034	)		3,743			12,057			11,335
Related tax benefit (expense)		3,162			(1,310	)		(4,220	)		(3,967	)

Net		(5,872	)		2,433			7,837			7,368


Total other comprehensive income (loss)	$	76,167		$	(21,119	)	$	54,169		$	(10,936	)

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


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

Balance, December 31, 2004	$	(12,683	)	$	4,252	$	(2,472	)	$	(10,903	)
Period change		(18,304	)		7,368		—			(10,936	)

Balance, September 30, 2005	$	(30,987	)	$	11,620	$	(2,472	)	$	(21,839	)


Balance, December 31, 2005	$	(34,016	)	$	15,206	$	(3,283	)	$	(22,093	)
Period change		46,332			7,837		—			54,169

Balance, September 30, 2006	$	12,316		$	23,043	$	(3,283	)	$	32,076

Note 9 – Earnings per Share

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands, except per share amounts)	2006		2005		2006		2005

Net income	$	157,446	$	108,574	$	373,506	$	311,518

Average common shares outstanding		237,672		229,830		236,790		231,290
Dilutive potential common shares		3,224		3,626		3,143		3,437

Diluted average common shares outstanding		240,896		233,456		239,933		234,727


Earnings per share
Basic	$	0.66	$	0.47	$	1.58	$	1.35
Diluted		0.65		0.47		1.56		1.33

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

Options to purchase 5.5 million shares during both the three months and nine months ended September 30, 2006 and 5.6 million and 5.7 million shares during the three months and nine months ended September 30, 2005, respectively, were outstanding but were not included in the computation of diluted earnings per share because the effect would be antidilutive. The weighted average exercise price for these options was $25.70 and $25.69 per share and $25.70 and $25.68 for the three months and nine months ended September 30, 2006 and 2005, respectively.

Note 10 – Share-based Compensation

Huntington sponsors nonqualified and incentive share–based compensation plans. These plans provide for the granting of stock options and other awards to officers, directors, and other employees. Stock options are granted at the market price on the date of the grant. Options vest ratably over three years or when other conditions are met. Options granted prior to May 2004 have a maximum term of ten years. All options granted beginning in May 2004 have a maximum term of seven years.

Beginning in 2006, Huntington began granting Restricted Stock Units under the 2004 Stock and Long-Term incentive Plan. Restricted Stock Units are issued at no cost to the recipient, and can be settled only in shares at the end of the vesting period, subject to certain service restrictions. The fair value of the restricted stock unit awards was based on the closing market price of the Company’s common stock on the date of award.

Huntington’s board of directors has approved all of the plans. Shareholders have approved each of the plans, except for the broad-based Employee Stock Incentive Plan. Of the 25.8 million awards to grant or purchase shares of common stock authorized for issuance under the plans at September 30, 2006, 21.9 million were outstanding and 3.9 million were available for future grants.

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

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

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


	Share-based compensation expense
	Three Months Ended			Nine Months Ended
(in millions, except per share amounts)	September 30, 2006			September 30, 2006
Income before income taxes	$	(4.9	)	$	(13.4	)

Net income		(3.2	)		(8.7	)

Earnings per share
Basic	$	(0.01	)	$	(0.04	)
Diluted		(0.01	)		(0.04	)

Prior to the adoption of Statement 123R, Huntington presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the consolidated statements of cash flows. Statement 123R requires the cash flows from tax benefits resulting from tax deductions in excess of compensation costs recognized for those options (excess tax benefits) to be classified as financing cash flows. As a result, the benefits of tax deductions in excess of recognized compensation cost included in net financing cash flows for the nine months ended September 30, 2006 was $0.9 million.

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


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2006			2005			2006			2005

Assumptions
Risk-free interest rate		5.11	%		4.05	%		5.09	%		4.05	%
Expected dividend yield		4.27			3.29			4.26			3.30
Expected volatility of Huntington’s common stock		22.2			26.3			22.2			26.3
Expected option term (years)		6.0			6.0			6.0			6.0

Weighted-average grant date fair value per share	$	4.20		$	5.38		$	4.20		$	5.36

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


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

Pro forma results
Net income, as reported	$	108.6		$	311.5
Pro forma expense, net of tax		(2.9	)		(8.7	)

Pro forma net income	$	105.7		$	302.8

Net income per common share:
Basic, as reported	$	0.47		$	1.35
Basic, pro forma		0.46			1.31
Diluted, as reported		0.47			1.33
Diluted, pro forma		0.45			1.29

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

Weighted-

Average

Remaining

Aggregate

Exercise

Contractual

Intrinsic

(in thousands, except per share amounts)

Options

Price

Life (Years)

Value

Outstanding at January 1, 2006

21,004

21.11

Granted

1,463

23.37

Acquired ⁽¹⁾

655

16.56

Exercised

(1,446

)

17.91

Forfeited/expired

(433

)

22.58

Outstanding at September 30, 2006

21,243

21.31

5.1

65,411

Exercisable at September 30, 2006

15,068

20.66

4.7

57,578

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

The aggregate intrinsic value represents the amount by which the fair value of underlying stock exceeds the option exercise price. The total intrinsic value of stock options exercised during the nine months ended September 30, 2006, was $8.9 million.

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

The following table summarizes the status of Huntington’s nonvested awards for the nine months ended September 30, 2006:

Weighted-

Average

Grant Date

Restricted

Grant Date

Fair Value

Stock

Fair Value

(in thousands, except per share amounts)

Options

Per Share

Units

Per Share

Nonvested at January 1, 2006

7,956

5.53

—

Granted

1,459

4.20

464

23.34

Acquired ⁽¹⁾

4.61

—

Vested

(2,864

)

5.63

—

Forfeited

(395

)

5.49

)

23.34

Nonvested at September 30, 2006

6,175

5.16

462

23.34

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

As of September 30, 2006, the total compensation cost related to nonvested awards not yet recognized was $31.6 million with a weighted-average expense recognition period of 2.1 years. The total fair value of awards vested during the nine months ended September 30, 2006, was $16.2 million.

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


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

$9.91 to $15.00		745		4.9	$	14.21		745	$	14.21
$15.01 to $20.00		7,575		4.8		18.08		6,240		17.68
$20.01 to $25.00		10,655		5.8		22.85		5,832		22.13
$25.01 to $28.35		2,268		2.3		27.22		2,251		27.23

Total		21,243		5.1	$	21.31		15,068	$	20.66

Note 11 – Benefit Plans

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

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


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

Service cost	$	4,414		$	3,547		$	383		$	354
Interest cost		5,539			4,754			565			777
Expected return on plan assets		(8,518	)		(6,716	)		—			—
Amortization of transition asset		—			(1	)		276			276
Amortization of prior service cost		—			—			95			95
Settlements		1,000			750			—			—
Recognized net actuarial loss		4,377			2,672			(181	)		—

Benefit expense	$	6,812		$	5,006		$	1,138		$	1,502


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

Service cost	$	13,137		$	10,639		$	1,103		$	1,060
Interest cost		16,617			14,259			1,695			2,333
Expected return on plan assets		(25,057	)		(19,526	)		—			—
Amortization of transition asset		—			(3	)		828			828
Amortization of prior service cost		1			1			285			284
Settlements		3,000			2,250			—			—
Recognized net actuarial loss		13,131			8,017			(543	)		—

Benefit expense	$	20,829		$	15,637		$	3,368		$	4,505

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

Huntington also sponsors other retirement plans, the most significant being the Supplemental Executive Retirement Plan and the Supplemental Retirement Income Plan. These plans are nonqualified plans that provide certain former officers and directors of Huntington and its subsidiaries with defined pension benefits in excess of limits imposed by federal tax law. The cost of providing these plans was $0.7 million and $0.5 million for the three-month periods ended September 30, 2006 and 2005, respectively. For the respective nine-month periods, the cost was $2.0 million and $1.7 million.

Huntington has a defined contribution plan that is available to eligible employees. Huntington matches participant contributions dollar for dollar, up to the first 3% of base pay contributed to the plan. The match is 50 cents for each dollar on the 4th and 5th percent of base pay contributed to the plan. The cost of providing this plan was $2.6 million and $2.4 million for the three months ended September 30, 2006 and 2005, respectively. For the respective nine-month periods, the cost was $7.8 million and $7.3 million.

Note 12 – Commitments and Contingent Liabilities

Commitments to extend credit:

In the ordinary course of business, Huntington makes various commitments to extend credit that are not reflected in the financial statements. The contract amounts of these financial agreements at September 30, 2006, December 31, 2005, and September 30, 2005, were as follows:


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

Contract amount represents credit risk
Commitments to extend credit
Commercial	$	4,265	$	3,316	$	3,088
Consumer		3,336		3,046		3,021
Commercial real estate		1,752		1,567		1,455
Standby letters of credit		1,136		1,079		959
Commercial letters of credit		45		47		43

Commitments to extend credit generally have fixed expiration dates, are variable-rate, and contain clauses that permit Huntington to terminate or otherwise renegotiate the contracts in the event of a significant deterioration in the customer’s credit quality. These arrangements normally require the payment of a fee by the customer, the pricing of which is based on prevailing market conditions, credit quality, probability of funding, and other relevant factors. Since many of these commitments are expected to expire without being drawn upon, the contract amounts are not necessarily indicative of future cash requirements. The interest rate risk arising from these financial instruments is insignificant as a result of their predominantly short-term, variable-rate nature.

Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. Most of these arrangements mature within two years. The carrying amount of deferred revenue associated with these guarantees was $3.5 million, $4.0 million, and $3.7 million at September 30, 2006, December 31, 2005, and September 30, 2005, respectively.

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

Commitments to sell loans:

Huntington enters into forward contracts relating to its mortgage banking business. At September 30, 2006, December 31, 2005, and September 30, 2005, Huntington had commitments to sell residential real estate loans of $314.2 million, $348.3 million, and $566.8 million, respectively. These contracts mature in less than one year.

During the 2005 second quarter, Huntington entered into a two-year agreement to sell a portion of its monthly automobile loan production at the cost of such loans, subject to certain limitations, provided the production meets certain pricing, asset quality, and volume parameters. At September 30, 2006, approximately $48.9 million of automobile loans related to this commitment were classified as held for sale.

Income tax item:

The 2006 third quarter included an $84.5 million reduction of federal income tax expense from the release of tax reserves as the result of the resolution of the federal income tax audit for 2002 and 2003, as well as the recognition of a federal tax loss carryback.

Litigation:

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

Note 13 – Derivative Financial Instruments

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

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

Collateral agreements are regularly entered into as part of the underlying derivative agreements with Huntington’s counterparties to mitigate the credit risk associated with both the derivatives used for asset and liability management and used in trading activities. At September 30, 2006, December 31, 2005, and September 30, 2005, aggregate credit risk associated with these derivatives, net of collateral that has been pledged by the counterparty, was $13.1 million, $26.2 million, and $15.1 million, respectively. The credit risk associated with interest rate swaps is calculated after considering master netting agreements.

Asset and Liability Management

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

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

For cash flow hedges, the Company enters into interest rate swap contracts which require the payment of fixed-rate interest in exchange for the receipt of variable-rate interest without the exchange of the contract’s underlying notional amount, which effectively converts a portion of its floating-rate debt to fixed-rate. This reduces the potentially adverse impact of increases in interest rates on future interest expense. The Company also enters interest rate cap contracts which provide that the counter-party to the contract make interest payments when a variable rate specified in the contract exceeds a fixed level, based on the contracts underlying notional amount. These interest rate caps effectively reduce the impact of adverse cash flows associated with a portion of the Company’s variable rate debt. To the extent these derivatives are effective in offsetting the variability of the hedged cash flows, changes in the derivatives’ fair value will not be included in current earnings, but are reported as a component of accumulated other comprehensive income in shareholders’ equity. These changes in fair value will be included in earnings of future periods when earnings are also affected by the changes in the hedged cash flows. To the extent these derivatives are not effective, changes in their fair values are immediately included in earnings.

Interest rate swaps used to manage interest rate risk at September 30, 2006, are shown in the table below:


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

Liability conversion swaps
Receive fixed — generic	$	825,000		9.7	$	(12,629	)		5.27	%		5.63	%
Receive fixed — callable		665,000		6.4		(19,682	)		4.50			5.35
Pay fixed — generic		490,000		3.1		1,055			5.35			5.04

Total liability conversion swaps		1,980,000		7.0		(31,256	)		5.03	%		5.39	%

Interest rate caps used to manage cash flows at September 30, 2006, are shown in the table below:

Average

Notional

Maturity

Fair

Weighted-Average

(in thousands)

Value

(years)

Value

Strike Rate

Interest rate caps-purchased

500,000

2.3

2,913

5.43

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

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

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


	Fair Value		Cash Flow
(in thousands )	Hedges		Hedges		Total

Instruments associated with:
Deposits	$	690,000	$	600,000	$	1,290,000
Federal Home Loan Bank advances		—		325,000		325,000
Subordinated notes		750,000		—		750,000
Other long-term debt		50,000		65,000		115,000

Total notional value at September 30, 2006	$	1,490,000	$	990,000	$	2,480,000

These derivative financial instruments were entered into for the purpose of mitigating the interest rate risk embedded in assets and liabilities. Consequently, net amounts receivable or payable on contracts hedging either interest earning assets or interest bearing liabilities were accrued as an adjustment to either interest income or interest expense. The net amount resulted in a (decrease) increase to net interest income of ($2.0 million) and $5.6 million, for the three months ended September 30, 2006 and 2005, respectively. For the nine months ended September 30, 2006 and 2005, the impact to net interest income was a (decrease) increase of ($2.2 million) and $20.1 million, respectively.

Derivatives Used in Mortgage Banking Activities

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


	At September 30,
(in thousands)	2006			2005

Derivative assets:
Interest rate lock agreements	$	626		$	723
Forward trades and options		82			1,732

Total derivative assets		708			2,455

Derivative liabilities:
Interest rate lock agreements		(347	)		(1,314	)
Forward trades and options		(3,003	)		(235	)

Total derivative liabilities		(3,350	)		(1,549	)

Net derivative asset (liability)	$	(2,642	)	$	906

Huntington also uses certain derivative financial instruments to offset changes in value of its residential mortgage servicing rights. These derivatives consists primarily of forward interest rate agreements, and forward mortgage securities. The derivative instruments used to hedge the fair value of mortgage servicing rights are not designated as hedges under Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. Accordingly, such derivatives are recorded at fair value with changes in fair value reflected in other non-interest income. The total notional value of these derivative financial instruments at September 30, 2006, is 2,575 million. Total gains and losses for the three months and nine months ended September 30, 2006 were $10.7 million and ($0.7 million), respectively and were also included in other non-interest income.

Derivatives Used in Trading Activities

Various derivative financial instruments are offered to enable customers to meet their financing and investing objectives and for their risk management purposes. Derivative financial instruments used in trading activities consisted predominantly of interest rate swaps, but also included interest rate caps, floors, and futures, as well as foreign exchange options. Interest rate options grant the option holder the right to buy or sell an underlying financial instrument for a predetermined price before the contract expires. Interest rate futures are commitments to either purchase or sell a financial instrument at a future date for a specified price or yield and may be settled in cash or through delivery of the underlying financial instrument. Interest rate caps and floors are option-based contracts that entitle the buyer to receive cash payments based on the difference between a designated reference rate and a strike price, applied to a notional amount. Written options, primarily caps, expose Huntington to market risk but not credit risk. Purchased options contain both credit and market risk. The interest rate risk of these customer derivatives is mitigated by entering into similar derivatives having offsetting terms with other counter parties.

Supplying these derivatives to customers results in non-interest income. These instruments are carried at fair value in other assets with gains and losses reflected in other non-interest income. Total trading revenue for customer accommodation was $2.9 million and $2.3 million for the three months ended September 30, 2006 and 2005, respectively. For the nine months ended September 30, 2006 and 2005, total trading revenue for customer accommodation was $8.0 million and $6.0 million, respectively. The total notional value of derivative financial instruments used by Huntington on behalf of customers, including offsetting derivatives, was $4.7 billion, $4.2 billion, and $4.4 billion at September 30, 2006, December 31, 2005, and September 30, 2005. Huntington’s credit risk from interest rate swaps used for trading purposes was $56.3 million, $44.3 million, and $60.2 million at the same dates.

In connection with securitization activities, Huntington purchased interest rate caps with a notional value totaling $1.7 billion. These purchased caps were assigned to the securitization trust for the benefit of the security holders. Interest rate caps were also sold totaling $1.7 billion outside the securitization structure. Both the purchased and sold caps are marked to market through income.

Note 14 – Shareholders’ Equity

Share Repurchase Program:

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

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

On May 24, 2006, Huntington repurchased 6.0 million shares of common stock from Bear Stearns under an accelerated share repurchase program. The accelerated share repurchase program enabled Huntington to purchase the shares immediately, while Bear Stearns purchased shares in the market over a period of up to four months (the Repurchase Term). In connection with the repurchase of these shares, Huntington entered into a variable share forward sale agreement, which provides for a settlement, reflecting a price differential based on the adjusted volume-weighted average price as defined in the agreement with Bear Stearns. The variable share forward agreement concluded at the end of September, resulting in a nominal settlement of cash to Huntington. This was reflected as an adjustment to treasury shares on Huntington’s balance sheet.

Huntington did not repurchase any shares under the 2006 Repurchase Program for the three months ended September 30, 2006. At the end of the period 6,900,000 shares may yet be purchased under the 2006 Repurchase Program.

Note 15 – Segment Reporting

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

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

Regional Banking: This segment provides traditional banking products and services to consumer, small business, and commercial customers located in eight operating regions within the five states of Ohio, Michigan, West Virginia, Indiana, and Kentucky. It provides these services through a banking network of 372 branches, over 1,000 ATMs, plus on-line and telephone banking channels. Each region is further divided into Retail and Commercial Banking units. Retail products and services include home equity loans and lines of credit, first mortgage loans, direct installment loans, small business loans, personal and business deposit products, as well as sales of investment and insurance services. Retail Banking accounts for 60% and 78% of total Regional Banking average loans and deposits, respectively. Commercial Banking serves middle market commercial banking relationships, which use a variety of banking products and services including, but not limited to, commercial loans, international trade, cash management, leasing, interest rate protection products, capital market alternatives, 401(k) plans, and mezzanine investment capabilities.

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

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

Treasury / Other: This segment includes revenue and expense related to assets, liabilities, and equity that are not directly assigned or allocated to one of the other three business segments. Assets in this segment include investment securities, mortgage servicing rights and bank owned life insurance. The net interest income/(expense) of this segment includes the net impact of administering our investment securities portfolios as part of overall liquidity management. A match-funded transfer pricing system is used to attribute appropriate funding interest income and interest expense to other business segments. As such, net interest income includes the net impact of any over or under allocations arising from centralized management of interest rate risk. Furthermore, net interest income includes the net impact of derivatives used to hedge interest rate sensitivity. The non-interest expense includes certain corporate administrative and other miscellaneous expenses not allocated to other business segments. This segment also includes any difference between the actual effective tax rate of Huntington and the statutory tax rate used to allocate income taxes to the other segments.

Use of Operating Earnings to Measure Segment Performance

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

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


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

2006
Net interest income	$	224,157		$	32,540		$	19,356		$	(20,740	)	$	255,313
Provision for credit losses		(10,286	)		(2,652	)		(1,224	)		—			(14,162	)
Non-interest income		89,353			20,286			36,475			(48,204	)		97,910
Non-interest expense		(163,709	)		(24,813	)		(35,328	)		(18,580	)		(242,430	)
Income taxes		(48,830	)		(8,876	)		(6,748	)		125,269			60,815

Operating / reported net income	$	90,685		$	16,485		$	12,531		$	37,745		$	157,446

2005
Net interest income	$	197,270		$	35,816		$	18,559		$	(10,008	)	$	241,637
Provision for credit losses		(10,888	)		(5,488	)		(1,323	)		—			(17,699	)
Non-interest income		80,930			38,483			34,258			7,069			160,740
Non-interest expense		(145,172	)		(43,264	)		(32,789	)		(11,827	)		(233,052	)
Income taxes		(42,749	)		(8,941	)		(6,547	)		15,185			(43,052	)

Operating / reported net income	$	79,391		$	16,606		$	12,158		$	419		$	108,574


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

2006
Net interest income	$	659,710		$	102,155		$	54,962		$	(55,639	)	$	761,188
Provision for credit losses		(35,520	)		(9,465	)		(4,462	)		—			(49,447	)
Non-Interest income		259,904			68,794			116,508			(24,743	)		420,463
Non-Interest expense		(483,102	)		(84,696	)		(104,155	)		(61,251	)		(733,204	)
Income taxes		(140,347	)		(26,875	)		(21,999	)		163,727			(25,494	)

Operating / reported net income	$	260,645		$	49,913		$	40,854		$	22,094		$	373,506

2005
Net interest income	$	576,068		$	110,586		$	54,959		$	(22,878	)	$	718,735
Provision for credit losses		(31,923	)		(16,887	)		(1,658	)		—			(50,468	)
Non-Interest income		228,350			137,712			99,386			19,512			484,960
Non-Interest expense		(442,127	)		(148,352	)		(99,039	)		(49,947	)		(739,465	)
Income taxes		(115,629	)		(29,070	)		(18,777	)		61,232			(102,244	)

Operating / reported net income	$	214,739		$	53,989		$	34,871		$	7,919		$	311,518


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

Regional Banking	$	21,110	$	18,850	$	18,966	$	20,301	$	17,957	$	17,842
Dealer Sales		5,257		5,613		5,724		59		65		72
PFCMG		2,174		2,010		2,033		1,145		1,180		1,200
Treasury / Other		7,121		6,292		6,040		3,233		3,208		3,235

Total	$	35,662	$	32,765	$	32,763	$	24,738	$	22,410	$	22,349

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

INTRODUCTION

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

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

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

	•		Introduction - Provides overview comments on important matters including risk factors, critical accounting policies, and use of significant estimates. These are essential for understanding our performance and prospects.

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

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

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

Forward-Looking Statements

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

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

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

Risk Factors

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

Critical Accounting Policies and Use of Significant Estimates

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

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

DISCUSSION OF RESULTS OF OPERATIONS

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

Summary

Earnings comparisons of 2006 third quarter and first nine-month performance with that of the prior periods were impacted by a number of factors, some related to changes in the economic and competitive environment, while others reflected corporate actions, specific strategies, or changes in accounting practices. The most significant items impacting performance comparisons for the 2006 third quarter were the reduction of federal income tax due to the favorable resolution of a federal income tax audit, partially offset by the recognition of investment securities impairment. The impact of the Unizan merger, which closed March 1, 2006, as well as the 2006 third quarter items just mentioned, impacted year-to-date performance comparisons. The key factors impacting current reporting period comparisons to prior periods are more fully described in the Significant Factors Influencing Financial Performance Comparisons section, which follows this summary discussion of results.

2006 Third Quarter versus 2005 Third Quarter

Net income for the third quarter of 2006 was $157.4 million, or $0.65 per common share, compared with $108.6 million, or $0.47 per common share, in the year-ago quarter. This $48.9 million increase in net income primarily reflected the positive impacts of:

•

$103.9 million reduction in federal income tax expense in the third quarter of 2006 over the third quarter of 2005, resulting from lower pre-tax income, the positive impact from the release of tax reserves as a result of the

resolution of the federal income tax audit for 2002 and 2003, as well as the recognition of a federal tax loss carryback. Also, the third quarter of 2005 included the tax impact of repatriating foreign earnings, partially offset by the recognition of a federal tax loss carryback. (See Provision for Income Taxes discussion for details.)

	•		$13.7 million, or 6%, increase in net interest income. This reflected the benefit of $2.6 billion, or 9%, growth in average earning assets ($1.9 billion, or 8%, in average total loans and leases), partially offset by a 9 basis point decline in the net interest margin to 3.22% from 3.31% in the year-ago quarter. The Unizan merger added an estimated $17.4 million to net interest income with the addition of an estimated $2.0 billion of earning assets ($1.7 billion in loans and leases). (See Net Interest Income discussion for details.)

	•		$3.5 million, or 20%, decrease in provision for credit losses. (See Provision for Credit Losses and the Credit Risk discussions for details.)

Partially offset by:

	•		$62.8 million, or 39%, decline in total non-interest income. Items contributing to the decline included (1) $57.4 million of securities losses reflecting the 2006 third quarter’s $57.5 million loss from securities impairment, (2) a $19.2 million decline in automobile operating lease income as that portfolio continued to run off, and (3) a $23.3 million decline in mortgage banking income. These negative impacts were partially offset by higher service charges on deposit accounts, trust services income, bank owned life insurance income, and other service charges and fees. The Unizan merger contributed an estimated $7.2 million of growth to non-interest income. (See Non-interest Income discussion for details.)

	•		$9.4 million, or 4%, increase in total non-interest expense. This reflected higher personnel costs, amortization of intangibles, other expense, equipment, marketing, and outside data processing and other service expenses, partially offset by declines in automobile operating lease expense and professional services costs. The Unizan merger contributed an estimated $18.3 million to the increase in total non-interest expense. (See Non-interest Expense discussion for details.)

The return on average assets (ROA) and return on average equity (ROE) in the 2006 third quarter were 1.75% and 21.0%, respectively, both well above prior period performance due to the significant positive impact in the 2006 third quarter from the reduction of federal income taxes, net of securities impairment. In the year-ago quarter, the ROA was 1.32% and ROE was 16.5% (see Table 1).

2006 Third Quarter versus 2006 Second Quarter

Net income for the third quarter of 2006 was $157.4 million, or $0.65 per common share, compared with $111.6 million, or $0.46 per common share, in the prior quarter. This $45.8 million increase in net income primarily reflected the positive impacts of:

	•		$106.3 million reduction in federal income tax expense in the third quarter of 2006 over the second quarter of 2006, resulting from the positive impact from the release of tax reserves as a result of the resolution of the federal income tax audit covering 2002 and 2003 and the recognition of a federal tax loss carryback. The remainder of the decrease in federal income tax expense reflected a $60.5 million reduction in pre-tax net income due to the current period’s securities impairment. (See Provision for Income Taxes discussion for details.)

	•		$9.9 million, or 4%, decrease in total non-interest expense. This primarily reflected lower personnel costs, automobile operating lease expense, marketing, and outside data processing and other service expenses, partially offset by an increase in other expense. (See Non-interest Expense discussion for details.)

	•		$1.6 million, or 10%, decrease in provision for credit losses. (See Provision for Credit Losses and the Credit Risk discussions for details.)

Partially offset by:

•

$65.1 million, or 40%, decline in total non-interest income. This primarily reflected the negative impacts of the 2006 third quarter’s securities portfolio impairment, declining automobile operating lease income, and a decline in mortgage banking income, partially offset by the benefit of higher bank owned life insurance income and higher service charges on deposit accounts. (See Non-interest Income discussion for details.)

•

$6.8 million, or 3%, decline in net interest income. This primarily reflected the negative impact of a 12 basis point decline in the net interest margin to 3.22% from 3.34%, as average earning assets increased only slightly. (See Net Interest Income discussion for details.)

The ROA and ROE in the 2006 third quarter were 1.75% and 21.0%, respectively, both well above prior period performance due to the significant positive impact in the 2006 third quarter from the reduction of federal income taxes, net of securities impairment. In the second quarter of 2006, the ROA was 1.25% and ROE was 14.9% (see Table 1).

2006 First Nine Months versus 2005 First Nine Months

Net income for the 2006 first nine-month period was $373.5 million, or $1.56 per common share, compared with $311.5 million, or $1.33 per common share, in the year-ago period. This $62.0 million increase in net income primarily reflected the positive impacts of:

	•		$76.8 million reduction in federal income tax expense, reflecting the benefit in the 2006 third quarter of an $84.5 million reduction of federal income tax expense related to the resolution of a federal income tax audit covering tax years 2002 and 2003. This resulted in the release of previously established federal income tax reserves, as well as the recognition of federal tax loss carry back. The remainder of the decline in federal income tax expense reflected a $55.0 million reduction in pre-tax net income due to the current period’s securities impairment. (See Provision for Income Taxes discussion for details.)

	•		$42.5 million, or 6%, increase in net interest income. This reflected the benefit of $2.1 billion, or 7%, growth in average earning assets ($1.6 billion, or 6%, in average total loans and leases), partially offset by a 4 basis point decline in the net interest margin to 3.29% from 3.33% in the year-ago period. The Unizan merger added an estimated $40.6 million to net interest income with the addition of an estimated $1.5 billion of earning assets ($1.3 billion in loans and leases). (See Net Interest Income discussion for details.)

	•		$6.3 million, or 1%, decline in total non-interest expense. This reflected significant declines in automobile operating lease expense and professional services costs, partially offset by higher personnel, marketing, amortization of intangibles, equipment, and outside data processing and other service expenses. The Unizan merger contributed an estimated $45.8 million to total non-interest expense. (See Non-interest Expense discussion for details.)

	•		$1.0 million, or 2%, decrease in provision for credit losses. (See Provision for Credit Losses and the Credit Risk discussions for details.)

Partially offset by:

•

$64.5 million, or 13%, decline in total non-interest income. Items contributing to the decline included (1) $58.1 million of securities losses reflecting the 2006 third quarter’s $57.5 million loss from securities impairment, and (2) a $72.7 million decline in automobile operating lease income as that portfolio continued to run off. These negative impacts were partially offset by higher service charges on deposit accounts, trust services income, other service charges and fees, brokerage and insurance income, bank owned life insurance income, and higher mortgage banking income. The Unizan merger contributed an estimated $16.7 million of growth to non-interest income. (See Non-interest Income discussion for details.)

The ROA and ROE in the 2006 first nine-month period were 1.43% and 17.2%, respectively, both well above prior period performance due to the significant positive impact in the 2006 third quarter from the reduction of federal income taxes, net of securities impairment. The ROA and ROE in the comparable year-ago period were 1.28% and 16.1%, respectively (see Table 2).

Table 1 — Selected Quarterly Income Statement Data


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

Interest income	$	538,988		$	521,903		$	464,787		$	442,476		$	420,858
Interest expense		283,675			259,708			221,107			198,800			179,221

Net interest income		255,313			262,195			243,680			243,676			241,637
Provision for credit losses		14,162			15,745			19,540			30,831			17,699

Net interest income after provision for credit losses		241,151			246,450			224,140			212,845			223,938

Service charges on deposit accounts		48,718			47,225			41,222			42,083			44,817
Trust services		22,490			22,676			21,278			20,425			19,671
Brokerage and insurance income		14,697			14,345			15,193			13,101			13,948
Bank owned life insurance income		12,125			10,604			10,242			10,389			10,104
Other service charges and fees		12,989			13,072			11,509			11,488			11,449
Mortgage banking (loss) income		(2,166	)		20,355			17,832			10,909			21,116
Securities (losses) gains ⁽¹⁾		(57,332	)		(35	)		(20	)		(8,770	)		101
Gains on sales of automobile loans		863			532			448			455			502
Other income		36,946			22,102			24,782			24,708			11,210

Sub-total before operating lease income		89,330			150,876			142,486			124,788			132,918
Automobile operating lease income		8,580			12,143			17,048			22,534			27,822

Total non-interest income		97,910			163,019			159,534			147,322			160,740

Personnel costs		133,823			137,904			131,557			116,111			117,476
Net occupancy		18,109			17,927			17,966			17,940			16,653
Outside data processing and other services		18,664			19,569			19,851			19,693			18,062
Equipment		17,249			18,009			16,503			16,093			15,531
Professional services		6,438			6,292			5,365			7,440			8,323
Marketing		7,846			10,374			7,301			7,145			6,364
Telecommunications		4,818			4,990			4,825			4,453			4,512
Printing and supplies		3,416			3,764			3,074			3,084			3,102
Amortization of intangibles		2,902			2,992			1,075			218			203
Other expense		23,177			21,880			18,227			20,995			21,189

Sub-total before operating lease expense		236,442			243,701			225,744			213,172			211,415
Automobile operating lease expense		5,988			8,658			12,671			17,183			21,637

Total non-interest expense		242,430			252,359			238,415			230,355			233,052

Income before income taxes		96,631			157,110			145,259			129,812			151,626
Provision (benefit) for income taxes ⁽²⁾		(60,815	)		45,506			40,803			29,239			43,052

Net income	$	157,446		$	111,604		$	104,456		$	100,573		$	108,574


Average common shares — diluted		240,896			244,538			234,363			229,718			233,456

Per common share
Net income — diluted	$	0.65		$	0.46		$	0.45		$	0.44		$	0.47
Cash dividends declared		0.250			0.250			0.250			0.215			0.215

Return on average total assets		1.75	%		1.25	%		1.26	%		1.22	%		1.32	%
Return on average total shareholders’ equity		21.0			14.9			15.5			15.5			16.5
Net interest margin⁽³⁾		3.22			3.34			3.32			3.34			3.31
Efficiency ratio⁽⁴⁾		57.8			58.1			58.3			57.0			57.4
Effective tax rate		(62.9	)		29.0			28.1			22.5			28.4

Revenue — fully taxable equivalent (FTE)
Net interest income	$	255,313		$	262,195		$	243,680		$	243,676		$	241,637
FTE adjustment		4,090			3,984			3,836			3,837			3,734

Net interest income⁽³⁾		259,403			266,179			247,516			247,513			245,371
Non-interest income		97,910			163,019			159,534			147,322			160,740

Total revenue⁽³⁾	$	357,313		$	429,198		$	407,050		$	394,835		$	406,111


⁽¹⁾		Includes $57.5 million of securities impairment losses as of September 30, 2006, due to the planned review of the securities portfolio.

⁽²⁾		Includes $84.5 million benefit reflecting the resolution of a federal income tax audit of tax years 2002 and 2003.

⁽³⁾		On a fully taxable equivalent (FTE) basis assuming a 35% tax rate.

⁽⁴⁾		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


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

Interest income	$	1,525,678		$	1,199,289		$	326,389			27.2	%
Interest expense		764,490			480,554			283,936			59.1

Net interest income		761,188			718,735			42,453			5.9
Provision for credit losses		49,447			50,468			(1,021	)		(2.0	)

Net interest income after provision for credit losses		711,741			668,267			43,474			6.5

Service charges on deposit accounts		137,165			125,751			11,414			9.1
Trust services		66,444			56,980			9,464			16.6
Brokerage and insurance income		44,235			40,518			3,717			9.2
Bank owned life insurance income		32,971			30,347			2,624			8.6
Other service charges and fees		37,570			32,860			4,710			14.3
Mortgage banking income		36,021			30,801			5,220			16.9
Securities (losses) gains ⁽¹⁾		(57,387	)		715			(58,102	)		N.M.
Gains on sales of automobile loans		1,843			756			1,087			N.M.
Other income		83,830			55,751			28,079			50.4

Sub-total before operating lease income		382,692			374,479			8,213			2.2
Automobile operating lease income		37,771			110,481			(72,710	)		(65.8	)

Total non-interest income		420,463			484,960			(64,497	)		(13.3	)

Personnel costs		403,284			365,547			37,737			10.3
Net occupancy		54,002			53,152			850			1.6
Outside data processing and other services		58,084			54,945			3,139			5.7
Equipment		51,761			47,031			4,730			10.1
Professional services		18,095			27,129			(9,034	)		(33.3	)
Marketing		25,521			19,134			6,387			33.4
Telecommunications		14,633			14,195			438			3.1
Printing and supplies		10,254			9,489			765			8.1
Amortization of intangibles		6,969			611			6,358			N.M.
Other expense		63,284			61,565			1,719			2.8

Sub-total before operating lease expense		705,887			652,798			53,089			8.1
Automobile operating lease expense		27,317			86,667			(59,350	)		(68.5	)

Total non-interest expense		733,204			739,465			(6,261	)		(0.8	)

Income before income taxes		399,000			413,762			(14,762	)		(3.6	)
Provision for income taxes ⁽²⁾		25,494			102,244			(76,750	)		(75.1	)

Net income	$	373,506		$	311,518		$	61,988			19.9	%


Average common shares — diluted		239,933			234,727			5,206			2.2	%

Per common share
Net income per common share — diluted	$	1.56		$	1.33		$	0.23			17.3	%
Cash dividends declared		0.750			0.630			0.120			19.0

Return on average total assets		1.43	%		1.28	%		0.15			11.7	%
Return on average total shareholders’ equity		17.2			16.1			1.1			6.8
Net interest margin ⁽³⁾		3.29			3.33			(0.04	)		(1.2	)
Efficiency ratio ⁽⁴⁾		58.1			60.9			(2.8	)		(4.6	)
Effective tax rate		6.4			24.7			(18.3	)		(74.1	)

Revenue — fully taxable equivalent (FTE)
Net interest income	$	761,188		$	718,735		$	42,453			5.9	%
FTE adjustment ⁽³⁾		11,910			9,556			2,354			24.6

Net interest income		773,098			728,291			44,807			6.2
Non-interest income		420,463			484,960			(64,497	)		(13.3	)

Total revenue	$	1,193,561		$	1,213,251		$	(19,690	)		(1.6)	%

N.M., not a meaningful value.


⁽¹⁾		Includes $57.5 million of securities impairment losses as of September 30, 2006, due to the planned review of the securities portfolio.

⁽²⁾		Includes $84.5 million benefit reflecting the resolution of a federal income tax audit of tax years 2002 and 2003.

⁽³⁾		On a fully taxable equivalent (FTE) basis assuming a 35% tax rate.

⁽⁴⁾		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 Factors Influencing Financial Performance Comparisons

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

Unizan Acquisition. The merger with Unizan Financial Corp. (Unizan) was completed on March 1, 2006. At the time of acquisition, Unizan had assets of $2.5 billion, including $1.7 billion of loans, and core deposits of $1.5 billion. This impacted 2006 quarterly and year-to-date reported results compared with pre-merger reporting periods as follows:

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

	•		Increased reported average balance sheet, revenue, expense, and credit quality results (e.g., net charge-offs).

	•		Increased reported non-interest expense items as a result of costs incurred as part of merger-integration activities, most notably employee retention bonuses, outside programming services related to systems conversions, and marketing expenses related to customer retention initiatives. These merger costs were $1.0 million in the 2006 first quarter, $2.6 million in the 2006 second quarter, and $0.4 million in the 2006 third quarter, resulting in $4.1 million of merger costs, year-to-date.

Given the impact of the merger on reported 2006 results, management believes that an understanding of the impacts of the merger is necessary to better understand underlying performance trends. When comparing post-merger period results to pre-merger periods, two terms relating to the impact of the Unizan merger on reported results are used:

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

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

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

Mortgage servicing rights (MSRs) and related hedging. Interest rate levels have generally been rising throughout this period, which has impacted the valuation of MSRs. MSR values are very sensitive to movements in interest rates as expected future net servicing income depends on the projected outstanding principal balances of the underlying loans, which can be greatly reduced by prepayments. Prepayments usually increase when mortgage interest rates decline and decrease when mortgage interest rates rise. Thus, as interest rates decline, less future income is expected and the value of MSRs is reduced.

	•		Prior to 2006, we recognized impairment when the valuation was less than the recorded book value. We recognized temporary impairment due to changes in interest rates through a valuation reserve and recorded a direct write-down of the book value of MSRs for other-than-temporary declines in valuation. Changes and fluctuations in interest rate levels between quarters resulted in some quarters reporting an MSR temporary impairment, with others reporting a recovery of previously recognized MSR temporary impairment. Such swings in MSR valuations have significantly impacted quarterly mortgage banking income trends throughout this period.

	•		Beginning in 2006, we adopted Statement No. 156, which allowed us to carry MSRs at fair value. This resulted in a $4.6 million pre-tax ($0.01 per common share) positive impact in the 2006 first quarter. Under the fair value approach, servicing assets and liabilities are recorded at fair value at each reporting date. Changes in fair value between reporting dates are recorded as an increase or decrease in mortgage banking income, which is reflected in non-interest income in the consolidated statements of income. MSR assets are included in other assets. (See Tables 3, 7, and 8.)

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

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

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

Income tax items. Various items impacted the effective tax rate for 2006 and 2005. For 2006, the third quarter included lower pre-tax income, an $84.5 million ($0.35 per common share) reduction of federal income tax expense from the release of tax reserves as a result of the resolution of the federal income tax audit for 2002 and 2003, as well as the recognition of a federal tax loss carryback. For 2005, federal income tax expense benefited by $19.8 million ($0.09 per common share) from the positive impact of a federal tax loss carry-back, partially offset by a $5.0 million after tax ($0.02 per common share) increase in tax expense from the repatriation of foreign earnings.

Share-based Compensation. Beginning in the 2006 first quarter, we adopted Statement No. 123R, Share-based Payment, which resulted in recognizing the impact of share-based compensation, primarily in the form of stock option grants, as personnel expense in our income statement. Adoption of stock option expensing added $4.3 million to personnel expense in the 2006 first and second quarters, and $4.9 million in the 2006 third quarter, totaling $13.4 million for the first nine months of 2006. (See Note 10 to the unaudited condensed consolidated financial statements.)

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

		2006

		Third Quarter

	•		$57.5 million pre-tax ($0.16 per common share) negative impact from securities impairment. Subsequent to the end of the quarter, the Company initiated a review of its investment securities portfolio. The objective of this review was to reposition the portfolio to optimize performance in light of changing economic conditions and other factors. Such repositioning will likely result in the sale of securities and the reinvestment into securities expected to improve the predictability of cash flows and reduce credit risk. A total of $2.1 billion of securities, primarily consisting of U.S. Treasury, Agency securities, and mortgage-backed securities, as well as certain other asset-backed securities, were identified as other-than-temporarily impaired as a result of this review. At September 30, 2006, these securities had total unrealized losses of $57.5 million ($37.4 million after tax, or $0.16 per common share), which has been recognized in the 2006 third quarter results. Management expects this repositioning will improve the net interest margin by 5-6 basis points in coming quarters.

	•		$2.1 million pre-tax ($0.01 per common share) negative impact associated with the write-down of equity method investments.

Second Quarter

•

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

First Quarter

•

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

2005

Second Quarter

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

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

First Quarter

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

	•		$2.0 million pre-tax ($0.01 per common share) negative impact related to expenses associated with the SEC formal investigation and banking regulatory formal written agreements in effect at that time, and which were subsequently resolved.

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

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


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

Net income — reported earnings	$	157.4				$	111.6				$	108.6
Earnings per share, after tax			$	0.65				$	0.46				$	0.47
Change from prior quarter — $				0.19					0.01					0.02
Change from prior quarter — %				41.3	%				2.2	%				4.4	%

Change from a year-ago — $			$	0.18				$	0.01				$	0.07
Change from a year-ago — %				38.3	%				2.2	%				17.5	%


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

Reduction to federal income tax expense ⁽³⁾	$	84.5		$	0.35
Investment securities impairment		(57.5	)		(0.16	)
Writedown of equity method investments		(2.1	)		(0.01	)
Equity investment gains		—			—		$	2.3		$	0.01
Unizan merger-related costs		—			—			(2.6	)		(0.01	)
Net impact of federal tax loss carry back⁽³⁾		—			—			—			—		$	6.8		$	0.03
Net impact of repatriating foreign earnings ⁽³⁾		—			—			—			—			(5.0	)		(0.02	)
MSR mark-to-market, net of hedge-related trading activity		—			—			—			—			(2.1	)		(0.01	)

Nine Months Ended

September 30, 2006

September 30, 2005

(in millions)

After-tax

EPS

After-tax

EPS

Net income — reported earnings

373.5

311.5

Earnings per share, after tax

1.56

1.34

Change from a year-ago — $

0.22

0.01

Change from a year-ago — %

16.4

0.8


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

Reduction to federal income tax expense ⁽³⁾	$	84.5		$	0.35			—			—
MSR mark-to-market net of hedge-related trading activity		6.1			0.02		$	(5.7	)	$	(0.02	)
Equity investment gains		2.3			0.01			—			—
Investment securities impairment		(57.5	)		(0.16	)		—			—
Unizan merger-related costs		(4.1	)		(0.01	)		—			—
Adjustment to defer home equity annual fees		(2.4	)		(0.01	)		—			—
Writedown of equity method investments		(2.1	)		(0.01	)		—			—
Net impact of federal tax loss carry back⁽³⁾		—			—			19.8			0.09
Single C&I charge-off impact, net of allocated reserves		—			—			(6.4	)		(0.02	)
Net impact of repatriating foreign earnings ⁽³⁾		—			—			(5.0	)		(0.02	)
Severance and consolidation expenses		—			—			(4.6	)		(0.01	)
SEC and regulatory-related expenses		—			—			(3.6	)		(0.01	)
Write-off of equity investment		—			—			(2.1	)		(0.01	)


⁽¹⁾		See Significant Factors Influencing Financial Performance discussion.

⁽²⁾		Pre-tax unless otherwise noted.

⁽³⁾		After-tax.

Net Interest Income

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

2006 Third Quarter versus 2005 Third Quarter

Fully taxable equivalent net interest income increased $14.0 million, or 6% ($17.7 million merger-related), from the year-ago quarter, reflecting the favorable impact of a $2.6 billion, or 9%, increase in average earning assets, as the fully taxable equivalent net interest margin declined 9 basis points to 3.22%. Average total loans and leases increased $1.9 billion, or 8% ($1.7 billion merger-related). The remaining increase in average total loans and leases was $0.2 billion, up less than 1% from the year-ago quarter, which primarily reflected growth in commercial loans, residential mortgages, and home equity loans, mostly offset by a decline in total average automobile loans and leases as we continued to sell a portion of that production.

Average total commercial loans increased $1.4 billion, or 14% ($0.8 billion merger-related). This growth reflected a $0.9 billion, or 19%, increase in average middle market C&I loans, a $0.3 billion, or 8%, increase in average commercial real estate loans, and a $0.3 billion, or 12%, increase in average small business loans.

Average residential mortgages increased $0.6 billion, or 14% ($0.4 billion merger-related). Average home equity loans increased $0.2 billion, or 5%, substantially all from the Unizan merger.

Compared with the year-ago quarter, average total automobile loans and leases decreased $0.4 billion, or 10%, with the Unizan merger having no significant impact. The decrease reflected the combination of two factors: (1) continued softness in production levels over this period from low consumer demand and competitive pricing, and (2) the sale of automobile loans as we continued a program of selling a portion of current loan production. Average automobile operating lease assets declined $0.2 billion, or 76%, as this portfolio continued to run off. Total automobile loan and lease exposure at quarter end was 15%, down from 19% a year ago.

Average total investment securities increased $0.9 billion from the 2005 third quarter, attributed, in part, to securities purchased in the 2006 first quarter.

Average total core deposits in the 2006 third quarter increased $2.0 billion, or 12% ($1.5 billion merger-related), from the year-ago quarter. Most of the increase reflected higher average core certificates of deposit, which increased $1.8 billion ($0.6 billion merger-related) resulting from continued customer demand for higher, fixed rate deposit products. Average interest bearing demand deposits increased $0.3 billion ($0.2 billion merger-related) and average non-interest bearing deposits increased $0.1 billion ($0.2 billion merger-related). Average savings and other domestic time deposits declined $0.2 billion despite $0.5 billion of growth related to the Unizan merger.

2006 Third Quarter versus 2006 Second Quarter

Compared with the 2006 second quarter, fully taxable equivalent net interest income decreased $6.8 million, or 3%. This primarily reflected the negative impact of a 12 basis point decline in the net interest margin to 3.22% as average total earning assets increased less than one percent. The decline in the net interest margin reflected a combination of factors, but primarily related to continued aggressive deposit pricing in the marketplace, the movement of lower cost deposits into higher cost certificates of deposit, and compression in home equity loan spreads.

Average total loans and leases increased $0.1 billion, or less than 1%, from the 2006 second quarter.

Average total commercial loans increased slightly. This primarily reflected growth in average middle market C&I loans as utilization rates increased.

Average residential mortgages increased $0.1 billion, or 3%, with average home equity loans increasing slightly. The growth in average residential mortgages and home equity loans was negatively impacted by a planned decline in home equity broker-originated production, and a continued focus on credit underwriting and pricing discipline despite aggressive price competition.

Compared with the 2006 second quarter, average total automobile loans and leases declined 2%. The decline

reflected a combination of factors including low demand for leases, as well as sales of a portion of automobile loan and lease production. Average direct financing leases declined $0.1 billion, or 6%. Direct financing lease production decreased 17% from the prior quarter; with the absolute level of production over the last several quarters remaining at historically low levels due to continued low consumer demand and competitive pricing. In contrast, average automobile loans increased 2% despite automobile loan production decreasing 3% from the prior quarter. Average automobile operating lease assets declined as this portfolio continued to run off with average balances approaching an immaterial level.

Average investment securities decreased $0.1 billion, or 2%, from the 2006 second quarter.

Average total core deposits in the 2006 third quarter increased less than 1%, reflecting growth in average total commercial core deposits, mostly offset by a decline in average total consumer core deposits. Average core certificates of deposit increased $0.3 billion, or 5%, reflecting the continued preference of customers for higher fixed rate certificates of deposit compared with lower rate savings and other time deposits, which declined 6%. This shift reflected the same factors impacting comparisons to the year-ago quarter noted above. Average interest bearing deposits increased 1%, whereas average non-interest bearing demand deposits declined 2%.

Table 4 — Consolidated Quarterly Average Balance Sheets


	Average Balances															Change
Fully taxable equivalent basis	2006									2005						3Q06 vs 3Q05
(in millions)	Third			Second			First			Fourth			Third			Amount			Percent

Assets
Interest bearing deposits in banks	$	75		$	36		$	24		$	23		$	23		$	52			N.M.	%
Trading account securities		96			100			66			119			274			(178	)		(65.0	)
Federal funds sold and securities purchased under resale agreements		266			285			201			103			142			124			87.3
Loans held for sale		275			287			274			361			427			(152	)		(35.6	)
Investment securities:
Taxable		4,364			4,494			4,138			3,802			3,523			841			23.9
Tax-exempt		581			556			548			540			537			44			8.2

Total investment securities		4,945			5,050			4,686			4,342			4,060			885			21.8
Loans and leases:⁽¹⁾
Commercial:⁽²⁾
Middle market commercial and industrial		5,591			5,458			5,132			4,946			4,708			883			18.8
Middle market commercial real estate:
Construction		1,122			1,243			1,454			1,675			1,720			(598	)		(34.8	)
Commercial		2,795			2,799			2,423			1,923			1,922			873			45.4

Middle market commercial real estate		3,917			4,042			3,877			3,598			3,642			275			7.6
Small business		2,531			2,456			2,121			2,230			2,251			280			12.4

Total commercial		12,039			11,956			11,130			10,774			10,601			1,438			13.6

Consumer:
Automobile loans		2,079			2,044			1,994			2,018			2,078			1			0.0
Automobile leases		1,976			2,095			2,221			2,337			2,424			(448	)		(18.5	)

Automobile loans and leases		4,055			4,139			4,215			4,355			4,502			(447	)		(9.9	)
Home equity		5,041			5,029			4,833			4,781			4,801			240			5.0
Residential mortgage		4,748			4,629			4,306			4,165			4,157			591			14.2
Other loans		430			448			447			393			387			43			11.1

Total consumer		14,274			14,245			13,801			13,694			13,847			427			3.1

Total loans and leases		26,313			26,201			24,931			24,468			24,448			1,865			7.6
Allowance for loan and lease losses		(291	)		(293	)		(283	)		(262	)		(256	)		(35	)		(13.7	)

Net loans and leases		26,022			25,908			24,648			24,206			24,192			1,830			7.6

Total earning assets		31,970			31,959			30,182			29,416			29,374			2,596			8.8

Automobile operating lease assets		68			105			159			216			287			(219	)		(76.3	)
Cash and due from banks		823			832			813			770			898			(75	)		(8.4	)
Intangible assets		634			638			362			218			217			417			N.M.
All other assets		2,565			2,449			2,256			2,256			2,219			346			15.6

Total Assets	$	35,769		$	35,690		$	33,489		$	32,614		$	32,739		$	3,030			9.3	%


Liabilities and Shareholders’ Equity
Deposits:
Demand deposits — non-interest bearing	$	3,509		$	3,594		$	3,436		$	3,444		$	3,406		$	103			3.0	%
Demand deposits — interest bearing		7,858			7,778			7,562			7,496			7,539			319			4.2
Savings and other domestic time deposits		2,923			3,106			3,095			2,984			3,095			(172	)		(5.6	)
Core certificates of deposit ⁽³⁾		5,334			5,083			4,389			3,891			3,557			1,777			50.0

Total core deposits		19,624			19,561			18,482			17,815			17,597			2,027			11.5
Other domestic time deposits of $100,000 or more ⁽³⁾		1,141			1,086			938			927			871			270			31.0
Brokered deposits and negotiable CDs		3,307			3,263			3,143			3,210			3,286			21			0.6
Deposits in foreign offices		521			474			465			490			462			59			12.8

Total deposits		24,593			24,384			23,028			22,442			22,216			2,377			10.7
Short-term borrowings		1,660			2,042			1,669			1,472			1,559			101			6.5
Federal Home Loan Bank advances		1,349			1,557			1,453			1,156			935			414			44.3
Subordinated notes and other long-term debt		3,921			3,428			3,346			3,687			3,960			(39	)		(1.0	)

Total interest bearing liabilities		28,014			27,817			26,060			25,313			25,264			2,750			10.9

All other liabilities		1,276			1,284			1,264			1,283			1,458			(182	)		(12.5	)
Shareholders’ equity		2,970			2,995			2,729			2,574			2,611			359			13.7

Total Liabilities and Shareholders’ Equity	$	35,769		$	35,690		$	33,489		$	32,614		$	32,739		$	3,030			9.3	%


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

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

⁽³⁾		For the current and all prior periods, consumer CDs of $100,000 or more have ben reclassified from other domestic time deposits of $100,000 or more to core certificates of deposit. Core certificates of deposit is comprised primarily of consumer certificates of deposit both over and under $100,000. Other domestic time deposits of $100,000 or more is comprised primarily of individual retirement accounts greater than $100,000 and public fund certificates of deposit greater than $100,000.

Table 5 — Consolidated Quarterly Net Interest Margin Analysis


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

Assets
Interest bearing deposits in banks		5.23	%		7.05	%		7.89	%		7.19	%		5.07	%
Trading account securities		4.32			4.51			2.94			4.53			3.95
Federal funds sold and securities purchased under resale agreements		5.13			4.75			4.30			3.78			3.41
Loans held for sale		6.24			6.23			5.92			5.68			5.43
Investment securities:
Taxable		5.49			5.34			5.04			4.70			4.37
Tax-exempt		6.80			6.83			6.71			6.77			6.62

Total investment securities		5.64			5.51			5.23			4.96			4.67
Loans and leases:⁽³⁾
Commercial:
Middle market commercial and industrial		7.35			7.26			6.80			6.28			5.87
Middle market commercial real estate:
Construction		8.48			8.01			7.55			7.27			6.58
Commercial		7.87			7.26			6.78			6.46			5.96

Middle market commercial real estate		8.05			7.49			7.07			6.84			6.25
Small business		7.27			7.10			6.67			6.43			6.18

Total commercial		7.56			7.30			6.87			6.50			6.07

Consumer:
Automobile loans		6.62			6.48			6.40			6.26			6.44
Automobile leases		5.10			5.01			4.97			4.98			4.94

Automobile loans and leases		5.88			5.74			5.65			5.57			5.63
Home equity		7.60			7.46			6.88			6.82			6.42
Residential mortgage		5.46			5.39			5.34			5.31			5.23
Other loans		9.60			9.41			8.51			8.13			7.95

Total consumer		6.46			6.35			6.08			6.00			5.85

Total loans and leases		6.96			6.79			6.43			6.22			5.94

Total earning assets		6.73	%		6.55	%		6.21	%		6.01	%		5.72	%


Liabilities and Shareholders’ Equity
Deposits:
Demand deposits — non-interest bearing		—	%		—	%		—	%		—	%		—	%
Demand deposits — interest bearing		2.92			2.62			2.44			2.12			1.87
Savings and other domestic time deposits		1.75			1.59			1.49			1.44			1.39
Core certificates of deposit ⁽⁴⁾		4.40			4.10			3.84			3.70			3.59

Total core deposits		3.20			2.89			2.65			2.41			2.20
Other domestic time deposits of $100,000 or more ⁽⁴⁾		5.18			4.83			4.55			3.98			3.57
Brokered deposits and negotiable CDs		5.50			5.12			4.69			4.20			3.66
Deposits in foreign offices		3.12			2.68			2.62			2.66			2.28

Total deposits		3.66			3.34			3.07			2.79			2.52
Short-term borrowings		4.10			4.12			3.57			3.11			2.74
Federal Home Loan Bank advances		4.51			4.34			3.99			3.37			3.08
Subordinated notes and other long-term debt		5.75			5.67			5.22			4.72			4.20

Total interest bearing liabilities		4.02	%		3.74	%		3.43	%		3.12	%		2.82	%

Net interest rate spread		2.71	%		2.81	%		2.78	%		2.89	%		2.90	%
Impact of non-interest bearing funds on margin		0.51			0.53			0.54			0.45			0.41

Net interest margin		3.22	%		3.34	%		3.32	%		3.34	%		3.31	%


⁽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.

⁽⁴⁾		For the current and all prior periods, consumer CDs of $100,000 or more have been reclassified from other domestic time deposits of $100,000 or more to core certificates of deposit. Core certificates of deposit is comprised primarily of consumer certificates of deposit both over and under $100,000. Other domestic time deposits of $100,000 or more is comprised primarily of individual retirement accounts greater than $100,000 and public fund certificates of deposit greater than $100,000.

2006 First Nine Months versus 2005 First Nine Months

Fully taxable equivalent net interest income increased $44.8 million, or 6% ($41.3 million merger-related), from the year-ago nine-month period. Earning assets grew $2.1 billion, or 7%, and the fully taxable equivalent net interest margin declined 4 basis points to 3.29%. Average total loans and leases increased $1.6 billion, or 6% ($1.3 billion merger-related). This primarily reflected growth in commercial loans, residential mortgages, and home equity loans, partly offset by a decline in total average automobile loans and leases, as we continued to sell a portion of that production.

Average total commercial loans increased $1.1 billion, or 11% ($0.6 billion merger-related), from the year-ago nine-month period. The $1.1 billion growth reflected a $0.6 billion, or 13%, increase in average middle market C&I loans, a $0.4 billion, or 10%, increase in average commercial real estate loans, and a $0.1 billion, or 7%, increase in average small business loans. The middle market C&I and CRE loan balances in the first quarter of 2006 contain Unizan loan balances that were subject to reclassification when these loans were converted to Huntington’s loan systems.

Average residential mortgages increased $0.5 billion, or 13% ($0.3 billion merger-related). Average home equity loans increased $0.2 billion, or 5% ($0.2 billion merger-related).

Compared with the year-ago nine-month period, average total automobile loans and leases decreased $0.4 billion, or 8%, with Unizan having no material impact. The decrease reflected the combination of two factors: (1) low production levels over this period due to low consumer demand and competitive pricing, especially in automobile leases, and (2) sales of automobile loans as we continued selling a portion of current loan production. Average automobile operating lease assets declined $0.3 billion, or 72%, as this portfolio continued to run off. Total automobile loan and lease exposure at quarter end was 15% of total loans and leases and automobile operating lease assets, down from 19% a year ago.

Average total investment securities increased $0.8 billion from the 2005 first nine-month period, attributed in part to the securities purchased in the 2006 first quarter.

Average total core deposits in the 2006 first nine-month period increased $1.8 billion, or 10% ($1.2 billion merger-related), from the comparable year-ago period. All of the $1.8 billion increase in average core deposits reflected a $1.8 billion increase ($0.5 billion merger-related) in average core certificates of deposits resulting from customer demand for higher, fixed rate deposit products. Average savings and other domestic time deposits declined $0.2 billion, or 5%. Outflows from these accounts and into higher rate products, such as core certificates of deposit, were greater than the $0.4 billion impact from savings account balances acquired in the Unizan merger. Average non-interest bearing demand deposits increased $0.2 billion, or 5%, with the majority of this growth merger-related. Average interest-bearing demand deposits increased only slightly, despite a $0.2 billion positive impact of such deposits acquired in the Unizan merger.

Table 6 — Consolidated YTD Average Balance Sheets and Net Interest Margin Analysis


				YTD Average Balances									YTD Average Rates⁽²⁾
Fully taxable equivalent basis⁽¹⁾	Nine Months Ended Sept 30,						Change						Nine Months Ended September 30,
(in millions of dollars)	2006			2005			Amount			Percent			2006			2005

Assets
Interest bearing deposits in banks	$	44		$	22		$	22			100.0	%		6.16	%		4.32	%
Trading account securities		84			237			(153	)		(64.6	)		4.24			4.00
Federal funds sold and securities purchased under resale agreements		251			298			(47	)		(15.8	)		4.76			2.79
Loans held for sale		279			303			(24	)		(7.9	)		6.13			5.63
Investment securities:
Taxable		4,333			3,662			671			18.3			5.29			4.09
Tax-exempt		562			453			109			24.1			6.78			6.69

Total investment securities		4,895			4,115			780			19.0			5.46			4.37
Loans and leases:^{(3) (5)}
Commercial:
Middle market commercial and industrial		5,398			4,773			625			13.1			7.14			5.52
Middle market commercial real estate:
Construction		1,272			1,680			(408	)		(24.3	)		7.97			6.06
Commercial		2,674			1,903			771			40.5			7.33			5.58

Middle market commercial real estate		3,946			3,583			363			10.1			7.54			5.81
Small business		2,371			2,222			149			6.7			7.03			6.00

Total commercial		11,715			10,578			1,137			10.7			7.25			5.72

Consumer:
Automobile loans		2,039			2,052			(13	)		(0.6	)		6.51			6.61
Automobile leases		2,096			2,451			(355	)		(14.5	)		5.02			4.92

Automobile loans and leases		4,135			4,503			(368	)		(8.2	)		5.75			5.69
Home equity		4,969			4,743			226			4.8			7.32			6.04
Residential mortgage		4,563			4,053			510			12.6			5.40			5.18
Other loans		442			379			63			16.6			9.00			8.25

Total consumer		14,109			13,678			431			3.2			6.30			5.73

Total loans and leases		25,824			24,256			1,568			6.5			6.73			5.73
Allowance for loan and lease losses		(289	)		(269	)		(20	)		7.4

Net loans and leases		25,535			23,987			1,548			6.5

Total earning assets		31,377			29,231			2,146			7.3			6.51	%		5.49	%

Automobile operating lease assets		110			397			(287	)		(72.3	)
Cash and due from banks		823			911			(88	)		(9.7	)
Intangible assets		545			218			327			N.M.
All other assets		2,425			2,158			267			12.4

Total Assets	$	34,991		$	32,646		$	2,345			7.2	%


Liabilities and Shareholders’ Equity
Deposits:
Demand deposits — non-interest bearing	$	3,513		$	3,358		$	155			4.6	%		—	%		—	%
Demand deposits — interest bearing		7,734			7,712			22			0.3			2.67			1.65
Savings and other domestic time deposits		3,041			3,213			(172	)		(5.4	)		1.61			1.33
Core certificates of deposit ⁽⁴⁾		4,939			3,146			1,793			57.0			4.13			3.50

Total core deposits		19,227			17,429			1,798			10.3			2.92			1.99
Other domestic time deposits of $100,000 or more⁽⁴⁾		1,055			903			152			16.8			4.87			3.18
Brokered deposits and negotiable CDs		3,238			3,088			150			4.9			5.11			3.27
Deposits in foreign offices		487			446			41			9.2			2.82			1.89

Total deposits		24,007			21,866			2,141			9.8			3.37			2.26
Short-term borrowings		1,790			1,347			443			32.9			3.94			2.23
Federal Home Loan Bank advances		1,453			1,088			365			33.5			4.28			2.99
Subordinated notes and other long-term debt		3,570			4,190			(620	)		(14.8	)		5.55			3.82

Total interest bearing liabilities		27,307			25,133			2,174			8.6			3.74			2.55

All other liabilities		1,272			1,569			(297	)		(18.9	)
Shareholders’ equity		2,899			2,586			313			12.1

Total Liabilities and Shareholders’ Equity	$	34,991		$	32,646		$	2,345			7.2	%

Net interest rate spread														2.77			2.94
Impact of non-interest bearing funds on margin														0.52			0.39

Net interest margin														3.29	%		3.33	%


⁽¹⁾		Fully taxable equivalent (FTE) yields are calculated assuming a 35% tax rate.

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

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

⁽⁴⁾		For the current and all prior periods, consumer CDs of $100,000 or more have been reclassified from other domestic time deposits of $100,000 or more to core certificates of deposit. Core certificates of deposit is comprised primarily of consumer certificates of deposit both over and under $100,000. Other domestic time deposits of $100,000 or more is comprised primarily of individual retirement accounts greater than $100,000 and public fund certificates of deposit greater than $100,000.

⁽⁵⁾		The middle market C&I and CRE loan balances in the first quarter of 2006 contain Unizan loan balances that were subject to reclassification when these loans were converted to Huntington’s loan systems.

Provision for Credit Losses

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

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

The provision for credit losses in the 2006 third quarter was $14.2 million, down $3.5 million from the year-ago quarter and down $1.6 million for the 2006 second quarter. The current quarter benefited from improvements in the credit quality of the loan portfolio, including the payoff of our largest non-performing asset at June 30, 2006, the sale of a $10.9 million of non-performing loans at the end of the quarter, and updates to the criteria we use to assess a commercial loan’s probability of default. Non-performing loans decreased $6.0 million, or 4%.

For the first nine months of 2006, the provision of credit losses was $49.4 million, down $1.0 million from the comparable year-ago period. The decline reflects general improved credit quality as discussed above and in the Credit Risk section.

Non-Interest Income

(This section should be read in conjunction with Significant Factors 1, 2, 3, 4, and 6.)

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

Table 7 — Non-Interest Income


	2006									2005					3Q06 vs 3Q05
(in thousands)	Third			Second			First			Fourth			Third		Amount			Percent

Service charges on deposit accounts	$	48,718		$	47,225		$	41,222		$	42,083		$	44,817	$	3,901			8.7	%
Trust services		22,490			22,676			21,278			20,425			19,671		2,819			14.3
Brokerage and insurance income		14,697			14,345			15,193			13,101			13,948		749			5.4
Bank owned life insurance income		12,125			10,604			10,242			10,389			10,104		2,021			20.0
Other service charges and fees		12,989			13,072			11,509			11,488			11,449		1,540			13.5
Mortgage banking (loss) income		(2,166	)		20,355			17,832			10,909			21,116		(23,282	)		N.M.
Securities (losses) gains ⁽¹⁾		(57,332	)		(35	)		(20	)		(8,770	)		101		(57,433	)		N.M.
Gains on sales of automobile loans		863			532			448			455			502		361			71.9
Other income		36,946			22,102			24,782			24,708			11,210		25,736			N.M.

Sub-total before operating lease income		89,330			150,876			142,486			124,788			132,918		(43,588	)		(32.8	)
Automobile operating lease income		8,580			12,143			17,048			22,534			27,822		(19,242	)		(69.2	)

Total non-interest income	$	97,910		$	163,019		$	159,534		$	147,322		$	160,740	$	(62,830	)		(39.1	)%


	Nine Months Ended Sept 30,					YTD 2006 vs 2005
(in thousands)	2006			2005		Amount			Percent

Service charges on deposit accounts	$	137,165		$	125,751	$	11,414			9.1
Trust services		66,444			56,980		9,464			16.6
Brokerage and insurance income		44,235			40,518		3,717			9.2
Bank owned life insurance income		32,971			30,347		2,624			8.6
Other service charges and fees		37,570			32,860		4,710			14.3
Mortgage banking income		36,021			30,801		5,220			16.9
Securities gains (losses)		(57,387	)		715		(58,102	)		N.M.
Gains on sales of automobile loans		1,843			756		1,087			N.M.
Other income		83,830			55,751		28,079			50.4

Sub-total before operating lease income		382,692			374,479		8,213			2.2
Automobile operating lease income		37,771			110,481		(72,710	)		(65.8	)

Total non-interest income	$	420,463		$	484,960	$	(64,497	)		(13.3	)

N.M., not a meaningful value.


⁽¹⁾		Includes $57.5 million of securities impairment losses as of September 30, 2006.

Table 8 details mortgage banking income and the net impact of MSR hedging activity. We record MSR valuation changes in mortgage banking income, whereas MSR hedge-related trading activity is recorded in other non-interest income, as well as in net interest income. Striking a mortgage banking income sub-total before MSR valuation adjustments provides a clearer understanding of the underlying trends in mortgage banking income associated with the primary business activities of origination, sales, and servicing. The net impact of MSR hedging analysis shows all of the MSR valuation changes and related hedging activity so that the net impact can be more easily seen, especially since the components are recorded in different income statement line items.

Mortgage banking income and the net impact of MSR hedging activities for each of the past five quarters and for the first nine months of 2006 and 2005, were as follows:

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


	2006									2005						3Q06 vs 3Q05
(in thousands)	Third			Second			First			Fourth			Third			Amount			Percent

Mortgage Banking Income
Origination fees	$	2,036		$	2,177		$	1,977		$	1,979		$	3,037		$	(1,001	)		(33.0	)%
Secondary marketing		1,034			4,914			2,022			3,346			3,408			(2,374	)		(69.7	)
Servicing fees		6,077			5,995			5,925			5,791			5,532			545			9.9
Amortization of capitalized servicing⁽⁴⁾		(4,484	)		(3,293	)		(3,532	)		(3,785	)		(4,626	)		142			3.1
Other mortgage banking income		3,887			2,281			2,227			3,193			3,308			579			17.5

Sub-total		8,550			12,074			8,619			10,524			10,659			(2,109	)		(19.8	)
MSR valuation adjustment^{(3) (4)}		(10,716	)		8,281			9,213			385			10,457			(21,173	)		N.M.

Total mortgage banking (loss) income	$	(2,166	)	$	20,355		$	17,832		$	10,909		$	21,116		$	(23,282	)		N.M.	%


Capitalized mortgage servicing rights⁽¹⁾	$	129,317		$	136,244		$	123,257		$	91,259		$	85,940		$	43,377			50.5	%
MSR allowance⁽¹⁾		—			—			—			(404	)		(789	)		789			N.M.
Total mortgages serviced for others^{(1) (3)}		7,994,000			7,725,000			7,585,000			7,276,000			7,081,000			913,000			12.9
MSR % of investor servicing portfolio		1.62	%		1.76	%		1.63	%		1.25	%		1.21	%		0.41	%		33.9

Net Impact of MSR Hedging
MSR valuation adjustment^{(3) (4)}	$	(10,716	)	$	8,281		$	9,213		$	385		$	10,457		$	(21,173	)		N.M.	%
Net trading gains (losses) related to MSR hedging ⁽²⁾		10,678			(6,739	)		(4,638	)		(2,091	)		(12,831	)		23,509			N.M.
Net interest income related to MSR hedging		38			—			—			109			233			(195	)		(83.7	)

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


	Nine Months Ended
	September 30,						YTD 2006 vs 2005
(in thousands)	2006			2005			Amount			Percent

Mortgage Banking Income
Origination fees	$	6,190		$	8,802		$	(2,612	)		(29.7)	%
Secondary marketing		7,970			7,640			330			4.3
Servicing fees		17,997			16,390			1,607			9.8
Amortization of capitalized servicing⁽⁴⁾		(11,309	)		(14,574	)		3,265			(22.4	)
Other mortgage banking income		8,395			8,557			(162	)		(1.9	)

Sub-total		29,243			26,815			2,428			9.1
MSR valuation adjustment^{(3) (4)}		6,778			3,986			2,792			70.0

Total mortgage banking income	$	36,021		$	30,801		$	5,220			16.9	%


Capitalized mortgage servicing rights⁽¹⁾	$	129,317		$	85,940		$	43,377			50.5	%
MSR allowance⁽¹⁾		—			(789	)		789			N.M.
Total mortgages serviced for others^{(1) (3)}		7,994,000			7,081,000			913,000			12.9
MSR % of investor servicing portfolio		1.62	%		1.21	%		0.41	%		33.9

Net Impact of MSR Hedging
MSR valuation adjustment^{(3) (4)}	$	6,778		$	3,986		$	2,792			70.0	%
Net trading gains (losses) related to MSR hedging ⁽²⁾		(699	)		(11,286	)		10,587			(93.8	)
Net interest income related to MSR hedging		38			1,579			(1,541	)		(97.6	)

Net impact of MSR hedging	$	6,117		$	(5,721	)	$	11,838			N.M.	%


N.M., not a meaningful value.


⁽¹⁾		At period end.

⁽²⁾		Included in other non-interest income.

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

⁽⁴⁾		The change in fair value for the period presented in note 6 to the financial statements included both the MSR valuation adjustment and amortization of capitalized servicing.

2006 Third Quarter versus 2005 Third Quarter

Non-interest income decreased $62.8 million from the year-ago quarter, including a $19.2 million decline in automobile operating lease income. That portfolio continued to run off since no automobile operating leases have been originated since April 2002. Non-interest income before automobile operating lease income decreased $43.6 million, or 33% despite an estimated $7.2 million positive impact from the Unizan merger, reflecting:

	•		$57.3 million of investment securities losses in the current quarter, reflecting the $57.5 million investment securities impairment (see Significant Items).

	•		$23.3 million decline in mortgage banking income, reflecting a $10.7 million negative impact of MSR valuation adjustments in the current quarter compared with a positive $10.5 million MSR valuation adjustment in the year-ago quarter. The current quarter’s negative MSR valuation adjustment reflected in mortgage banking income was offset by net MSR-related trading gains recorded in other income (see below).

Partially offset by:

	•		$25.7 million increase in other income ($2.1 million merger-related), primarily reflecting a $23.5 million positive impact from MSR hedge-related trading activities as the current quarter included $10.7 million of net trading gains compared with $12.8 million of net trading losses in the year-ago quarter, partially offset by a $2.1 million write down of certain equity method investments.

	•		$3.9 million, or 9% ($1.6 million merger-related), increase in service charges on deposit accounts, reflecting a $3.2 million, or 11%, increase in personal service charges, primarily NSF/OD, and a $0.7 million, or 4%, increase in commercial service charge income.

	•		$2.8 million, or 14% ($1.7 million merger-related), increase in trust services income, reflecting (1) a $1.6 million increase in higher personal trust income, mostly merger-related, as managed assets increased 13%, (2) a $0.8 million increase in fees from Huntington Funds, reflecting 9% fund asset growth, and (3) a $0.4 million increase in institutional trust income due to higher servicing fees with over half of the growth being merger-related.

	•		$2.0 million increase in bank owned life insurance income.

	•		$1.5 million, or 13% ($0.3 million merger-related), increase in other service charges and fees, primarily reflecting a $1.2 million, or 15%, increase in fees generated by higher debit card volume.

2006 Third Quarter versus 2006 Second Quarter

Non-interest income decreased $65.1 million from the 2006 second quarter including the impact of a $3.6 million decline in automobile operating lease income as that portfolio continued to run off. Non-interest income before automobile operating lease income declined $61.5 million reflecting:

	•		$57.3 million of investment securities losses in the current quarter, reflecting the $57.5 million investment securities impairment (see Significant Items).

	•		$22.5 million decline in mortgage banking income, primarily reflecting a $10.7 million negative impact of MSR valuation adjustments in the current quarter compared with a positive $8.3 million MSR valuation adjustment in the prior quarter. The current quarter’s negative MSR valuation adjustment was offset by net MSR-related trading gains recorded in other income (see below). Also contributing to the decrease in mortgage banking income from the second quarter was a $3.9 million decline in secondary marketing income.

Partially offset by:

	•		$14.8 million increase in other income, primarily reflecting a $17.4 million positive impact in MSR hedge-related trading activities as the current quarter included a $10.7 million net trading gain compared with $6.7 million of net trading losses in the prior quarter, partially offset by a $2.1 million write down of certain equity method investments. The 2006 second quarter also benefited from $2.3 million of equity investment gains.

	•		$1.5 million increase in bank owned life insurance income.

	•		$1.5 million, or 3%, increase in service charges on deposit accounts. This reflected a $0.8 million, or 5%, increase in commercial service charges and a $0.7 million, or 2%, increase in personal service charges.

2006 First Nine Months versus 2005 First Nine Months

Non-interest income declined $64.5 million from the year-ago nine-month period, reflecting a $72.7 million decline in automobile operating lease income. Non-interest income before automobile operating lease income increased $8.2 million, or 2% ($16.7 million merger-related). The drivers of the $8.2 million increase included:

	•		$28.1 million increase ($5.0 million merger-related) in other income, primarily reflecting a $10.6 million positive impact in MSR hedge-related trading activities as the current period included only $0.7 million of net trading losses compared with $11.3 million of net trading losses in the year-ago period. Also contributing to the increase: $4.3 million increase in equipment operating lease income, $4.8 million of higher equity investment gains, net of writedowns, $2.0 million growth in derivative trading income, $1.9 million in higher loan servicing, and an increase in miscellaneous retail and commercial banking fee income, including higher safe deposit box and collection fees.

	•		$11.4 million, or 9% ($3.7 million merger-related), increase in service charges on deposit accounts, reflecting a $10.2 million, or 13%, increase in personal service charges, primarily NSF/OD and volume related.

	•		$9.5 million, or 17% ($3.9 million merger-related), increase in trust services income, reflecting (1) a $4.9 million increase in higher personal trust income, (2) a $2.6 million increase in Huntington Fund fees, and (3) a $1.6 million increase in institutional trust income.

	•		$5.2 million increase ($0.6 million merger-related) in mortgage banking income, reflecting a $2.8 million positive impact of MSR valuation adjustments for the first nine months of 2006 relative to the prior year period, as well as the positive impact of lower amortization of capitalized servicing and higher servicing fee income, partially offset by lower origination fees.

	•		$4.7 million, or 14% ($0.7 million merger-related), increase in other service charges and fees, reflecting a $3.8 million, or 16%, increase in fees generated by higher debit card volume.

	•		$3.7 million, or 9% ($1.1 million merger-related), increase in brokerage and insurance income, reflecting higher brokerage income including a $3.4 million, or 19%, increase in annuity fee income.

Partially offset by:

•

$58.1 million increase in investment securities losses reflecting the $57.5 million 2006 third quarter investment securities impairment (see Significant Items).

Non-Interest Expense

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

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

Table 9 — Non-Interest Expense


	2006						2005				3Q06 vs 3Q05
(in thousands)	Third		Second		First		Fourth		Third		Amount			Percent

Salaries	$	105,144	$	107,249	$	101,458	$	91,858	$	93,209	$	11,935			12.8	%
Benefits		28,679		30,655		30,099		24,253		24,267		4,412			18.2

Personnel costs		133,823		137,904		131,557		116,111		117,476		16,347			13.9	%
Net occupancy		18,109		17,927		17,966		17,940		16,653		1,456			8.7
Outside data processing and other services		18,664		19,569		19,851		19,693		18,062		602			3.3
Equipment		17,249		18,009		16,503		16,093		15,531		1,718			11.1
Professional services		6,438		6,292		5,365		7,440		8,323		(1,885	)		(22.6	)
Marketing		7,846		10,374		7,301		7,145		6,364		1,482			23.3
Telecommunications		4,818		4,990		4,825		4,453		4,512		306			6.8
Printing and supplies		3,416		3,764		3,074		3,084		3,102		314			10.1
Amortization of intangibles		2,902		2,992		1,075		218		203		2,699			N.M.
Other expense		23,177		21,880		18,227		20,995		21,189		1,988			9.4

Sub-total before operating lease expense		236,442		243,701		225,744		213,172		211,415		25,027			11.8
Automobile operating lease expense		5,988		8,658		12,671		17,183		21,637		(15,649	)		(72.3	)

Total non-interest expense	$	242,430	$	252,359	$	238,415	$	230,355	$	233,052	$	9,378			4.0	%


	Nine Months Ended September 30,				YTD 2006 vs 2005
(in thousands)	2006		2005		Amount			Percent

Salaries	$	313,851	$	287,731	$	26,120			9.1	%
Benefits		89,433		77,816		11,617			14.9

Personnel costs		403,284		365,547		37,737			10.3
Net occupancy		54,002		53,152		850			1.6
Outside data processing and other services		58,084		54,945		3,139			5.7
Equipment		51,761		47,031		4,730			10.1
Professional services		18,095		27,129		(9,034	)		(33.3	)
Marketing		25,521		19,134		6,387			33.4
Telecommunications		14,633		14,195		438			3.1
Printing and supplies		10,254		9,489		765			8.1
Amortization of intangibles		6,969		611		6,358			N.M.
Other expense		63,284		61,565		1,719			2.8

Sub-total before operating lease expense		705,887		652,798		53,089			8.1
Automobile operating lease expense		27,317		86,667		(59,350	)		(68.5	)

Total non-interest expense		733,204		739,465	$	(6,261	)		(0.8	)%

N.M., not a meaningful value.

2006 Third Quarter versus 2005 Third Quarter

While non-interest expense increased $9.4 million, or 4%, from the year-ago quarter, automobile operating lease expense declined $15.6 million as that portfolio continued to run off. Non-interest expense before automobile operating lease expense increased $25.0 million, or 12%, from the year-ago quarter, with an estimated $18.1 million attributable to Unizan ($17.6 million merger-related plus $0.4 million of merger costs). The primary drivers of the $25.0 million increase were:

•

$16.3 million, or 14%, increase in personnel expense with Unizan contributing $7.9 million of the increase ($7.7 million merger-related plus $0.2 million of merger costs). The remaining $8.5 million increase included $4.9 million due to the expensing of share-based compensation, which began in 2006. Pension and health care expenses

			also increased.

	•		$2.7 million increase in the amortization of intangibles, substantially all merger-related.

	•		$2.0 million increase in other expense including $3.0 million of merger-related expense.

	•		$1.7 million increase in equipment expense ($0.5 million merger-related), reflecting higher depreciation associated with recent technology investments.

	•		$1.5 million in higher marketing expense ($0.3 million merger-related), due primarily to expanded market research efforts.

	•		$1.5 million increase in net occupancy expense ($1.3 million merger-related).

Partially offset by:

•

$1.9 million decline in professional services. Though Unizan added $1.5 million to current period expense, this was more than offset by lower collection and other legal expenses.

2006 Third Quarter versus 2006 Second Quarter

Non-interest expense decreased $9.9 million from the 2006 second quarter including a $2.7 million decline in automobile operating lease expense as that portfolio continued to run off. Non-interest expense before automobile operating lease expense declined $7.3 million, or 3%, reflecting:

	•		$4.1 million, or 3%, decrease in personnel costs reflecting a combination of factors including lower FICA and incentive-based compensation.

	•		$2.5 million, or 24%, decline in marketing expense due to lower television commercial costs as the prior quarter included expenses for the up-front development cost of commercials.

Partially offset by:

•

$1.3 million, or 6%, increase in other expense due to higher operational losses.

2006 First Nine Months versus 2005 First Nine Months

Non-interest expense decreased $6.3 million, or 1%, from the year-ago nine-month period, reflecting a $59.4 million decline in automobile operating lease expense as that portfolio continued to run off. Non-interest expense before automobile operating lease expense increased $53.1 million, or 8%, with an estimated $45.3 million attributable to Unizan ($41.2 million merger-related plus $4.1 million of merger costs). The primary drivers of the $53.1 million increase were:

	•		$37.7 million, or 10%, increase in personnel expense with Unizan contributing $19.1 million of the increase ($18.0 million merger-related plus $1.1 million of merger costs). The remaining increase of $18.6 million reflected an increase of $13.4 million due to expensing share-based compensation, which began in 2006, and the annual merit increases for exempt employees, partially offset by personnel expense synergies resulting from the Unizan merger.

	•		$6.4 million, or 33%, higher marketing expense with Unizan contributing $1.4 million of the increase ($0.6 million merger-related plus $0.7 million of merger costs), due primarily to television commercial advertising, including up-front development costs incurred in the period.

	•		$6.4 million increase in the amortization of intangibles, related to the Unizan merger.

	•		$4.7 million, or 10%, increase in equipment expense with Unizan contributing $1.2 million of the increase, primarily merger-related, reflecting higher depreciation expense.

	•		$3.1 million, or 5.7%, increase in outside data processing and other services with Unizan contributing $2.8 million of the increase ($1.2 million merger-related plus $1.6 million of merger costs), reflecting outside contract programming and debit card processing expense.

Partially offset by:

•

$9.0 million, or 33%, decline in professional services. Although Unizan added $3.6 million to 2006 nine-month expense ($3.4 million merger-related plus $0.1 million of merger costs), this was more than offset by lower consulting expense as the year-ago period included $3.6 million of SEC and regulatory-related expenses, as well as a $5.3 million decline in other consulting and collections costs.

Automobile Operating Lease Assets

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

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

Automobile operating lease asset performance for each of the last five quarters and for the first nine months of 2006 and 2005 was as follows:

Table 10 — Automobile Operating Lease Performance


	2006						2005				3Q06 vs 3Q05
(in thousands)	Third		Second		First		Fourth		Third		Amount			Percent

Balance Sheet:
Average automobile operating lease assets outstanding	$	68,223	$	104,585	$	159,073	$	215,976	$	287,308	$	(219,085	)		(76.3	)%


Income Statement:
Net rental income	$	7,258	$	10,678	$	15,173	$	19,866	$	25,289	$	(18,031	)		(71.3	)%
Fees		401		669		732		1,482		1,419		(1,018	)		(71.7	)
Recoveries — early terminations		921		796		1,143		1,186		1,114		(193	)		(17.3	)

Total automobile operating lease income		8,580		12,143		17,048		22,534		27,822		(19,242	)		(69.2	)


Depreciation and residual losses at termination		5,494		8,083		11,501		15,680		19,670		(14,176	)		(72.1	)
Losses — early terminations		494		575		1,170		1,503		1,967		(1,473	)		(74.9	)

Total automobile operating lease expense		5,988		8,658		12,671		17,183		21,637		(15,649	)		(72.3	)

Net earnings contribution	$	2,592	$	3,485	$	4,377	$	5,351	$	6,185	$	(3,593	)		(58.1	)%


	Nine Months Ended September 30,				YTD 2006 vs 2005
(in thousands)	2006		2005		Amount			Percent

Balance Sheet:
Average automobile operating lease assets outstanding	$	110,294	$	396,787	$	(286,493	)		(72.2	)%


Income Statement:
Net rental income	$	33,109	$	101,235	$	(68,126	)		(67.3	)%
Fees		1,802		5,049		(3,247	)		(64.3	)
Recoveries — early terminations		2,860		4,197		(1,337	)		(31.9	)

Total automobile operating lease income		37,771		110,481		(72,710	)		(65.8	)


Depreciation and residual losses at termination		25,078		79,136		(54,058	)		(68.3	)
Losses — early terminations		2,239		7,531		(5,292	)		(70.3	)

Total automobile operating lease expense		27,317		86,667		(59,350	)		(68.5	)

Net earnings contribution	$	10,454	$	23,814	$	(13,360	)		(56.1	)%

2006 Third Quarter versus 2005 Third Quarter and 2006 Second Quarter

Average automobile operating lease assets in the 2006 third quarter were $0.1 billion, down $0.2 billion, or 76%, from the year-ago quarter and down 35% from the 2006 second quarter. This reflected the continued run-off of this portfolio as no new automobile operating leases have been originated since April 2002. Automobile operating lease asset balances will continue to decline through both depreciation and lease terminations. (For a discussion of automobile operating lease accounting, residual value loss determination, and related residual value insurance, see Note 1, Significant Accounting Policies and the Lease Residual Risk section of the Company’s 2005 Form 10-K.)

Reflecting the continued run-off of automobile operating lease assets, the net earnings contribution from automobile operating lease assets was $2.6 million in the 2006 third quarter, down $3.6 million, or 58%, from the year-ago quarter and down $0.9 million, or 26%, from the 2006 second quarter.

Automobile operating lease income, which totaled $8.6 million in the 2006 third quarter, represented 9% of total non-interest income in the quarter. Automobile operating lease income was down $19.2 million, or 69%, from the year-ago quarter and $3.6 million, or 29%, from the 2006 second quarter, reflecting the decline in average automobile operating lease assets. Net rental income was down 71% and 32%, respectively, from the year-ago and 2006 second quarters. Fees declined 72% from the year-ago quarter and 40% from the prior quarter. Recoveries from early terminations decreased 17% from the year-ago quarter but increased 16% from the 2006 second quarter.

Automobile operating lease expense totaled $6.0 million and represented 2% of total non-interest expense in the current quarter. Automobile operating lease expense was down $15.6 million, or 72%, from the year-ago quarter and down $2.7 million, or 31%, from the 2006 second quarter. Losses on early terminations, which are included in total automobile operating lease expense, declined 75% from the year-ago quarter and 14% from the prior quarter.

2006 First Nine Months versus 2005 First Nine Months

Average automobile operating lease assets in the 2006 first nine-month period were $0.1 billion, down $0.3 billion, or 72%, from the comparable year-ago period as this portfolio continued to run-off. Reflecting this decline in average automobile operating lease assets, the net earnings contribution from automobile operating lease assets was $10.5 million in the 2006 first nine-month period, down $13.4 million, or 56%, from the comparable year-ago period.

Automobile operating lease income, which totaled $37.8 million for the 2006 first nine-month period, represented 9% of total non-interest income, and was down $72.7 million, or 66%, from the comparable year-ago period. Net rental income was down $68.1 million, or 67%. Fees declined $3.2 million, or 64%, from the comparable year-ago period. Recoveries from early terminations were down 32% from the year-ago period. Operating lease expense totaled $27.3 million, or 4%, of total non-interest expense, down $59.4 million, or 68%, from the comparable year-ago nine-month period.

Provision for Income Taxes

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

The provision for income taxes in the 2006 third quarter was a benefit of $60.8 million. This reflected an $84.5 million reduction of federal income tax expense related to the resolution of a federal income tax audit covering tax years 2002 and 2003 that resulted in the release of previously established federal income tax reserves, as well as the recognition of federal tax loss carry backs. The provisions for income taxes in the year-ago quarter and 2006 second quarter were $43.1 million and $45.5 million, respectively. The effective tax rate for the 2006 fourth quarter is expected to increase to a more typical rate just below 30%.

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

We are subject to ongoing tax examinations in various jurisdictions. We believe that the resolution of these examinations will not have a significant adverse impact on our consolidated financial position or results of operations.

RISK MANAGEMENT AND CAPITAL

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

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

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

Credit Risk

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

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

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

Credit Exposure Mix

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

An overall corporate objective is to avoid undue portfolio concentrations. As shown in Table 11, at September 30, 2006, total credit exposure was $26.4 billion. Of this amount, $14.2 billion, or 54%, represented total consumer loans and leases and $12.2 billion, or 46%, represented total commercial loans and leases.

Table 11 — Credit Exposure Composition


	2006												2005
(in thousands)	September 30,				June 30,				March 31,				December 31,				September 30,
	*(Unaudited)*				*(Unaudited)*				(Unaudited)								(Unaudited)
By Type
Commercial:
Middle market commercial and industrial	$	5,751,178	21.8	%	$	5,595,454	21.2	%	$	5,288,710	20.1	%	$	5,084,244	20.6	%	$	4,790,680	19.4	%
Middle market commercial real estate:
Construction		1,148,036	4.3			1,173,454	4.4			1,366,890	5.2			1,521,897	6.2			1,762,237	7.1
Commercial		2,772,645	10.5			2,731,684	10.3			3,046,368	11.6			2,015,498	8.2			1,885,027	7.6

Middle market commercial real estate		3,920,681	14.8			3,905,138	14.7			4,413,258	16.8			3,537,395	14.4			3,647,264	14.7
Small business		2,535,940	9.6			2,531,176	9.6			2,116,063	8.1			2,223,740	9.1			2,234,988	9.1

Total commercial		12,207,799	46.2			12,031,768	45.5			11,818,031	45.0			10,845,379	44.1			10,672,932	43.2

Consumer:
Automobile loans		2,105,623	8.0			2,059,836	7.8			2,053,777	7.8			1,985,304	8.1			2,063,285	8.3
Automobile leases		1,910,257	7.2			2,042,215	7.7			2,154,883	8.2			2,289,015	9.3			2,381,004	9.6
Home equity		5,019,101	19.0			5,047,991	19.1			4,955,343	18.9			4,762,743	19.3			4,796,474	19.4
Residential mortgage		4,678,577	17.7			4,739,814	17.9			4,604,705	17.5			4,193,139	17.0			4,180,350	16.9
Other loans		440,145	1.7			432,957	1.7			558,850	2.1			396,586	1.4			402,242	1.6

Total consumer		14,153,703	53.6			14,322,813	54.2			14,327,558	54.5			13,626,787	55.1			13,823,355	55.8

Total loans and direct financing leases	$	26,361,502	99.8		$	26,354,581	99.7		$	26,145,589	99.5		$	24,472,166	99.2		$	24,496,287	99.0


Automobile operating lease assets		54,551	0.2			85,018	0.3			128,111	0.5			189,003	0.8			247,389	1.0

Total credit exposure	$	26,416,053	100.0	%	$	26,439,599	100.0	%	$	26,273,700	100.0	%	$	24,661,169	100.0	%	$	24,743,676	100.0	%



Total automobile exposure⁽¹⁾	$	4,070,431	15.4	%	$	4,187,069	15.8	%	$	4,336,771	16.5	%	$	4,463,322	18.1	%	$	4,691,678	19.0	%


By Business Segment ⁽²⁾
Regional Banking:
Central Ohio	$	3,682,544	13.9	%	$	3,598,342	13.6	%	$	3,360,201	12.8	%	$	3,150,394	12.8	%	$	3,233,382	13.1	%
Northern Ohio		2,656,635	10.1			2,660,450	10.1			2,552,570	9.7			2,522,854	10.2			2,580,925	10.4
Southern Ohio / Kentucky		2,185,979	8.3			2,195,013	8.3			2,121,870	8.1			2,037,190	8.3			2,059,649	8.3
Eastern Ohio ⁽⁴⁾⁽⁵⁾		1,348,217	5.1			1,416,505	5.4			1,825,985	6.9			369,870	1.5			372,124	1.5
West Michigan		2,443,495	9.3			2,397,525	9.1			2,372,563	9.0			2,363,162	9.6			2,369,800	9.6
East Michigan		1,609,932	6.1			1,597,741	6.0			1,536,284	5.8			1,573,413	6.4			1,530,081	6.2
West Virginia		1,086,757	4.1			1,053,464	4.0			968,333	3.7			970,953	3.9			948,847	3.8
Indiana		962,216	3.6			953,776	3.6			977,589	3.7			1,025,807	4.2			958,119	3.9
Mortgage and equipment leasing groups		3,611,416	13.6			3,590,621	13.5			3,478,835	13.4			3,493,461	14.1			3,477,995	14.1

Regional Banking		19,587,191	74.1			19,463,437	73.6			19,194,230	73.1			17,507,104	71.0			17,530,922	70.9
Dealer Sales ⁽³⁾		5,011,186	19.0			5,167,300	19.5			5,347,052	20.4			5,429,997	22.0			5,492,235	22.2
Private Financial and Capital Markets Group		1,817,676	6.9			1,808,862	6.9			1,732,418	6.5			1,724,068	7.0			1,720,519	6.9
Treasury / Other		—	—			—	—			—	—			—	—			—	—

Total credit exposure	$	26,416,053	100.0	%	$	26,439,599	100.0	%	$	26,273,700	100.0	%	$	24,661,169	100.0	%	$	24,743,676	100.0	%


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

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

⁽³⁾		Includes operating lease inventory.

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

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

Commercial Credit

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

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

In commercial lending, ongoing credit management is dependent on the type and nature of the loan. In general, quarterly monitoring is normal for all significant exposures. The internal risk ratings are revised and updated with each periodic monitoring event. There is also extensive macro portfolio management analysis on an ongoing basis. Analysis of actual default experience indicated that the assigned probability of default was higher than our actual experience. Accordingly, during the 2006 third quarter, we updated the criteria used to assess the probability of default on commercial and industrial credits. The application of these updated criteria had no significant impact on the allowance for credit losses. We continually review and adjust such criteria based on actual experience, which may result in further changes to such criteria, in future periods.

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

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

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

Consumer Credit

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

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

credit processes.

Home equity loans and lines consist of both first and second position collateral with underwriting criteria based on minimum FICO credit scores, debt/income ratios, and loan-to-value ratios. We offer closed-end, home equity loans with a fixed rate and level monthly payments and a variable-rate, interest-only home equity line of credit. At September 30, 2006, we had $1.7 billion of home equity loans and $3.3 billion of home equity lines of credit. The average loan-to-value ratio of our home equity portfolio (both loans and lines) was 77% at September 30, 2006. We do not originate home equity loans or lines that allow negative amortization, or have a loan-to-value ratio at origination greater than 100%. Home equity loans are generally fixed-rate with periodic principal and interest payments. We originated $164 million of home equity loans in the third quarter 2006 with a weighted average loan-to-value ratio of 65% and a weighted average FICO score of 738. Home equity lines of credit generally have variable-rates of interest and do not require payment of principal during the 10-year revolving period of the line. During the third quarter of 2006, we originated $322 million of home equity lines. The lines of credit originated during the quarter had a weighted average loan-to-value ratio of 75% and a weighted average FICO score of 741.

At September 30, 2006, we had $4.7 billion of residential real estate loans. Adjustable-rate mortgages, primarily mortgages that have a fixed-rate for the first 3 to 5 years and then adjust annually, comprised 55% of this portfolio. We do not originate residential mortgage loans that (a) allow negative amortization, (b) have a loan-to-value ratio at origination greater than 100%, or (c) are “option ARMs.” Interest-only loans comprised $0.9 billion, or18%, of residential real estate loans at September 30, 2006. Interest only loans are underwritten to specific standards including minimum FICO credit scores, stressed debt-to-income ratios, and extensive collateral evaluation.

Collection action is initiated on an “as needed” basis through a centrally managed collection and recovery function. The collection group employs a series of collection methodologies designed to maintain a high level of effectiveness while maximizing efficiency. In addition to the retained consumer loan portfolio, the collection group is responsible for collection activity on all sold and securitized consumer loans and leases. (See the Non-performing Assets section of Credit Risk, for further information regarding when consumer loans are placed on non-accrual status and when the balances are charged-off to the allowance for loan and lease losses.)

Non-Performing Assets (NPAs)

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

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

Consumer loans and leases, excluding residential mortgages and home equity lines and leases, are not placed on non-accrual status but are charged-off in accordance with regulatory statutes, which is generally no more than 120-days past due. Residential mortgages and home equity loans and lines, while highly secured, are placed on non-accrual status within 180-days past due as to principal and 210-days past due as to interest, regardless of collateral. A charge-off on a residential mortgage loan is recorded when the loan has been foreclosed and the loan balance exceeds the fair value of the real estate. The fair value of the collateral, less the cost to sell, is then recorded as real estate owned.

When we believe the borrower’s ability and intent to make periodic interest and principal payments resume and collectibility is no longer in doubt, the loan is returned to accrual status.

Table 12 reflects period-end NPAs and past due loans and leases detail for each of the last five quarters.

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


	2006									2005
(in thousands)	September 30,			June 30,			March 31,			December 31,			September 30,

Non-accrual loans and leases:
Middle market commercial and industrial	$	37,082		$	45,713		$	45,723		$	28,888		$	25,431
Middle market commercial real estate		27,538			24,970			18,243			15,763			13,073
Small business		21,356			27,328			28,389			28,931			26,098
Residential mortgage		30,289			22,786			29,376			17,613			16,402
Home equity		13,047			14,466			13,778			10,720			8,705

Total non-performing loans and leases		129,312			135,263			135,509			101,915			89,709

Other real estate, net:
Residential		40,615			34,743			17,481			14,214			11,182
Commercial		1,285			1,062			1,903			1,026			909

Total other real estate, net		41,900			35,805			19,384			15,240			12,091

Total non-performing assets	$	171,212		$	171,068		$	154,893		$	117,155		$	101,800


Non-performing loans and leases guaranteed by the U.S. government⁽¹⁾	$	33,676		$	30,710		$	18,256		$	7,324		$	6,812

Non-performing loans and leases as a % of total loans and leases		0.49	%		0.51	%		0.52	%		0.42	%		0.37	%

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

Accruing loans and leases past due 90 days or more⁽¹⁾	$	62,054		$	48,829		$	52,297		$	56,138		$	50,780

Accruing loans and leases past due 90 days or more as a percent of total loans and leases		0.24	%		0.19	%		0.20	%		0.23	%		0.21	%

Allowance for Credit Losses (ACL) as a % of non-guaranteed commercial non-performing assets		456			403			425			454			497


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

NPAs were $171.2 million at September 30, 2006, and represented 0.65% of related assets, which was essentially unchanged from June 30, 2006, but up $69.4 million from $101.8 million, or 0.42% of related assets, at the end of the year-ago quarter. Contributing to the $69.4 million increase in NPAs from the year-ago period were $33.8 million of NPLs acquired at the time of the Unizan merger, as well as a $29.8 million increase in other real estate owned (OREO). The increase in OREO included $16.4 million increase in foreclosed mortgage loans fully guaranteed by the U.S. government, which prior to the 2006 second quarter were previously reported as over 90-day delinquent but still accruing loans. This change in reporting also contributed to the $26.9 million increase in total NPLs guaranteed by the U.S. government, from $6.8 million at the end of the 2005 third quarter to $33.7 million at September 30, 2006. At September 30, 2006, 59% of total NPAs represented residential real estate assets and loans guaranteed by the U.S. Government, which have shown low loss experience historically. This compares favorably with the 42% level of such NPAs at the end of the year-ago quarter, and 53% at June 30, 2006.

NPLs, which exclude OREO, increased $39.6 million from the year-earlier period to $129.3 million at September

30, 2006, with $33.8 million of the increase represented by NPLs acquired in the Unizan merger. NPLs declined $6.0 million, or 4%, from June 30, 2006. NPLs expressed as a percent of total loans and leases were 0.49% at September 30, 2006, up from 0.37% a year earlier, but down slightly from 0.51% at June 30, 2006.

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

Table 13 — Non-Performing Assets Activity


	2006									2005
(in thousands)	Third			Second			First			Fourth			Third

Non-performing assets, beginning of period	$	171,068		$	154,893		$	117,155		$	101,800		$	97,418
New non-performing assets⁽¹⁾		55,490			52,498			53,768			52,553			37,570
Acquired non-performing assets		—			—			33,843			—			—
Returns to accruing status		(11,880	)		(12,143	)		(14,310	)		(3,228	)		(231	)
Loan and lease losses		(14,143	)		(6,826	)		(13,314	)		(9,063	)		(5,897	)
Payments		(16,709	)		(12,892	)		(13,195	)		(21,329	)		(21,203	)
Sales		(12,614	)		(4,462	)		(9,054	)		(3,578	)		(5,857	)

Non-performing assets, end of period	$	171,212		$	171,068		$	154,893		$	117,155		$	101,800


	Nine Months Ended September 30,
(in thousands)	2006			2005

Non-performing assets, beginning of period	$	117,155		$	108,568
New non-performing assets⁽¹⁾		161,756			118,597
Acquired non-performing assets		33,843			—
Returns to accruing status		(38,333	)		(4,319	)
Loan and lease losses		(34,283	)		(29,756	)
Payments		(42,796	)		(43,532	)
Sales		(26,130	)		(47,758	)

Non-performing assets, end of period	$	171,212		$	101,800


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

Allowances for Credit Losses (ACL)

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

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

The ALLL represents the estimate of probable losses inherent in the loan portfolio at the balance sheet date. Additions to the ALLL result from recording provision expense for loan losses or recoveries, while reductions reflect

charge-offs, net of recoveries, or the sale of loans. The AULC is determined by applying the transaction reserve process to the unfunded portion of the portfolio adjusted by an applicable funding percentage.

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

Transaction Reserve

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

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

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

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

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

Economic Reserve

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

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

This methodology allows for a more meaningful discussion of our view of the current economic conditions and the potential impact on credit losses. The continued use of quantitative methodologies for the transaction reserve and the introduction of the quantitative methodology for the economic component

may have the impact of more period-to-period fluctuation in the absolute and relative level of the reserve than exhibited in prior-period results.

At September 30, 2006, the ALLL was $280.2 million, which was $26.2 million higher than $253.9 million a year earlier, but $7.4 million lower than $287.5 million at June 30, 2006. Expressed as a percent of period-end loans and leases, the ALLL ratio at September 30, 2006, was 1.06%, up from 1.04% a year ago, but down slightly from 1.09% at June 30, 2006. The level of required loan loss reserves is determined using a highly quantitative methodology, which determines the required levels for both the transaction reserve and economic reserve components. Table 14 shows the change in the ALLL ratio and each reserve component for the 2006 second and third quarters, as well as the 2005 third quarter.

The decline in the transaction reserve component at September 30, 2006, from the end of the second quarter, primarily reflected the sale or payoffs of certain NPAs at losses below previously established specific reserve levels. This resulted in the release of excess specific reserves associated with these NPAs.

The ALLL as a percent of NPLs was 217% at September 30, 2006, down from 283% a year ago, but up from 213% at June 30, 2006. The ALLL as a percent of NPAs was 164% at September 30, 2006, down from 249% a year ago, and down slightly from 168% at June 30, 2006. At September 30, 2006, the AULC was $39.3 million, up from $38.1 million at the end of the year-ago quarter, and from $38.9 million at June 30, 2006.

On a combined basis, the ACL as a percent of total loans and leases at September 30, 2006, was 1.21%, up from 1.19% a year ago, but down slightly from June 30, 2006. The ACL as a percent of NPAs was 187% at September 30, 2006, down from 287% a year earlier and 191% at June 30, 2006. The decline in the NPA coverage ratio reflected a number of factors, but especially the lower potential loss content of NPAs at the end of the current period compared with the prior year period as noted above, given the higher percentage of NPAs represented by residential real estate assets and U.S. Government guaranteed loans noted above.

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

Table 14 — Quarterly Credit Reserves Analysis


	2006									2005
(in thousands)	Third			Second			First			Fourth			Third

Allowance for loan and lease losses, beginning of period	$	287,517		$	283,839		$	268,347		$	253,943		$	254,784
Acquired allowance for loan and lease losses		100	⁽¹⁾		1,498	⁽¹⁾		22,187			—			—
Loan and lease losses		(29,127	)		(24,325	)		(33,405	)		(27,072	)		(25,830	)
Recoveries of loans previously charged off		7,888			10,373			9,189			9,504			7,877

Net loan and lease losses		(21,239	)		(13,952	)		(24,216	)		(17,568	)		(17,953	)

Provision for loan and lease losses		13,774			16,132			17,521			31,972			17,112

Allowance for loan and lease losses, end of period	$	280,152		$	287,517		$	283,839		$	268,347		$	253,943


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

Acquired AULC		—			—			325			—			—
Provision for unfunded loan commitments and letters of credit losses		388			(387	)		2,019			(1,141	)		587

Allowance for unfunded loan commitments and letters of credit, end of period	$	39,302		$	38,914		$	39,301		$	36,957		$	38,098

Total allowances for credit losses	$	319,454		$	326,431		$	323,140		$	305,304		$	292,041