UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

Huntington Bancshares Incorporated

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

Registrant’s telephone number (614) 480-8300

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

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

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

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

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

 

 

Huntington Bancshares Incorporated

INDEX

Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at June 30, 2008, December 31, 2007, and June 30, 2007			61
Condensed Consolidated Statements of Income for the three and six months ended June 30, 2008 and 2007			62
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the six months ended			63
June 30, 2008 and 2007
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007			64
Notes to Unaudited Condensed Consolidated Financial Statements			65
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			3
Item 3. Quantitative and Qualitative Disclosures about Market Risk			86
Item 4. Controls and Procedures			86
Item 4T. Controls and Procedures			86
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders			86
Item 6. Exhibits			87
Signatures			88
EX-12.1
EX-12.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Part 1. Financial Information

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

INTRODUCTION

     Huntington Bancshares Incorporated (we or our) is a multi-state diversified financial holding company organized under Maryland law in 1966 and headquartered in Columbus, Ohio. Through our subsidiaries, including our bank subsidiary, The Huntington National Bank (the Bank), organized in 1866, we provide full-service commercial and consumer banking services, mortgage banking services, automobile financing, equipment leasing, investment management, trust services, brokerage services, customized insurance service programs, and other financial products and services. Our banking offices are located in Ohio, Michigan, Pennsylvania, Indiana, West Virginia, and Kentucky. Selected financial service activities are also conducted in other states including: Dealer Sales offices in Arizona, Florida, Nevada, New Jersey, New York, Tennessee, and Texas; Private Financial and Capital Markets Group offices in Florida; and Mortgage Banking offices in Maryland and New Jersey. Huntington Insurance offers retail and commercial insurance agency services in Ohio, Pennsylvania, and Indiana. International banking services are available through the headquarters office in Columbus and a limited purpose office located in both the Cayman Islands and Hong Kong.

     The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) provides you with information we believe necessary for understanding our financial condition, changes in financial condition, results of operations, and cash flows and should be read in conjunction with the financial statements, notes, and other information contained in this report. This discussion and analysis provides updates to the MD&A appearing in our 2007 Annual Report on Form 10-K (2007 Form 10-K), and should be read in conjunction with this discussion and analysis.

     Our discussion is divided into key segments:

	•		Introduction - Provides overview comments on important matters including risk factors, acquisitions, and other items. These are essential for understanding our performance and prospects.
	•		Discussion of Results of Operations - Reviews financial performance from a consolidated company perspective. It also includes a “Significant Items Influencing Financial Performance Comparisons” section that summarizes key issues helpful for understanding performance trends, including our acquisition of Sky Financial Group, Inc. (Sky Financial) and our relationship with Franklin Credit Management Corporation (Franklin). Key consolidated balance sheet and income statement trends are also discussed in this section.
	•		Risk Management and Capital - Discusses credit, market, liquidity, and operational risks, including how these are managed, as well as performance trends. It also includes a discussion of liquidity policies, how we obtain funding, and related performance. In addition, there is a discussion of guarantees and/or commitments made for items such as standby letters of credit and commitments to sell loans, and a discussion that reviews the adequacy of capital, including regulatory capital requirements.
	•		Lines of Business Discussion - Provides an overview of financial performance for each of our major lines of business and provides additional discussion of trends underlying consolidated financial performance.

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

Forward-Looking Statements

     This report, including MD&A, contains certain forward-looking statements, including certain plans, expectations, goals, and projections, and including statements about the benefits of our merger with Sky Financial, which are subject to numerous assumptions, risks, and uncertainties. Statements that do not describe historical or current facts, including statements about beliefs and expectations, are forward-looking statements. The forward-looking statements are intended to be subject to the safe harbor provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

     Actual results could differ materially from those contained or implied by such statements for a variety of factors including: (a) deterioration in the loan portfolio could be worse than expected due to a number of factors such as the underlying value of the collateral could prove less valuable than otherwise assumed and assumed cash flows may be worse

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

     All forward-looking statements speak only as of the date they are made and are based on information available at that time. We assume no obligation to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements were made or to reflect the occurrence of unanticipated events except as required by federal securities laws. As forward-looking statements involve significant risks and uncertainties, readers of this document are cautioned against placing undue reliance on such statements.

Risk Factors

     We, like other financial companies, are subject to a number of risks that may adversely affect our financial condition or results of operation, many of which are outside of our direct control, though efforts are made to manage those risks while optimizing returns. Among the risks assumed are: (1) credit risk, which is the risk of loss due to loan and lease customers or other counter parties not being able to meet their financial obligations under agreed upon terms, (2) market risk, which is the risk of loss due to changes in the market value of assets and liabilities due to changes in market interest rates, foreign exchange rates, equity prices, and credit spreads, (3) liquidity risk, which is the risk of loss due to the possibility that funds may not be available to satisfy current or future commitments based on external macro market issues, investor perception of financial strength, and events unrelated to the company such as war, terrorism, or financial institution market specific issues, and (4) operational risk, which is the risk of loss due to human error, inadequate or failed internal systems and controls, violations of, or noncompliance with, laws, rules, regulations, prescribed practices, or ethical standards, and external influences such as market conditions, fraudulent activities, disasters, and security risks. Please refer to the “Risk Management and Capital” section for additional information regarding risk factors. Additionally, more information on risk is set forth under the heading “Risk Factors” included in Item 1A of our 2007 Annual Report on Form 10-K for the year ended December 31, 2007, and subsequent filings with the SEC.

Critical Accounting Policies and Use of Significant Estimates

     Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of financial statements in conformity with GAAP requires us to establish critical accounting policies and make accounting estimates, assumptions, and judgments that affect amounts recorded and reported in our financial statements. Note 1 of the Notes to Unaudited Condensed Consolidated Financial Statements included in our 2007 Annual Report on Form 10-K as supplemented by this report lists significant accounting policies we use in the development and presentation of our financial statements. This discussion and analysis, the significant accounting policies, and other financial statement disclosures identify and address key variables and other qualitative and quantitative factors necessary for an understanding and evaluation of our company, financial position, results of operations, and cash flows.

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

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

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

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

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

Recent Accounting Pronouncements and Developments

     Note 2 to the Unaudited Condensed Consolidated Financial Statements discusses new accounting policies adopted during 2008 and the expected impact of accounting policies recently issued but not yet required to be adopted. To the extent the adoption of new accounting standards materially affect financial condition, results of operations, or liquidity, the impacts are discussed in the applicable section of this MD&A and the Notes to the Unaudited Condensed Consolidated Financial Statements.

Acquisition of Sky Financial

     The merger with Sky Financial was completed on July 1, 2007. At the time of acquisition, Sky Financial had assets of $16.8 billion, including $13.3 billion of loans, and total deposits of $12.9 billion. The impact of this acquisition has been included in our consolidated results since July 1, 2007. As a result of this acquisition, we have a significant loan relationship with Franklin. This relationship is discussed in greater detail in the “Significant Items” and “Commercial Credit” sections of this report.

     Given the significant impact of the merger on reported results, we believe that an understanding of the impacts of the merger and certain post-merger restructuring activities is necessary to better understand the underlying performance trends. When comparing post-merger period results to premerger periods, we use the following terms when discussing financial performance:

	•		“Merger-related” refers to amounts and percentage changes representing the impact attributable to the merger.
	•		“Merger and restructuring costs” represent non-interest expenses primarily associated with merger integration activities, including severance expense for key executive personnel.
	•		“Non-merger-related” refers to performance not attributable to the merger, and includes “merger efficiencies”, which represent non-interest expense reductions realized as a result of the merger.

     After completion of the merger, we combined Sky Financial’s operations with ours, and as such, we could no longer separately monitor the subsequent individual results of Sky Financial. As a result, the following methodologies were implemented to estimate the approximate effect of the Sky Financial merger used to determine “merger-related” impacts. Certain tables and comments contained within our discussion and analysis provide detail of changes to reported results to quantify the estimated impact of the Sky Financial merger using this methodology.

Balance Sheet Items

For average loans and leases, as well as average deposits, Sky Financial’s balances as of June 30, 2007, adjusted for purchase accounting adjustments, and transfers of loans to loans held-for-sale, were used in the comparison. To estimate the impact on 2008 average balances, it was assumed that the June 30, 2007 balances, as adjusted, remained constant over time.

Income Statement Items

Sky Financial’s actual results for the first six months of 2007, adjusted for the impact of unusual items and purchase accounting adjustments, were determined. This six-month adjusted amount was divided by two to estimate a quarterly impact. This methodology does not adjust for any market related changes, or seasonal factors in Sky Financial’s 2007 six-month results. Nor does it consider any revenue or expense synergies realized since the merger date. The one exception to this methodology of holding the estimated annual impact constant relates to the amortization of intangibles expense where the amount is known and is therefore used.

DISCUSSION OF RESULTS OF OPERATIONS

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

Summary

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

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

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

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

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

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

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

     Non-interest expense in the 2008 second quarter increased $7.3 million, or 2%, compared with the prior quarter. Significant items (see “Significant Items”) resulted in a net negative impact of $12.6 million in the current quarter compared with the prior quarter. Considering the impact of these items, the remaining components of non-interest expense decreased, reflecting our continued focus on improving expense efficiencies.

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

		2008								2007
(in thousands, except per share amounts)		Second				First				Fourth				Third				Second
Interest income		$	696,675			$	753,411			$	814,398			$	851,155			$	542,461
Interest expense			306,809				376,587				431,465				441,522				289,070
Net interest income			389,866				376,824				382,933				409,633				253,391
Provision for credit losses			120,813				88,650				512,082				42,007				60,133
Net interest income (loss) after provision for credit losses			269,053				288,174				(129,149	)			367,626				193,258
Service charges on deposit accounts			79,630				72,668				81,276				78,107				50,017
Trust services			33,089				34,128				35,198				33,562				26,764
Brokerage and insurance income			35,694				36,560				30,288				28,806				17,199
Other service charges and fees			23,242				20,741				21,891				21,045				14,923
Bank owned life insurance income			14,131				13,750				13,253				14,847				10,904
Mortgage banking income (loss)			12,502				(7,063	)			3,702				9,629				7,122
Securities gains (losses)			2,073				1,429				(11,551	)			(13,152	)			(5,139	)
Other income (loss) (3)			36,069				63,539				(3,500	)			31,830				34,403
Total non-interest income			236,430				235,752				170,557				204,674				156,193
Personnel costs			199,991				201,943				214,850				202,148				135,191
Outside data processing and other services			30,186				34,361				39,130				40,600				25,701
Net occupancy			26,971				33,243				26,714				33,334				19,417
Equipment			25,740				23,794				22,816				23,290				17,157
Amortization of intangibles			19,327				18,917				20,163				19,949				2,519
Marketing			7,339				8,919				16,175				13,186				8,986
Professional services			13,752				9,090				14,464				11,273				8,101
Telecommunications			6,864				6,245				8,513				7,286				4,577
Printing and supplies			4,757				5,622				6,594				4,743				3,672
Other expense (3)			42,876				28,347				70,133				29,754				19,334
Total non-interest expense			377,803				370,481				439,552				385,563				244,655
Income (loss) before income taxes			127,680				153,445				(398,144	)			186,737				104,796
Provision (benefit) for income taxes			26,328				26,377				(158,864	)			48,535				24,275
Net income (loss)		$	101,352			$	127,068			$	(239,280	)		$	138,202			$	80,521
Dividends declared on preferred shares			11,151				—				—				—				—
Net income (loss) applicable to common shares		$	90,201			$	127,068			$	(239,280	)		$	138,202			$	80,521
Average common shares — basic			366,206				366,235				366,119				365,895				236,032
Average common shares — diluted (4)			367,234				367,208				366,119				368,280				239,008
Per common share
Net income (loss) — basic		$	0.25			$	0.35			$	(0.65	)		$	0.38			$	0.34
Net income (loss) — diluted			0.25				0.35				(0.65	)			0.38				0.34
Cash dividends declared			0.1325				0.2650				0.2650				0.2650				0.2650
Return on average total assets			0.73	%			0.93	%			(1.74	)%			1.02	%			0.92	%
Return on average total shareholders’ equity			6.4				8.7				(15.3	)			8.8				10.6
Return on average tangible shareholders’ equity (5)			15.0				22.0				(30.7	)			19.7				13.5
Net interest margin (6)			3.29				3.23				3.26				3.52				3.26
Efficiency ratio (7)			56.9				57.0				73.5				57.7				57.8
Effective tax rate (benefit)			20.6				17.2				(39.9	)			26.0				23.2
Revenue — fully taxable equivalent (FTE)
Net interest income		$	389,866			$	376,824			$	382,933			$	409,633			$	253,391
FTE adjustment			5,624				5,502				5,363				5,712				4,127
Net interest income (6)			395,490				382,326				388,296				415,345				257,518
Non-interest income			236,430				235,752				170,557				204,674				156,193
Total revenue (6)		$	631,920			$	618,078			$	558,853			$	620,019			$	413,711

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

		Six Months Ended June 30,								Change
(in thousands, except per share amounts)		2008				2007				Amount				Percent
Interest income		$	1,450,086			$	1,077,410			$	372,676				34.6	%
Interest expense			683,396				568,464				114,932				20.2
Net interest income			766,690				508,946				257,744				50.6
Provision for credit losses			209,463				89,539				119,924				N.M.
Net interest income after provision for credit losses			557,227				419,407				137,820				32.9
Service charges on deposit accounts			152,298				94,810				57,488				60.6
Trust services			67,217				52,658				14,559				27.6
Brokerage and insurance income			72,254				33,281				38,973				N.M.
Other service charges and fees			43,983				28,131				15,852				56.4
Bank owned life insurance income			27,881				21,755				6,126				28.2
Mortgage banking income			5,439				16,473				(11,034	)			(67.0	)
Securities gains (losses)			3,502				(5,035	)			8,537				N.M.
Other income			99,608				59,297				40,311				68.0
Total non-interest income			472,182				301,370				170,812				56.7
Personnel costs			401,934				269,830				132,104				49.0
Outside data processing and other services			64,547				47,515				17,032				35.8
Net occupancy			60,214				39,325				20,889				53.1
Equipment			49,534				35,376				14,158				40.0
Amortization of intangibles			38,244				5,039				33,205				N.M.
Marketing			16,258				16,682				(424	)			(2.5	)
Professional services			22,842				14,583				8,259				56.6
Telecommunications			13,109				8,703				4,406				50.6
Printing and supplies			10,379				6,914				3,465				50.1
Other expense			71,223				42,760				28,463				66.6
Total non-interest expense			748,284				486,727				261,557				53.7
Income before income taxes			281,125				234,050				47,075				20.1
Provision for income taxes			52,705				57,803				(5,098	)			(8.8	)
Net income		$	228,420			$	176,247			$	52,173				29.6	%
Dividends declared on preferred shares			11,151				—				11,151				—
Net income applicable to common shares		$	217,269			$	176,247			$	41,022				23.3
Average common shares — basic			366,221				235,809				130,412				55.3	%
Average common shares — diluted (3)			387,322				238,881				148,441				62.1
Per common share
Net income per common share — basic		$	0.59			$	0.75			$	(0.16	)			(21.3	)
Net income per common share — diluted			0.59				0.74				(0.15	)			(20.3	)%
Cash dividends declared			0.3975				0.5300				(0.1325	)			(25.0	)
Return on average total assets			0.83	%			1.01	%			(0.18	)%			(17.8	)%
Return on average total shareholders’ equity			7.5				11.7				(4.2	)			(35.9	)
Return on average tangible shareholders’ equity (4)			18.2				14.9				3.3				22.1
Net interest margin (5)			3.26				3.31				(0.05	)			(1.5	)
Efficiency ratio (6)			57.0				58.5				(1.5	)			(2.6	)
Effective tax rate (5)			18.7				24.7				(6.0	)			(24.3	)
Revenue — fully taxable equivalent (FTE)
Net interest income		$	766,690			$	508,946			$	257,744				50.6	%
FTE adjustment (5)			11,126				8,174				2,952				36.1
Net interest income			777,816				517,120				260,696				50.4
Non-interest income			472,182				301,370				170,812				56.7
Total revenue		$	1,249,998			$	818,490			$	431,508				52.7	%

Significant Items

Definition of Significant Items

     Certain components of the income statement are naturally subject to more volatility than others. As a result, readers of this report may view such items differently in their assessment of “underlying” or “core” earnings performance compared with their expectations and/or any implications resulting from them on their assessment of future performance trends.

     Therefore, we believe the disclosure of certain “Significant Items” affecting current and prior period results aids readers of this report in better understanding corporate performance so that they can ascertain for themselves what, if any, items they may wish to include or exclude from their analysis of performance, within the context of determining how that performance differed from their expectations, as well as how, if at all, to adjust their estimates of future performance accordingly.

     To this end, we have adopted a practice of listing as “Significant Items” in our external disclosure documents, including earnings press releases, investor presentations, reports on Forms 10-Q and 10-K, individual and/or particularly volatile items that impact the current period results by $0.01 per share or more. Such “Significant Items” generally fall within the categories discussed below:

Timing Differences

     Parts of our regular business activities are naturally volatile, including capital markets income and sales of loans. While such items may generally be expected to occur within a full-year reporting period, they may vary significantly from period to period. Such items are also typically a component of an income statement line item and not, therefore, readily discernable. By specifically disclosing such items, analysts/investors can better assess how, if at all, to adjust their estimates of future performance.

Other Items

     From time to time, an event or transaction might significantly impact revenues or expenses in a particular reporting period that is judged to be one-time, short-term in nature, and/or materially outside typically expected performance. Examples would be (a) merger costs as they typically impact expenses for only a few quarters during the period of transition; e.g., restructuring charges, asset valuation adjustments, etc.; (b) changes in an accounting principle; (c) large tax assessments/refunds; (d) a large gain/loss on the sale of an asset; and (e) outsized commercial loan net charge-offs related to fraud; and similar events that could occur. In addition, for the periods covered by this report, the impact of the Franklin restructuring is deemed to be a significant item due to its unusually large size and because it was acquired in the Sky Financial merger and thus it is not representative of our typical underwriting criteria. By disclosing such items, readers of this report can better assess how, if at all, to adjust their estimates of future performance.

Provision for Credit Losses

     While the provision for credit losses may vary significantly among periods, and often exceeds $0.01 per share, we typically exclude it from the list of “Significant Items” unless, in our view, there is a significant, specific credit (or multiple significant, specific credits) affecting comparability among periods. In determining whether any portion of the provision for credit losses should be included as a significant item, we consider, among other things, that the provision is a major income statement caption rather than a component of another caption and, therefore, the period-to-period variance can be readily determined. We also consider the additional historical volatility of the provision for credit losses.

Other Exclusions

     “Significant Items” for any particular period are not intended to be a complete list of items that may significantly impact future periods. A number of factors, including those described in Huntington’s 2007 Annual Report on Form 10-K and other factors described from time to time in Huntington’s other filings with the SEC, could also significantly impact future periods.

Significant Items Influencing Financial Performance Comparisons

     Earnings comparisons from the beginning of 2007 through the 2008 second quarter were impacted by a number of significant items summarized below.

1.

Sky Financial Acquisition. The merger with Sky Financial was completed on July 1, 2007. The impacts of the quarterly reported results compared with premerger reporting periods are as follows:

	•		Increased the absolute level of reported average balance sheet, revenue, expense, and credit quality results (e.g., net charge-offs).
	•		Increased reported non-interest expense items as a result of costs incurred as part of merger integration and post-merger restructuring activities, most notably employee retention bonuses, outside programming services related to systems conversions, and marketing expenses related to customer retention initiatives. These net merger and restructuring costs were $14.6 million in the 2008 second quarter, $7.3 million in the 2008 first quarter, $44.4 million in the 2007 fourth quarter, $32.3 million in the 2007 third quarter, $7.6 million in the 2007 second quarter, and $0.8 million in the 2007 first quarter.

	2.		Franklin Relationship Restructuring. Performance for the 2007 fourth quarter included a $423.6 million ($0.75 per common share based upon the quarterly average outstanding diluted common shares) negative impact related to our Franklin relationship acquired in the Sky Financial acquisition. On December 28, 2007, the loans associated with Franklin were restructured, resulting in a $405.8 million provision for credit losses and a $17.9 million reduction of net interest income. The net interest income reduction reflected the placement of the Franklin loans on nonaccrual status from November 16, 2007, until December 28, 2007.
	3.		Visaâ Initial Public Offering (IPO). Performance for the 2008 first quarter included the positive impact of $37.5 million ($0.07 per common share) related to the Visa® IPO occurring in March of 2008. This impact was comprised of two components: (a) $25.1 million gain, recorded in other non-interest income, resulting from the proceeds of the IPO, and (b) $12.4 million partial reversal of the 2007 fourth quarter accrual of $24.9 million ($0.04 per common share) for indemnification charges against Visa®, recorded in other non-interest expense.
	4.		Mortgage Servicing Rights (MSRs) and Related Hedging. Included in total net market-related losses are net losses or gains from our MSRs and the related hedging. Additional information regarding MSRs is located under the “Market Risk” heading of the “Risk Management and Capital” section. Net income included the following net impact of MSR hedging activity (see Table 10):

(in thousands, except per common share)

		Net interest				Non-interest				Pretax				Net				Per common
Period		income				income				income				income				share
1Q’07		$	—			$	(2,018	)		$	(2,018	)		$	(1,312	)		$	(0.01	)
2Q’07			248				(4,998	)			(4,750	)			(3,088	)			(0.01	)
3Q’07			2,357				(6,002	)			(3,645	)			(2,369	)			(0.01	)
4Q’07			3,192				(11,766	)			(8,574	)			(5,573	)			(0.02	)
2007		$	5,797			$	(24,784	)		$	(18,987	)		$	(12,342	)		$	(0.04	)
1Q’08		$	5,934			$	(24,706	)		$	(18,772	)		$	(12,202	)		$	(0.03	)
2Q’08			9,364				(10,697	)			(1,333	)			(866	)			—
2008		$	15,298			$	(35,403	)		$	(20,105	)		$	(13,068	)		$	(0.03	)

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

5.

Other Net Market-Related Gains or Losses. Other net market-related gains or losses included gains and losses related to the following market-driven activities: gains and losses from public equity investing included in other non-interest income, net securities gains and losses, net gains and losses from the sale of loans, and the impact from the extinguishment of debt. Total net market-related losses also include the net impact of MSRs and related hedging (see item 4 above). Net income included the following impact from other net market-related losses:

(in thousands, except per common share)

		Securities								Net				Debt
		gains/				Equity Fund				Gain / (loss)				extinguish-				Pretax				Net				Per common
Period		(losses)				investments				on loans sold				ment				income				income				share
1Q’07		$	104			$	(8,530	)		$	—			$	—			$	(8,426	)		$	(5,477	)		$	(0.02	)
2Q’07			(5,139	)			2,301				—				4,090				1,252				814				—
3Q’07			(13,900	)			(4,387	)			—				3,968				(14,319	)			(9,307	)			(0.03	)
4Q’07			(11,551	)			(9,393	)			(34,003	)			—				(54,947	)			(35,716	)			(0.09	)
2007		$	(30,486	)		$	(20,009	)		$	(34,003	)		$	8,058			$	(76,440	)		$	(49,686	)		$	(0.16	)
1Q’08		$	1,429			$	(2,668	)		$	—			$	—			$	(1,239	)		$	(805	)		$	—
2Q’08			2,073				(4,609	)			(5,131	)			2,177				(5,490	)			(3,569	)			(0.01	)
2008		$	3,502			$	(7,277	)		$	(5,131	)		$	2,177			$	(6,729	)		$	(4,374	)		$	—

6.		Other Significant Items Influencing Earnings Performance Comparisons. In addition to the items discussed separately in this section, a number of other items impacted financial results. These included:
		2008- Second Quarter

•

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

2008- First Quarter

	•		$11.1 million ($0.03 per common share) benefit to provision for income taxes, representing a reduction to the previously established capital loss carry-forward valuation allowance as a result of the 2008 first quarter Visa® IPO.
	•		$11.0 million ($0.02 per common share) of asset impairment, including (a) $5.9 million venture capital loss, (b) $2.6 million charge off of a receivable, and (c) $2.5 million write-down of leasehold improvements in our Cleveland main office.

2007- Fourth Quarter

•

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

2007- First Quarter

•

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

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

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

		Three Months Ended
		June 30,2008								March 31,2008								June 30,2007
(in millions)		After-tax				EPS				After-tax				EPS				After-tax				EPS
Net income — reported earnings		$	101.4							$	127.1							$	80.5
Earnings per share, after tax						$	0.25							$	0.35							$	0.34
Change from prior quarter — $						$	(0.10	)							1.00								(0.06	)
Change from prior quarter — %							(28.6	)%							N.M.	%							(15.0	)%
Change from a year-ago — $						$	(0.09	)						$	(0.05	)						$	(0.12	)
Change from a year-ago — %							(26.5	)%							(12.5)	%							(26.1	)%

Significant items - favorable (unfavorable) impact:		Earnings(2)				EPS				Earnings (2)				EPS				Earnings (2)				EPS
Deferred tax valuation allowance benefit (3)		$	3.4			$	0.01			$	11.1			$	0.02			$	—			$	—
Merger and restructuring costs			(14.6	)			(0.03	)			(7.3	)			(0.01	)			(7.6	)			(0.02	)
Net market-related losses			(6.8	)			(0.01	)			(20.0	)			(0.04	)			(3.5	)			(0.01	)
Aggregate impact of Visa® IPO			—				—				37.5				0.07				—				—
Asset impairment			—				—				(11.0	)			(0.02	)			—				—

		Six Months Ended
		June 30,2008								June 30,2007
(in millions)		After-tax				EPS				After-tax				EPS
Net income — reported earnings		$	228.4							$	176.2
Earnings per share, after tax						$	0.59							$	0.74
Change from a year-ago — $							(0.15	)							(0.16	)
Change from a year-ago — %							(20.3	)%							(17.8	)%

Significant items - favorable (unfavorable) impact:		Earnings(2)				EPS				Earnings (2)				EPS
Aggregate impact of Visa® IPO		$	37.5				0.06			$	—				—
Deferred tax valuation allowance benefit (3)			14.5				0.02				—				—
Net market-related losses			(26.9	)			(0.05	)			(13.9	)			(0.04	)
Merger and restructuring costs			(21.9	)			(0.04	)			(8.4	)			(0.02	)
Asset impairment			(11.0	)			(0.02	)			—				—
Litigation losses			—				—				(1.9	)			(0.01	)

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

2008 Second Quarter versus 2007 Second Quarter

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

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

		Second Quarter								Change								Merger				Non-merger Related
(in millions)		2008				2007				Amount				Percent				Related				Amount				% (1)
Net interest income - FTE		$ 395,490				$ 257,518				$ 137,972				53.6 %				$ 151,592				$ (13,620)				(3.3) %
Average Loans and Deposits
(in millions)
Loans/Leases
Commercial and industrial		$	13,631			$	8,167			$	5,464				66.9	%		$	4,775			$	689				5.3	%
Commercial real estate			9,601				4,651				4,950				N.M.				3,971				979				11.4
Total commercial		$	23,232			$	12,818			$	10,414				81.2	%		$	8,746			$	1,668				7.7	%
Automobile loans and leases		$	4,551			$	3,873			$	678				17.5	%		$	432			$	246				5.7	%
Home equity			7,365				4,973				2,392				48.1				2,385				7				0.1
Residential mortgage			5,178				4,351				827				19.0				1,112				(285	)			(5.2	)
Other consumer			699				424				275				64.9				143				132				23.3
Total consumer			17,793				13,621				4,172				30.6				4,072				100				0.6
Total loans		$	41,025			$	26,439			$	14,586				55.2	%		$	12,818			$	1,768				4.5	%
Deposits
Demand deposits — non-interest bearing		$	5,061			$	3,591			$	1,470				40.9	%		$	1,829			$	(359	)			(6.6	)%
Demand deposits — interest bearing			4,086				2,404				1,682				70.0				1,460				222				5.7
Money market deposits			6,267				5,466				801				14.7				996				(195	)			(3.0	)
Savings and other domestic time deposits			5,047				2,931				2,116				72.2				2,594				(478	)			(8.7	)
Core certificates of deposit			10,952				5,591				5,361				95.9				4,630				731				7.2
Total core deposits			31,413				19,983				11,430				57.2				11,509				(79	)			(0.3	)
Other deposits			6,614				4,290				2,324				54.2				1,342				982				17.4
Total deposits		$	38,027			$	24,273			$	13,754				56.7	%		$	12,851			$	903				2.4	%

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

	•		$1.7 billion, or 8%, increase in average total commercial loans, with growth reflected in both C&I and CRE loans. The growth in CRE was primarily to existing borrowers with a focus on traditional income producing property types and was not related to the single family home builder segment.
	•		$0.1 billion, or 1%, increase in average total consumer loans. This reflected growth in automobile loans and leases and other consumer loans, partially offset by a decline in residential mortgages due to loan sales in the current and year-ago quarters. Average home equity loans were little changed.

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

•

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

     Partially offset by:

•

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

2008 Second Quarter versus 2008 First Quarter

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

	•		5 basis points positive impact primarily due to improved pricing of core deposits.
	•		2 basis points increase related to the funding provided by the convertible preferred capital issuance.

Partially offset by:

•

1 basis point decrease related to earning asset mix.

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

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

•

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

Partially offset by:

•

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

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

Table 5 — Consolidated Quarterly Average Balance Sheets

Fully taxable equivalent basis

		Average Balances																					Change
		2008								2007													2Q08 vs 2Q07
(in millions)		Second				First				Fourth				Third				Second					Amount				Percent
Assets
Interest bearing deposits in banks		$	256			$	293			$	324			$	292			$	259				$	(3	)			(1.2)	%
Trading account securities			1,243				1,186				1,122				1,149				230					1,013				N.M.
Federal funds sold and securities purchased under resale agreements			566				769				730				557				574					(8	)			(1.4	)
Loans held for sale			501				565				493				419				291					210				72.2
Investment securities:
Taxable			3,971				3,774				3,807				3,951				3,253					718				22.1
Tax-exempt			717				703				689				675				629					88				14.0
Total investment securities			4,688				4,477				4,496				4,626				3,882					806				20.8
Loans and leases:(1)
Commercial:
Commercial and industrial			13,631				13,343				13,270				13,036				8,167					5,464				66.9
Commercial real estate:
Construction			2,038				2,014				1,892				1,815				1,258					780				62.0
Commercial			7,563				7,273				7,161				7,165				3,393					4,170				N.M.
Commercial real estate			9,601				9,287				9,053				8,980				4,651					4,950				N.M.
Total commercial			23,232				22,630				22,323				22,016				12,818					10,414				81.2
Consumer:
Automobile loans			3,636				3,309				3,052				2,931				2,322					1,314				56.6
Automobile leases			915				1,090				1,272				1,423				1,551					(636	)			(41.0	)
Automobile loans and leases			4,551				4,399				4,324				4,354				3,873					678				17.5
Home equity			7,365				7,274				7,297				7,468				4,973					2,392				48.1
Residential mortgage			5,178				5,351				5,437				5,456				4,351					827				19.0
Other loans			699				713				728				534				424					275				64.9
Total consumer			17,793				17,737				17,786				17,812				13,621					4,172				30.6
Total loans and leases			41,025				40,367				40,109				39,828				26,439					14,586				55.2
Allowance for loan and lease losses			(654	)			(630	)			(474	)			(475	)			(297	)				(357	)			N.M.
Net loans and leases			40,371				39,737				39,635				39,353				26,142					14,229				54.4
Total earning assets			48,279				47,657				47,274				46,871				31,675					16,604				52.4
Cash and due from banks			943				1,036				1,098				1,111				748					195				26.1
Intangible assets			3,449				3,472				3,440				3,337				626					2,823				N.M.
All other assets			3,522				3,350				3,142				3,124				2,398					1,124				46.9
Total Assets		$	55,539			$	54,885			$	54,480			$	53,968			$	35,150				$	20,389				58.0	%
																							-
Liabilities and Shareholders’ Equity
Deposits:
Demand deposits — non-interest bearing		$	5,061			$	5,034			$	5,218			$	5,384			$	3,591				$	1,470				40.9	%
Demand deposits — interest bearing			4,086				3,934				3,929				3,808				2,404					1,682				70.0
Money market deposits			6,267				6,753				6,845				6,869				5,466					801				14.7
Savings and other domestic deposits			5,047				5,004				5,012				5,127				2,931					2,116				72.2
Core certificates of deposit			10,952				10,796				10,674				10,425				5,591					5,361				95.9
Total core deposits			31,413				31,521				31,678				31,613				19,983					11,430				57.2
Other domestic deposits of $100,000 or more			2,143				1,983				1,731				1,610				1,056					1,087				N.M.
Brokered deposits and negotiable CDs			3,361				3,542				3,518				3,728				2,682					679				25.3
Deposits in foreign offices			1,110				885				748				701				552					558				N.M.
Total deposits			38,027				37,931				37,675				37,652				24,273					13,754				56.7
Short-term borrowings			2,854				2,772				2,489				2,542				2,075					779				37.5
Federal Home Loan Bank advances			3,412				3,389				3,070				2,553				1,329					2,083				N.M.
Subordinated notes and other long-term debt			3,928				3,814				3,875				3,912				3,470					458				13.2
Total interest bearing liabilities			43,160				42,872				41,891				41,275				27,556					15,604				56.6
All other liabilities			963				1,104				1,160				1,103				960					3				0.3
Shareholders’ equity			6,355				5,875				6,211				6,206				3,043					3,312				N.M.
Total Liabilities and Shareholders’ Equity		$	55,539			$	54,885			$	54,480			$	53,968			$	35,150				$	20,389				58.0	%
																							-

Table 6 — Consolidated Quarterly Net Interest Margin Analysis