HUNTINGTON BANCSHARES INC/MD.

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 March 31, 2008

Commission File Number 0-2525

Huntington Bancshares Incorporated


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

41 South High Street, Columbus, Ohio 43287

Registrant’s telephone number (614) 480-8300

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 [x] Yes [ ] 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 [x]		Accelerated filer [ ]		Non-accelerated filer [ ] (Do not check if a smaller reporting company)		Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [x] no

There were 366,209,451 shares of Registrant’s common stock ($0.01 par value) outstanding on April 30, 2008.

Part 1. Financial Information

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

INTRODUCTION

Huntington Bancshares Incorporated (we or our) is a multi-state diversified financial holding company organized under Maryland law in 1966 and headquartered in Columbus, Ohio. Through our subsidiaries, including our bank subsidiary, The Huntington National Bank (the Bank), organized in 1866, we provide full-service commercial and consumer banking services, mortgage banking services, automobile financing, equipment leasing, investment management, trust services, brokerage services, reinsurance of private mortgage insurance, reinsurance of credit life and disability insurance, retail and commercial insurance-agency services, 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 (formerly Sky 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: (1) 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; (2) merger revenue synergies may not be fully realized and/or within the expected timeframes; (3) changes in economic conditions; (4) movements in interest rates; (5) competitive pressures on product pricing and services; (6) success and timing of other business strategies; (7) the nature, extent, and timing of governmental actions and reforms; and (8) 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, 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, 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 . 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.

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.

Given the significant impact of the merger on reported results, we believe that an understanding of the impacts of the merger is necessary to understand better 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 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.

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 first quarter 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.

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.

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.

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 first quarter net income of $127.1 million or earnings per common share of $0.35. These results compared favorably with a net loss of $239.3 million, or $0.65 per common share in the 2007 fourth quarter. Comparisons with the prior quarter were significantly impacted by: (a) the prior quarter’s $423.6 million negative impact relating to the credit deterioration of the Franklin relationship, and (b) the $37.5 million aggregate positive impact in the current quarter relating to the Visa ^® initial public offering (IPO), as well as the associated $11.1 million deferred tax valuation allowance benefit (see “Significant Items”).

Our 2008 first quarter performance was negatively impacted by the significant and rapid succession of interest rate reductions by the Federal Reserve. These interest rate reductions compressed our fully taxable equivalent net interest margin, and contributed to a $6.0 million decline in fully taxable equivalent net interest income despite good loan growth. The rate reductions were more quickly reflected in the downward repricing of loans and leases than in our funding costs, particularly deposits, reflecting the competitive deposit pricing environment.

Following the 2007 fourth quarter, the loan restructuring associated with our relationship with Franklin performed consistent with our expectations during the 2008 first quarter. Cash flows exceeded the required debt payments, the loans continue to perform with interest accruing, and there were no net charge-offs or related provision for credit losses during the quarter. Additionally, the total exposure to Franklin decreased $31 million, or 3%.

Credit quality was mixed in the quarter. Net charge-offs decreased and were below our full-year expectations, particularly in our commercial and industrial (C&I) and commercial real estate (CRE) portfolios, although we anticipate that net charge-offs in future quarters will be higher than in the current quarter. The allowance for loan and lease losses (ALLL) increased 9 basis points, reflecting the impact of the continued economic weakness across our Midwest markets, most notably in portfolios related to the single family home builder sector. Given the uncertainties of the current economic environment, we believe the increase in the ALLL is appropriate.

Other factors negatively impacting our 2008 first quarter performance included: (a) asset impairment charges totaling $11.0 million, including a $5.9 million venture capital loss on an investment in Skybus Airlines, a Columbus, Ohio-based airline, and (b) the volatility of the financial markets resulting in $20.0 million of net market-related losses, particularly related to mortgage servicing rights (MSRs) hedging (see “Significant Items”).

Non-interest income in the 2008 first quarter increased $65.2 million, or 38%, from the 2007 fourth quarter primarily reflecting the positive $59.8 million impact of significant items (see “Significant Items”). Considering the impact of these items, fee income performance was mixed for the current quarter. Brokerage and insurance income increased a strong 21%, reflecting seasonal insurance income and higher annuity sales. Mortgage banking activities increased 14%, reflecting a 26% increase in mortgage originations due to significant refinance activity. These increases were offset by an 11% decline in service charges on deposit accounts, primarily reflecting a seasonal decline.

Non-interest expense in the 2008 first quarter decreased $69.1 million, or 16%, from the 2007 fourth quarter primarily reflecting the net positive impact of $78.5 million of significant items (see “Significant Items”). Considering the impact of these items, non-interest expense increased, reflecting seasonal increases in higher employment taxes, snow removal, and utilities expense. Offsetting these increased seasonal expenses was the full realization of merger expense efficiencies from the Sky Financial merger. We remain focused on expenses, and are still identifying additional expense reduction opportunities.

Given the expectation for continued economic environment uncertainty, we believe the conservation of capital to be important. To this end, we raised $569 million of capital in the form of 8.50% Series A Non-Cumulative Perpetual

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


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

Interest income	$	753,411		$	814,398		$	851,155		$	542,461		$	534,949
Interest expense		376,587			431,465			441,522			289,070			279,394

Net interest income		376,824			382,933			409,633			253,391			255,555
Provision for credit losses		88,650			512,082			42,007			60,133			29,406

Net interest income (loss) after provision for credit losses		288,174			(129,149	)		367,626			193,258			226,149

Service charges on deposit accounts		72,668			81,276			78,107			50,017			44,793
Trust services		34,128			35,198			33,562			26,764			25,894
Brokerage and insurance income		36,560			30,288			28,806			17,199			16,082
Other service charges and fees		20,741			21,891			21,045			14,923			13,208
Bank owned life insurance income		13,750			13,253			14,847			10,904			10,851
Mortgage banking (loss) income		(7,063	)		3,702			9,629			7,122			9,351
Securities gains (losses)		1,429			(11,551	)		(13,152	)		(5,139	)		104
Other income (loss) ⁽³⁾		63,539			(3,500	)		31,830			34,403			24,894

Total non-interest income		235,752			170,557			204,674			156,193			145,177

Personnel costs		201,943			214,850			202,148			135,191			134,639
Outside data processing and other services		34,361			39,130			40,600			25,701			21,814
Net occupancy		33,243			26,714			33,334			19,417			19,908
Equipment		23,794			22,816			23,290			17,157			18,219
Amortization of intangibles		18,917			20,163			19,949			2,519			2,520
Marketing		8,919			16,175			13,186			8,986			7,696
Professional services		9,090			14,464			11,273			8,101			6,482
Telecommunications		6,245			8,513			7,286			4,577			4,126
Printing and supplies		5,622			6,594			4,743			3,672			3,242
Other expense ⁽³⁾		28,347			70,133			29,754			19,334			23,426

Total non-interest expense		370,481			439,552			385,563			244,655			242,072

Income (loss) before income taxes		153,445			(398,144	)		186,737			104,796			129,254
Provision (benefit) for income taxes		26,377			(158,864	)		48,535			24,275			33,528

Net income (loss)	$	127,068		$	(239,280	)	$	138,202		$	80,521		$	95,726

Average common shares — diluted		367,208			366,119			368,280			239,008			238,754

Per common share
Net income (loss) — diluted	$	0.35		$	(0.65	)	$	0.38		$	0.34		$	0.40
Cash dividends declared		0.265			0.265			0.265			0.265			0.265

Return on average total assets		0.93	%		(1.74	)%		1.02	%		0.92	%		1.11	%
Return on average total shareholders’ equity		8.7			(15.3	)		8.8			10.6			12.9
Return on average tangible shareholders’ equity ⁽⁴⁾		22.0			(30.7	)		19.7			13.5			16.4
Net interest margin ⁽⁵⁾		3.23			3.26			3.52			3.26			3.36
Efficiency ratio ⁽⁶⁾		57.0			73.5			57.7			57.8			59.2
Effective tax rate (benefit)		17.2			(39.9	)		26.0			23.2			25.9

Revenue — fully taxable equivalent (FTE)
Net interest income	$	376,824		$	382,933		$	409,633		$	253,391		$	255,555
FTE adjustment		5,502			5,363			5,712			4,127			4,047

Net interest income ⁽⁵⁾		382,326			388,296			415,345			257,518			259,602
Non-interest income		235,752			170,557			204,674			156,193			145,177

Total revenue ⁽⁵⁾	$	618,078		$	558,853		$	620,019		$	413,711		$	404,779


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

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

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

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

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

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

Significant Items

Definition of Significant Items

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

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

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

Timing Differences

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

Other Items

From time to time, an event or transaction might significantly impact revenues or expenses in a particular reporting period that is judged to be one-time, short-term in nature, and/or materially outside typically expected performance. Examples would be (1) 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.; (2) changes in an accounting principle; (3) one-time tax assessments/refunds; (4) a large gain/loss on the sale of an asset; (5) outsized commercial loan net charge-offs related to fraud; etc. 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 first quarter were impacted by a number of significant items summarized below.

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

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

	•		Increased reported non-interest expense items as a result of costs incurred as part of merger integration activities, most notably employee retention bonuses, outside programming services related to systems conversions, and marketing expenses related to customer retention initiatives. These net merger costs were $7.1 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.		Visa â 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: (1) $25.1 million gain, recorded in other non-interest income, resulting from the proceeds of the IPO, and (2) $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 9):

(in thousands, except per common share)


	Net		Non-									Per
	interest		interest			Pretax			Net			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	)

Other Net Market-Related Gains or Losses. Other net market-related gains or losses include 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 held-for-sale, 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						Loss on			Debt								Per
	gains/			Public equity			loans			extinguish-		Pretax			Net			common
Period	(losses)			investments			held-for-sale			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		$	(2,680	)	$	—		$	—	$	(1,251	)	$	(813	)	$	—

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 – 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 on an investment in Skybus Airlines, a Columbus, Ohio-based airline, (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 ($5.8 million after-tax, or $0.02 per common share) negative impact primarily due to increases to litigation reserves on existing cases.

2007 – First Quarter

•

$1.9 million ($1.2 million after-tax, or $0.01 per common share) negative impact primarily due to increases to litigation reserves on existing cases.

Table 2 reflects the earnings impact of the above-mentioned significant items for periods affected by this Results of Operations discussion:

Table 2 — Significant Items Influencing Earnings Performance Comparison ⁽¹⁾


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

Net income — reported earnings	$	127.1				$	(239.3	)				$	95.7
Earnings per share, after tax			$	0.35					$	(0.65	)			$	0.40
Change from prior quarter — $				1.00						(1.03	)				0.03
Change from prior quarter — %				N.M.	%					N.M.	%				8.1	%

Change from a year-ago — $			$	(0.05	)				$	(1.02	)			$	(0.05	)
Change from a year-ago — %				(12.5	)%					N.M.	%				(11.1	)%


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

Aggregate impact of Visa ^{^®} IPO	$	37.5		$	0.07		$	(24.9	)	$	(0.04	)	$	—		$	—
Deferred tax valuation allowance benefit ⁽³⁾		11.1			0.03			—			—			—			—
Net market-related losses		(20.0	)		(0.04	)		(63.5	)		(0.11	)		(10.4	)		(0.03	)
Asset impairment		(11.0	)		(0.02	)		—			—			—			—
Merger costs		(7.1	)		(0.01	)		(44.4	)		(0.08	)		(0.8	)		—
Franklin relationship restructuring		—			—			(423.6	)		(0.75	)		—			—
Increases to litigation reserves on existing cases		—			—			(8.9	)		(0.02	)		(1.9	)		(0.01	)

N.M., not a meaningful value.


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

⁽²⁾		Pre-tax unless otherwise noted.

⁽³⁾		After-tax.

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

2008 First Quarter versus 2007 First Quarter

Fully taxable equivalent net interest income increased $122.7 million, or 47%, from the year-ago quarter. This reflected the favorable impact of a $16.4 billion, or 52%, increase in average earning assets, with $14.2 billion representing an increase in average loans and leases, partially offset by the negative impact of a 13 basis point decline in the fully taxable equivalent net interest margin to 3.23%. The increases in average earning assets, as well as loans and leases, were primarily Sky Financial merger-related.

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

Table 3 — Average Loans/Leases and Deposits — Estimated Merger Related Impacts — 1Q’08 vs. 1Q’07


	First Quarter				Change					Merger		Non-merger Related
(in millions)	2008		2007		Amount		Percent			Related		Amount			% ⁽¹⁾

Loans
Total commercial	$	22,630	$	12,459	$	10,171		81.6	%	$	8,746	$	1,425			6.7	%
Automobile loans and leases		4,399		3,913		486		12.4			432		54			1.2
Home equity		7,274		4,913		2,361		48.1			2,385		(24	)		(0.3	)
Residential mortgage		5,351		4,496		855		19.0			1,112		(257	)		(4.6	)
Other consumer		713		422		291		69.0			143		148			26.2

Total consumer		17,737		13,744		3,993		29.1			4,072		(79	)		(0.4	)

Total loans	$	40,367	$	26,203	$	14,164		54.1	%	$	12,818	$	1,346			3.4	%

Deposits
Demand deposits — non-interest bearing	$	5,034	$	3,530	$	1,504		42.6	%	$	1,829	$	(325	)		(6.1)	%
Demand deposits — interest bearing		3,934		2,349		1,585		67.5			1,460		125			3.3
Money market deposits		6,753		5,489		1,264		23.0			996		268			4.1
Savings and other domestic time deposits		5,004		2,898		2,106		72.7			2,594		(488	)		(8.9	)
Core certificates of deposit		10,796		5,455		5,341		97.9			4,630		711			7.1

Total core deposits		31,521		19,721		11,800		59.8			11,509		291			0.9
Other deposits		6,410		4,730		1,680		35.5			1,342		338			5.6

Total deposits	$	37,931	$	24,451	$	13,480		55.1	%	$	12,851	$	629			1.7	%


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

The $1.3 billion, or 3%, non-merger-related increase in average total loans and leases primarily reflected:

•

$1.4 billion, or 7%, increase in average total commercial loans, with growth reflected in both C&I loans and CRE loans.

Partially offset by:

•

$0.1 billion decrease in average total consumer loans. This reflected a decline in average residential mortgages due to loan sales in the first half of 2007, partially offset by modest growth in total average automobile loans and leases. Average home equity loans were little changed, reflecting the continued weakness in the housing sector and a softer economy.

Also contributing to the growth in average earning assets was a $1.1 billion increase in average trading account securities. The increase in these assets reflected a change in our strategy to use trading account securities to hedge the change in fair value of our MSRs.

Regarding average total deposits, most of the increase was merger-related. The $0.6 billion non-merger-related increase reflected:

•

$0.3 billion, or 1%, increase in average total core deposits. This reflected continued strong growth in core

			certificates of deposit, as well as growth in money market deposits and interest bearing demand deposits. Partially offsetting these increases was a decline in non-interest bearing demand deposits, and a decline in average savings and other domestic deposits, as customers continued to transfer funds from lower rate to higher rate accounts like certificates of deposits as rates fell.

	•		$0.3 billion, or 6%, growth in other deposits, primarily other domestic deposits over $100,000.

The 3.23% fully taxable net interest margin in the current period declined from the 2007 fourth quarter. The lower margin primarily reflected the impact of the rapid reduction in interest rates, which were more quickly reflected in the downward repricing of loans and leases than in our funding costs. Funding costs, particularly as related to deposits, continued to reflect the competitive deposit pricing environment, as well as the low absolute rates in selected deposit accounts, which make it difficult to pass on interest rate reductions that occurred in the overall interest rate environment.

2008 First Quarter versus 2007 Fourth Quarter

Compared with the 2007 fourth quarter, fully taxable equivalent net interest income decreased $6.0 million, or 2%. This reflected the negative impact of a lower fully taxable equivalent net interest margin, only partially offset by an increase in average earning assets, primarily loans. The fully taxable net interest margin was 3.23% in the quarter, down 3 basis points. The 3 basis point decline reflected:

	•		10 basis point negative impact representing lower ongoing earnings from the Franklin loans due principally to lower balances as a result of the 2007 fourth quarter debt forgiveness and the charge off of our portion of a fixed-rate term loan.

	•		9 basis point negative impact of interest rate changes, reflecting an asset-sensitive balance sheet in a period of rapidly declining interest rates.

	•		1 basis point decline due to earning asset and funding mix changes.

Partially offset by:

	•		15 basis point increase as the Franklin loans accrued interest for the entire 2008 first quarter compared with a partial quarter in the 2007 fourth quarter.

	•		2 basis point increase related to the fewer number of days in the quarter.

Tables 4 and 5 reflect quarterly average balance sheets and rates earned and paid on interest-earning assets and interest-bearing liabilities.

Table 4 — Consolidated Quarterly Average Balance Sheets


	Average Balances															Change
Fully taxable equivalent basis	2008				2007											1Q08 vs 1Q07
(in millions)	First			Fourth			Third			Second			First			Amount			Percent

Assets
Interest bearing deposits in banks	$	293		$	324		$	292		$	259		$	93		$	200			N.M.	%
Trading account securities		1,186			1,122			1,149			230			48			1,138			N.M.
Federal funds sold and securities purchased under resale agreements		769			730			557			574			503			266			52.9
Loans held for sale		565			493			419			291			242			323			N.M.
Investment securities:
Taxable		3,774			3,807			3,951			3,253			3,595			179			5.0
Tax-exempt		703			689			675			629			591			112			19.0

Total investment securities		4,477			4,496			4,626			3,882			4,186			291			7.0
Loans and leases: ⁽¹⁾

Commercial:
Commercial and industrial		13,343			13,270			13,036			8,167			7,987			5,356			67.1
Commercial real estate:
Construction		2,014			1,892			1,815			1,258			1,157			857			74.1
Commercial		7,273			7,161			7,165			3,393			3,315			3,958			N.M.

Commercial real estate		9,287			9,053			8,980			4,651			4,472			4,815			N.M.

Total commercial		22,630			22,323			22,016			12,818			12,459			10,171			81.6

Consumer:
Automobile loans		3,309			3,052			2,931			2,322			2,215			1,094			49.4
Automobile leases		1,090			1,272			1,423			1,551			1,698			(608	)		(35.8	)

Automobile loans and leases		4,399			4,324			4,354			3,873			3,913			486			12.4
Home equity		7,274			7,297			7,468			4,973			4,913			2,361			48.1
Residential mortgage		5,351			5,437			5,456			4,351			4,496			855			19.0
Other loans		713			728			534			424			422			291			69.0

Total consumer		17,737			17,786			17,812			13,621			13,744			3,993			29.1

Total loans and leases		40,367			40,109			39,828			26,439			26,203			14,164			54.1
Allowance for loan and lease losses		(630	)		(474	)		(475	)		(297	)		(278	)		(352	)		N.M.

Net loans and leases		39,737			39,635			39,353			26,142			25,925			13,812			53.3

Total earning assets		47,657			47,274			46,871			31,675			31,275			16,382			52.4

Cash and due from banks		1,036			1,098			1,111			748			826			210			25.4
Intangible assets		3,472			3,440			3,337			626			627			2,845			N.M.
All other assets		3,350			3,142			3,124			2,398			2,480			870			35.1

Total Assets	$	54,885		$	54,480		$	53,968		$	35,150		$	34,930		$	19,955			57.1	%


Liabilities and Shareholders’ Equity
Deposits ⁽²⁾ :
Demand deposits — non-interest bearing	$	5,034		$	5,218		$	5,384		$	3,591		$	3,530		$	1,504			42.6	%
Demand deposits — interest bearing		3,934			3,929			3,808			2,404			2,349			1,585			67.5
Money market deposits		6,753			6,845			6,869			5,466			5,489			1,264			23.0
Savings and other domestic deposits		5,004			5,012			5,127			2,931			2,898			2,106			72.7
Core certificates of deposit		10,796			10,674			10,425			5,591			5,455			5,341			97.9

Total core deposits		31,521			31,678			31,613			19,983			19,721			11,800			59.8
Other domestic deposits of $100,000 or more		1,983			1,731			1,610			1,056			1,148			835			72.7
Brokered deposits and negotiable CDs		3,542			3,518			3,728			2,682			3,020			522			17.3
Deposits in foreign offices		885			748			701			552			562			323			57.5

Total deposits		37,931			37,675			37,652			24,273			24,451			13,480			55.1
Short-term borrowings		2,772			2,489			2,542			2,075			1,863			909			48.8
Federal Home Loan Bank advances		3,389			3,070			2,553			1,329			1,128			2,261			N.M.
Subordinated notes and other long-term debt		3,814			3,875			3,912			3,470			3,487			327			9.4

Total interest bearing liabilities		42,872			41,891			41,275			27,556			27,399			15,473			56.5

All other liabilities		1,104			1,160			1,103			960			987			117			11.9
Shareholders’ equity		5,875			6,211			6,206			3,043			3,014			2,861			94.9

Total Liabilities and Shareholders’ Equity	$	54,885		$	54,480		$	53,968		$	35,150		$	34,930		$	19,955			57.1	%

N.M., not a meaningful value.


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

⁽²⁾		Beginning in the 2008 first quarter, IRA deposits greater than $100,000 are reflected in “Savings and other domestic time deposits”. Previously, these deposits were reflected in “Other domestic time deposits of $100,000 or more”. Prior period amounts have been reclassified to conform to the current period presentation.

Table 5 — Consolidated Quarterly Net Interest Margin Analysis


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

Assets
Interest bearing deposits in banks		3.97	%		4.30	%		4.69	%		6.47	%		5.13	%
Trading account securities		5.27			5.72			6.01			5.74			5.27
Federal funds sold and securities purchased under resale agreements		3.07			4.59			5.26			5.28			5.24
Loans held for sale		5.41			5.86			5.13			5.79			6.27
Investment securities:
Taxable		5.71			5.98			6.09			6.11			6.13
Tax-exempt		6.75			6.74			6.78			6.69			6.66

Total investment securities		5.88			6.10			6.19			6.20			6.21
Loans and leases: ⁽³⁾
Commercial:
Commercial and industrial		6.32			6.92			7.70			7.36			7.40
Commercial real estate:
Construction		5.86			7.24			7.70			7.63			8.44
Commercial		6.27			7.09			7.63			7.35			7.62

Commercial real estate		6.18			7.12			7.65			7.42			7.83

Total commercial		6.27			7.00			7.68			7.38			7.56

Consumer:
Automobile loans		7.25			7.31			7.25			7.10			6.92
Automobile leases		5.53			5.52			5.56			5.34			5.25

Automobile loans and leases		6.82			6.78			6.70			6.39			6.25
Home equity		7.21			7.81			7.94			7.63			7.67
Residential mortgage		5.86			5.88			6.06			5.61			5.54
Other loans		10.43			10.91			11.48			9.57			9.52

Total consumer		6.84			7.10			7.17			6.69			6.58

Total loans and leases		6.51			7.05			7.45			7.03			7.05

Total earning assets		6.40	%		6.88	%		7.25	%		6.92	%		6.98	%


Liabilities and Shareholders’ Equity
Deposits:
Demand deposits — non-interest bearing		—	%		—	%		—	%		—	%		—	%
Demand deposits — interest bearing		0.82			1.14			1.53			1.22			1.21
Money market deposits		2.83			3.67			3.78			3.85			3.78
Savings and other domestic deposits		2.27			2.54			2.54			2.23			2.09
Core certificates of deposit		4.68			4.83			4.99			4.79			4.72

Total core deposits		3.18			3.55			3.69			3.50			3.42
Other domestic deposits of $100,000 or more		4.39			4.99			4.79			5.31			5.34
Brokered deposits and negotiable CDs		4.43			5.24			5.42			5.53			5.50
Deposits in foreign offices		2.16			3.27			3.29			3.16			2.99

Total deposits		3.36			3.80			3.94			3.84			3.81
Short-term borrowings		2.78			3.74			4.10			4.50			4.32
Federal Home Loan Bank advances		3.94			5.03			5.31			4.76			4.44
Subordinated notes and other long-term debt		5.12			5.93			6.15			5.96			5.77

Total interest bearing liabilities		3.53	%		4.09	%		4.24	%		4.20	%		4.14	%

Net interest rate spread		2.87	%		2.79	%		3.01	%		2.72	%		2.84	%
Impact of non-interest bearing funds on margin		0.36			0.47			0.51			0.54			0.52

Net interest margin		3.23	%		3.26	%		3.52	%		3.26	%		3.36	%


⁽¹⁾		Fully taxable equivalent (FTE) yields are calulated 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.

Provision for Credit Losses

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

The provision for credit losses is the expense necessary to maintain the ALLL and the allowance for unfunded 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 2008 first quarter was $88.7 million, up $59.2 million from the year-ago quarter, but down $423.4 million from the 2007 fourth quarter. Compared with the 2007 fourth quarter, the $423.4 million decrease reflected $405.8 million related to Franklin. The reported 2008 first quarter provision for credit losses exceeded net charge-offs by $40.2 million (see “Credit Quality” discussion).

Non-Interest Income

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

Table 6 reflects non-interest income for each of the past five quarters:

Table 6 — Non-Interest Income


	2008			2007											1Q08 vs 1Q07
(in thousands)	First			Fourth			Third			Second			First		Amount			Percent

Service charges on deposit accounts	$	72,668		$	81,276		$	78,107		$	50,017		$	44,793	$	27,875			62.2	%
Trust services		34,128			35,198			33,562			26,764			25,894		8,234			31.8
Brokerage and insurance income		36,560			30,288			28,806			17,199			16,082		20,478			N.M.
Other service charges and fees		20,741			21,891			21,045			14,923			13,208		7,533			57.0
Bank owned life insurance income		13,750			13,253			14,847			10,904			10,851		2,899			26.7
Mortgage banking (loss) income		(7,063	)		3,702			9,629			7,122			9,351		(16,414	)		N.M.
Securities gains (losses)		1,429			(11,551	)		(13,152	)		(5,139	)		104		1,325			N.M.
Other income		63,539			(3,500	)		31,830			34,403			24,894		38,645			N.M.

Total non-interest income	$	235,752		$	170,557		$	204,674		$	156,193		$	145,177	$	90,575			62.4	%

N.M., not a meaningful value.

2008 First Quarter versus 2007 First Quarter

Non-interest income increased $90.6 million from the year-ago quarter. The $68.7 million of merger-related non-interest income drove most of the increase. Table 7 details the $90.6 million increase in reported total non-interest income.

Table 7 — Non-Interest Income — Estimated Merger-Related Impacts — 1Q’08 vs. 1Q’07


	First Quarter					Change						Merger		Non-merger Related
(in thousands)	2008			2007		Amount			%			Related		Amount			% ⁽¹⁾

Service charges on deposit accounts	$	72,668		$	44,793	$	27,875			62.2	%	$	24,110	$	3,765			5.5	%
Trust services		34,128			25,894		8,234			31.8			7,009		1,225			3.7
Brokerage and insurance income		36,560			16,082		20,478			N.M.			17,061		3,417			10.3
Other service charges and fees		20,741			13,208		7,533			57.0			5,800		1,733			9.1
Bank owned life insurance income		13,750			10,851		2,899			26.7			1,807		1,092			8.6
Mortgage banking (loss) income		(7,063	)		9,351		(16,414	)		N.M.			6,256		(22,670	)		N.M.
Securities gains		1,429			104		1,325			N.M.			283		1,042			N.M.
Other income		63,539			24,894		38,645			N.M.			6,390		32,255			N.M.

Total non-interest income	$	235,752		$	145,177	$	90,575			62.4	%	$	68,716	$	21,859			10.2	%

N.M., not a meaningful value.


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

The $21.9 million, or 10%, non-merger-related increase reflected:

	•		$32.3 million increase in other income, primarily reflecting: (a) the current quarter’s $25.1 million gain related to the Visa ^® IPO, (b) $8.6 million increase in derivative revenue, (c) lower equity investment losses ($2.7 million in the current quarter vs. $8.5 million in the year-ago quarter), and (d) higher automobile operating lease income ($5.8 million in the current quarter vs. $2.9 million in the year-ago quarter), partially offset by a $5.9 million venture capital loss in the current quarter on an investment in Skybus Airlines.

	•		$3.8 million, or 5%, increase in service charges on deposit accounts, primarily reflecting strong growth in personal service charge income.

	•		$3.4 million, or 10%, growth in brokerage and insurance income, reflecting higher annuity fees and insurance income, including revenue related to the 2007 fourth quarter acquisition of the Archer-Meek-Weiler agency.

	•		$1.7 million, or 9%, increase in other service charges, reflecting higher debit card volume.

	•		$1.2 million, or 4%, increase in trust services income, reflecting an increase in Huntington Fund fees due to asset growth.

Partially offset by:

•

$22.7 million decline in mortgage banking income. This decline reflected the $24.7 million non-interest income portion of the current quarter’s total $18.8 million net negative MSR valuation impact, compared with a $2.0 million net negative MSR valuation impact, entirely reflected in non-interest income, in the year-ago quarter (see Table 9).

2008 First Quarter versus 2007 Fourth Quarter

Non-interest income increased $65.2 million from the 2007 fourth quarter, as shown in the table below:

Table 8 — Non-Interest Income — 1Q‘08 vs. 4Q‘07


	First			Fourth
	Quarter			Quarter			Change

(in thousands)	2008			2007			Amount			%

Service charges on deposit accounts	$	72,668		$	81,276		$	(8,608	)		(10.6	)%
Trust services		34,128			35,198			(1,070	)		(3.0	)
Brokerage and insurance income		36,560			30,288			6,272			20.7
Other service charges and fees		20,741			21,891			(1,150	)		(5.3	)
Bank owned life insurance income		13,750			13,253			497			3.8
Mortgage banking (loss) income		(7,063	)		3,702			(10,765	)		N.M.
Securities gains		1,429			(11,551	)		12,980			N.M.
Other income		63,539			(3,500	)		67,039			N.M.

Total non-interest income	$	235,752		$	170,557		$	65,195			38.2	%

N.M., not a meaningful value.

This $65.2 million, or 38%, increase reflected:

	•		$67.0 million increase in other income. This reflected the comparison benefit of: (a) the prior quarter’s $34.0 million loss on loans held for sale, (b) the current quarter’s $25.1 million gain related to the Visa ^® IPO, (c) a $6.7 million decline in equity investment losses ($2.7 million in the current quarter vs. $9.4 million in the prior quarter), (d) a $5.8 million increase in derivative revenue, and (e) a $3.2 million increase in automobile operating lease income. These comparative benefits were partially offset by a $5.9 million venture capital loss in the current quarter on an investment in Skybus Airlines.

	•		$6.3 million, or 21%, increase in brokerage and insurance income, reflecting higher seasonal insurance income, as well as higher annuity sales fees.

•

$1.4 million of net securities gains consisting of $4.5 million of securities gains, partially offset by $3.1 million of securities impairment in the current quarter. This compared with $11.6 million of net securities losses in the prior quarter.

Partially offset by:

	•		$10.8 million decline in mortgage banking income. This reflected a $2.2 million, or 14%, increase in core mortgage banking activities, primarily origination and secondary marketing fees, reflecting a 26% increase in originations, more than offset by the current quarter’s $24.7 million negative MSR valuation impact to mortgage banking income, compared with an $11.8 million net negative MSR valuation impact in the prior quarter.

	•		$8.6 million, or 11%, decline in service charges on deposit accounts, primarily reflecting a seasonal decline in personal service charges.

	•		$1.2 million, or 5%, decrease in other service charges and fees, reflecting a seasonal decline in debit card fees.

	•		$1.1 million, or 3%, decline in trust services income, reflecting a decline in asset management fees mostly due to reduced market valuations of assets under management, and to a lesser degree seasonal decline in corporate trust annual renewal fees.

Table 9 details mortgage banking income and the net impact of MSR hedging activity for each of the past five quarters:

Table 9 — Mortgage Banking Income and Net Impact of MSR Hedging


	2008			2007												1Q08 vs 1Q07
(in thousands)	First			Fourth			Third			Second			First			Amount			Percent

Mortgage Banking Income
Origination and secondary marketing	$	9,332			5,879		$	8,375		$	6,771		$	4,940		$	4,392			88.9	%
Servicing fees		10,894			11,405			10,811			6,976			6,820			4,074			59.7
Amortization of capitalized servicing ⁽¹⁾		(6,914	)		(5,929	)		(6,571	)		(4,449	)		(3,638	)		(3,276	)		(90.0	)
Other mortgage banking income		4,331			4,113			3,016			2,822			3,247			1,079			33.2

Sub-total		17,643			15,468			15,631			12,120			11,369			6,269			55.1
MSR valuation adjustment ⁽¹⁾		(18,093	)		(21,245	)		(9,863	)		16,034			(1,057	)		(17,036	)		N.M.
Net trading (losses) gains related to MSR hedging		(6,613	)		9,479			3,861			(21,032	)		(961	)		(5,648	)		N.M.

Total mortgage banking (loss) income	$	(7,063	)	$	3,702		$	9,629		$	7,122		$	9,351		$	(16,415	)		N.M.	%


Capitalized mortgage servicing rights ⁽²⁾	$	191,806		$	207,894		$	228,933		$	155,420		$	134,845		$	56,961			42.2	%
Total mortgages serviced for others ⁽²⁾		15,138,000			15,088,000			15,073,000			8,693,000			8,494,000			6,644,000			78.2
MSR % of investor servicing portfolio		1.27	%		1.38	%		1.52	%		1.79	%		1.59	%		(0.32	)%		(20.1	)


Net Impact of MSR Hedging
MSR valuation adjustment ⁽¹⁾	$	(18,093	)	$	(21,245	)	$	(9,863	)	$	16,034		$	(1,057	)	$	(17,036	)		N.M.	%
Net trading (losses) gains related to MSR hedging		(6,613	)		9,479			3,861			(21,032	)		(961	)		(5,648	)		N.M.

Net interest income related to MSR hedging		5,934			3,192			2,357			248			—			5,934			—

Net impact of MSR hedging	$	(18,772	)	$	(8,574	)	$	(3,645	)	$	(4,750	)	$	(2,018	)	$	(16,750	)		N.M.	%

N.M., not a meaningful value.


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

⁽²⁾		At period end.

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

Table 10 reflects non-interest expense for each of the past five quarters:

Table 10 — Non-Interest Expense


	2008				2007						1Q08 vs		1Q07

(in thousands)	First		Fourth		Third		Second		First		Amount			Percent

Salaries	$	159,946	$	178,855	$	166,719	$	106,768	$	104,912	$	55,034			52.5	%
Benefits		41,997		35,995		35,429		28,423		29,727		12,270			41.3

Personnel costs		201,943		214,850		202,148		135,191		134,639		67,304			50.0
Outside data processing and other services		34,361		39,130		40,600		25,701		21,814		12,547			57.5
Net occupancy		33,243		26,714		33,334		19,417		19,908		13,335			67.0
Equipment		23,794		22,816		23,290		17,157		18,219		5,575			30.6
Amortization of intangibles		18,917		20,163		19,949		2,519		2,520		16,397			N.M.
Marketing		8,919		16,175		13,186		8,986		7,696		1,223			15.9
Professional services		9,090		14,464		11,273		8,101		6,482		2,608			40.2
Telecommunications		6,245		8,513		7,286		4,577		4,126		2,119			51.4
Printing and supplies		5,622		6,594		4,743		3,672		3,242		2,380			73.4
Other expense		28,347		70,133		29,754		19,334		23,426		4,921			21.0

Total non-interest expense	$	370,481	$	439,552	$	385,563	$	244,655	$	242,072	$	128,409			53.0	%


N.M., not a meaningful value.

2008 First Quarter versus 2007 First Quarter

Non-interest expense increased $128.4 million from the year-ago quarter. The $135.7 million of merger-related expenses and a $6.3 million increase in merger costs drove the increase, as non-merger-related expenses declined $13.5 million, or 4%. Table 11 details the $128.4 million increase in reported total non-interest expense.

Table 11 — Non-Interest Expense — Estimated Merger-Related Impacts — 1Q’08 vs. 1Q’07


	First Quarter				Change										Non-merger Related

(in thousands)	2008		2007		Amount		Percent			Merger Related		Merger Costs			Amount			% ⁽¹⁾

Personnel costs	$	201,943	$	134,639	$	67,304		50.0	%	$	68,250	$	2,675		$	(3,621	)		(1.8	)%
Outside data processing and other services		34,361		21,814		12,547		57.5			12,262		2,814			(2,529	)		(6.9	)
Net occupancy		33,243		19,908		13,335		67.0			10,184		454			2,697			8.8
Equipment		23,794		18,219		5,575		30.6			4,799		110			666			2.9
Amortization of intangibles		18,917		2,520		16,397		N.M.			16,481		—			(84	)		(0.4	)
Marketing		8,919		7,696		1,223		15.9			4,361		22			(3,160	)		(26.2	)
Professional services		9,090		6,482		2,608		40.2			2,707		(402	)		303			3.4
Telecommunications		6,245		4,126		2,119		51.4			2,224		594			(699	)		(10.1	)
Printing and supplies		5,622		3,242		2,380		73.4			1,374		47			959			20.6
Other expense		28,347		23,426		4,921		21.0			13,048		(59	)		(8,068	)		(22.2	)

Total non-interest expense	$	370,481	$	242,072	$	128,409		53.0	%	$	135,690	$	6,255		$	(13,536	)		(3.5	)%


N.M., not a meaningful value

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

The $13.5 million, or 4%, non-merger-related decline reflected:

	•		$8.1 million, or 22%, decline in other expense. This decline primarily reflected the benefit of the current quarter’s $12.4 million Visa ^® indemnification reversal, partially offset by $2.6 million of the current quarter’s $11.0 million asset impairment.

	•		$3.6 million, or 2%, decline in personnel expense, reflecting the benefit of merger efficiencies, including the impact of a 429 reduction, or 4%, in full-time equivalent staff during the 2008 first quarter and a 387, or 3%, reduction during the 2007 fourth quarter.

	•		$3.2 million, or 26%, decline in marketing expense.

•

$2.5 million, or 7%, decline in outside data processing and other services, reflecting merger-related expense efficiencies.

Partially offset by:

•

$2.7 million, or 9%, increase in net occupancy expense, reflecting a $2.5 million write down of leasehold improvements in our Cleveland main office, which was part of the current quarter’s $11.0 million asset impairment.

2008 First Quarter versus 2007 Fourth Quarter

Non-interest expense decreased $69.1 million, or 16%, from the 2007 fourth quarter, of which $37.3 million represented a decline in merger costs. Table 12 details the $69.1 million decline in reported total non-interest expense.

Table 12 — Non-Interest Expense — Estimated Merger-Related Impacts — 1Q’08 vs. 4Q’07


	First Quarter		Fourth Quarter		Change									Non-merger Related
(in thousands)	2008		2007		Amount			Percent			Merger Costs			Amount			% ⁽¹⁾

Personnel costs	$	201,943	$	214,850	$	(12,907	)		(6.0	)%	$	(20,103	)	$	7,196			3.7	%
Outside data processing and other services		34,361		39,130		(4,769	)		(12.2	)		(3,598	)		(1,171	)		(3.3	)
Net occupancy		33,243		26,714		6,529			24.4			(750	)		7,279			28.0
Equipment		23,794		22,816		978			4.3			(65	)		1,043			4.6
Amortization of intangibles		18,917		20,163		(1,246	)		(6.2	)		—			(1,246	)		(6.2	)
Marketing		8,919		16,175		(7,256	)		(44.9	)		(6,825	)		(431	)		(4.6	)
Professional services		9,090		14,464		(5,374	)		(37.2	)		(3,755	)		(1,619	)		(15.1	)
Telecommunications		6,245		8,513		(2,268	)		(26.6	)		(360	)		(1,908	)		(23.4	)
Printing and supplies		5,622		6,594		(972	)		(14.7	)		(996	)		24			0.4
Other expense		28,347		70,133		(41,786	)		(59.6	)		(897	)		(40,889	)		(59.1	)

Total non-interest expense	$	370,481	$	439,552	$	(69,071	)		(15.7	)%	$	(37,349	)		(31,722	)		(7.9	)%


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

The $31.7 million, or 8%, non-merger-related decrease reflected:

•

$40.9 million decrease in other expense, reflecting the current quarter’s $12.4 million Visa ^® indemnification reversal compared with the $24.9 million Visa ^® indemnification charge in the prior quarter and an $8.9 million decrease in litigation expense, partially offset by $2.6 million of the current quarter’s $11.0 million in asset impairment.

Partially offset by:

	•		$7.3 million increase in net occupancy expense, reflecting $3.0 million in seasonal snow removal expense and a $2.5 million write down of leasehold improvements in our Cleveland main office, which was part of the current quarter’s $11.0 million asset impairment.

	•		$7.2 million increase in personnel costs, reflecting a seasonal increase in employment taxes, including FICA.

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

The provision for income taxes in the 2008 first quarter was $26.4 million and represented an effective tax rate on income before taxes of 17.2%. The 2007 first quarter effective tax rate was 25.9% and the 2007 fourth quarter effective tax rate was a benefit of 39.9%. The provision for income taxes decreased $7.2 million from the year-ago quarter primarily reflecting an increase in tax-exempt income and general business credits, as well as a decrease in our valuation reserve for capital loss utilization. The provision for income taxes increased $185.2 million from the 2007 fourth quarter, reflecting a pretax loss in the 2007 fourth quarter. The effective tax rate is expected to be in a range of 24%-27% for the remainder of 2008.

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

The Internal Revenue Service is currently examining our federal tax returns for the years ending 2004 and 2005. In addition, we are subject to ongoing tax examinations in various jurisdictions. We believe that the resolution of these examinations will not have a significantly 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 the borrower’s ability to meet its 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, 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.

More information on risk is set forth under the heading “Risk Factors” included in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2007. Additionally, the MD&A appearing in our 2007 Form 10-K should be read in conjunction with this discussion and analysis as this report provides only material updates to the 2007 Form 10-K. Our definition, philosophy, and approach to risk management are unchanged from the discussion presented in that document.

Credit Risk

Credit risk is the risk of loss due to adverse changes in a borrower’s ability to meet its financial obligations under agreed upon terms. The majority of our credit risk is associated with lending activities, as the acceptance and management of credit risk is central to profitable lending. Credit risk is mitigated through a combination of credit policies and processes and portfolio diversification.

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

As shown in Table 13, at March 31, 2008, commercial loans totaled $23.2 billion, and represented 56% of our total credit exposure. This portfolio was diversified between C&I loans and CRE loans (see “Commercial Credit” discussion below).

Total consumer loans were $17.9 billion at March 31, 2008, and represented 44% of our total credit exposure. The consumer portfolio was diversified among home equity loans, residential mortgages, and automobile loans and leases (see “Consumer Credit” discussion below). Our home equity and residential mortgages portfolios represented $12.7 billion, or 31%, of our total credit exposure. These portfolios are discussed in greater detail below in the “Consumer Credit” section of this report.

Table 13 — Loans and Leases Composition ⁽¹⁾


	2008				2007

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

By Type
Commercial:
Commercial and industrial	$	13,645,890	33.3	%	$	13,125,565	32.8	%	$	13,125,158	32.8	%	$	8,185,451	30.5	%	$	8,115,908	30.9	%
Commercial real estate:
Construction		2,058,105	5.0			1,961,839	4.9			1,876,075	4.7			1,382,533	5.2			1,183,813	4.5
Commercial		7,457,744	18.2			7,221,213	18.0			7,097,465	17.7			3,484,039	13.0			3,334,530	12.7

Commercial real estate		9,515,849	23.2			9,183,052	22.9			8,973,540	22.4			4,866,572	18.2			4,518,343	17.2

Total commercial		23,161,739	56.5			22,308,617	55.7			22,098,698	55.2			13,052,023	48.7			12,634,251	48.1

Consumer:
Automobile loans		3,491,369	8.5			3,114,029	7.8			2,959,913	7.4			2,424,105	9.0			2,251,215	8.6
Automobile leases		999,629	2.4			1,179,505	2.9			1,365,805	3.4			1,488,903	5.6			1,623,758	6.2
Home equity		7,296,448	17.8			7,290,063	18.2			7,317,545	18.3			5,015,506	18.7			4,914,462	18.7
Residential mortgage		5,366,414	13.1			5,447,126	13.6			5,505,340	13.8			4,398,720	16.4			4,405,943	16.8
Other loans		698,620	1.7			714,998	1.8			739,939	1.9			432,256	1.6			437,117	1.6

Total consumer		17,852,480	43.5			17,745,721	44.3			17,888,542	44.8			13,759,490	51.3			13,632,495	51.9

Total loans and leases	$	41,014,219	100.0	%	$	40,054,338	100.0		$	39,987,240	100.0	%	$	26,811,513	100.0	%	$	26,266,746	100.0	%


By Business Segment
Regional Banking:
Central Ohio	$	5,229,075	12.7	%	$	5,110,270	12.8	%	$	4,993,373	12.5	%	$	3,701,459	13.9	%	$	3,669,569	13.7	%
Northwest Ohio		2,280,255	5.6			2,284,141	5.7			2,342,088	5.9			449,232	1.7			455,075	1.7
Greater Cleveland		3,194,533	7.8			3,097,120	7.7			3,057,757	7.6			2,099,941	7.8			2,019,820	7.7
Greater Akron/Canton		2,058,031	5.0			2,020,447	5.0			2,078,588	5.2			1,330,102	5.0			1,318,932	5.0
Southern Ohio/Kentucky		2,900,259	7.1			2,659,870	6.6			2,547,800	6.4			2,275,224	8.5			2,159,407	8.2
Mahoning Valley		893,317	2.2			927,918	2.3			939,739	2.4			—	—			—	—
Ohio Valley		870,833	2.1			870,276	2.2			869,139	2.2			—	—			—	—
West Michigan		2,535,359	6.2			2,477,617	6.2			2,520,325	6.3			2,439,517	9.1			2,453,300	9.3
East Michigan		1,766,750	4.3			1,750,171	4.4			1,760,158	4.4			1,654,934	6.2			1,646,028	6.3
Western Pennsylvania		1,031,319	2.5			1,053,685	2.6			1,106,068	2.8			—	—			—	—
Pittsburgh		926,487	2.3			900,789	2.2			888,848	2.2			—	—			—	—
Central Indiana		1,507,934	3.7			1,421,116	3.5			1,419,693	3.6			1,004,934	3.7			971,186	3.7
West Virginia		1,158,915	2.8			1,155,719	2.9			1,125,628	2.8			1,148,573	4.3			1,109,197	4.2
Other Regional		6,251,173	15.3			6,176,485	15.6			6,409,470	15.9			3,832,953	14.2			3,691,557	14.3

Regional Banking		32,604,240	79.5			31,905,624	79.7			32,058,674	80.2			19,936,869	74.4			19,494,071	74.2
Dealer Sales		5,862,116	14.3			5,563,415	13.9			5,449,580	13.6			4,944,386	18.4			4,903,370	18.7
Private Financial and Capital Markets Group		2,547,863	6.2			2,585,299	6.4			2,478,986	6.2			1,930,258	7.2			1,869,305	7.1
Treasury / Other		—	—			—	—			—	—			—	—			—	—

Total loans and leases	$	41,014,219	100.0	%	$	40,054,338	100.0	%	$	39,987,240	100.0	%	$	26,811,513	100.0	%	$	26,266,746	100.0	%


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

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

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

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

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

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

Franklin is a specialty consumer finance company primarily engaged in the servicing and resolution of performing, reperforming, and nonperforming residential mortgage loans. Franklin’s portfolio consists of loans secured by 1-4 family residential real estate that generally fall outside the underwriting standards of the Federal National Mortgage Association (FNMA or Fannie Mae) and the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) and involve elevated credit risk as a result of the nature or absence of income documentation, limited credit histories, and higher levels of consumer debt or past credit difficulties. Franklin purchased these loan portfolios at a discount to the unpaid principal balance and originated loans with interest rates and fees calculated to provide a rate of return adjusted to reflect the elevated credit risk inherent in these types of loans. Franklin originated nonprime loans through its wholly owned subsidiary, Tribeca Lending Corp., and has generally held for investment the loans acquired and a significant portion of the loans originated.

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

At March 31, 2008, bank group loans totaled $1.572 billion, down $13 million from $1.585 billion at December 31, 2007. This change reflected a $57 million reduction due to payments received, partially offset by an increase of $43 million as the Bank of Scotland entered into the restructuring agreement. The loans participated to other banks commensurately increased $43 million reflecting Bank of Scotland’s participation in the restructuring as of March 31, 2008.

At March 31, 2008, our exposure to Franklin net of charge-offs was $1.157 billion, down $31 million, or 3%, from $1.188 billion exposure at December 31, 2007. This reduction reflected loan payments. Our net exposure reflected $117 million of cumulative net charge-offs, all of which occurred in the 2007 fourth quarter as a result of the restructuring. This relationship continued to perform with interest being accrued. At March 31, 2008, our specific ALLL for Franklin loans was $115.3 million, unchanged from December 31, 2007, and there were no net charge-offs or provision for credit losses in the current quarter. Importantly, the cash flow generated by the underlying collateral in the current quarter exceeded the required payments per terms of the restructuring agreement. In the second half of 2008, our proportion of payments received is expected to increase to our pro-rata participation level, following satisfaction of certain terms of the restructuring agreement which provided for a more rapid amortization on a certain participant’s portion of the debt.

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

Table 14 — Commercial Loans to Franklin and Quarterly Activity


										Participated
(in thousands of dollars)	Franklin			Tribeca			Subtotal			to others			Total
Variable rate, term loan (Facility A)	$	573,396		$	408,726		$	982,122		$	(195,595	)	$	786,527
Variable rate, subordinated term loan (Facility B)		321,014			98,774			419,788			(71,647	)		348,141
Fixed rate, junior subordinated term loan (Facility C)		125,000			—			125,000			(8,224	)		116,776
Line of credit facility		733			—			733			—			733
Other variable rate term loans		43,920			—			43,920			(21,960	)		21,960

Subtotal		1,064,063			507,500			1,571,563		$	(297,426	)	$	1,274,137


Participated to others		(193,861	)		(103,565	)		(297,426	)

Total principal owed to Huntington		870,202			403,935			1,274,137
Previously charged off		(116,776	)		—			(116,776	)

Total book value of loans	$	753,426		$	403,935		$	1,157,361


	Bank Group						Huntington
				Loans
				Participated to						Cumulative Net
(in thousands of dollars)	Total Loans			Others			Total Loans			Charge-offs			Net Loans

Commercial loans, at December 31, 2007	$	1,584,967		$	(279,790	)	$	1,305,177		$	(116,776	)	$	1,188,401
Bank of Scotland enters restructuring		43,295			(43,295	)		—			—			—
Payments received		(56,699	)		25,659			(31,040	)		—			(31,040	)

Commercial loans, at March 31, 2008	$	1,571,563		$	(297,426	)	$	1,274,137		$	(116,776	)	$	1,157,361

Single Family Home Builders

At March 31, 2008, we had $1.7 billion of loans to single family home builders. Such loans represented 4% of total loans and leases. Of this portfolio, 68% were to finance projects currently under construction, 18% to finance land under development, and 14% to finance land held for development. The $1.7 billion represented a $0.2 billion increase from the 2007 fourth quarter. This increase reflected reclassifications from other CRE segments, primarily associated with smaller loans acquired during the Sky Financial acquisition. This reclassification is part of our continuing assessment, review, and analysis of our exposure to this industry.

The housing market across our geographic footprint remains stressed, reflecting relatively lower sales activity, declining prices, and excess inventories of houses to be sold, particularly impacting borrowers in our eastern Michigan and northern Ohio markets. We anticipate the residential developer market will continue to be depressed, and anticipate continued pressure on the single family home builder segment in the coming months. We have taken the following steps to mitigate the risk arising from this exposure: (1) all loans within the portfolio have been reviewed continuously over the past 18 months and will continue to be closely monitored, (2) credit valuation adjustments have been made when appropriate based on the current condition of each relationship, and (3) reserves have been increased based on proactive risk identification and thorough borrower analysis.

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

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

Our consumer loan portfolio is primarily comprised of traditional residential mortgages, home equity loans and lines of credit and automobile loans and leases. The residential mortgage and home equity portfolios are diversified throughout our geographic footprint. Our automobile loan and lease portfolio is predominantly diversified throughout our geographic footprint, but we do originate automobile loans and leases in other states outside of our geographic footprint, primarily Florida and Arizona.

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

Given the market conditions in our markets as described above in the single family home builder section, the following two segments are particularly noteworthy:

Home Equity Portfolio

Our home equity portfolio (loans and lines of credit) consists of both first and second mortgage loans with underwriting criteria based on minimum FICO credit scores, debt-to-income ratios, and loan-to-value (LTV) ratios. We offer closed-end home equity loans with a fixed interest rate and level monthly payments and a variable-rate, interest-only home equity line of credit. At March 31, 2008, we had $3.4 billion of home equity loans and $3.9 billion of home equity lines of credit. The $3.4 billion of home equity loans included $1.3 billion of first mortgage loans. Our home equity portfolio represented 18% of total loans and leases.

We believe we have granted credit conservatively within this portfolio. We do not originate home equity loans or lines of credit that allow negative amortization, or which have cumulative LTV ratios (including any first mortgage loans) at origination greater than 100%. Home equity loans are generally fixed rate with periodic principal and interest payments. We originated $204 million of home equity loans during the 2008 first quarter with a weighted average LTV ratio at origination of 67% and a weighted average FICO score at origination of 739. 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 2008 first quarter, we originated $440 million of home equity lines of credit commitments with a weighted average cumulative LTV ratio at origination of 76% and a weighted average FICO score at origination of 752. The weighted average cumulative LTV ratio at origination of our home equity portfolio was 75% at March 31, 2008.

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

Residential Mortgages

At March 31, 2008, we had $5.4 billion of residential mortgage loans, which represented 13% of total loans and leases. We focus on higher quality borrowers, and underwrite all applications centrally, or through the use of an automated underwriting system. We do not originate residential mortgage loans that (a) allow negative amortization, (b) have a LTV ratio at origination greater than 100%, or (c) are “payment option adjustable-rate mortgages.” At March 31, 2008, the loans in the portfolio were to borrowers with an average current FICO score of 702 and had an average LTV ratio of 76%.

A majority of the loans in our loan portfolio have adjustable rates. Our adjustable-rate mortgages (ARMs) are primarily residential mortgages that have a fixed rate for the first 3 to 5 years and then adjust annually. These loans comprised approximately 60% of our total residential mortgage loan portfolio at March 31, 2008. At March 31, 2008, ARM loans that were expected to have rates reset totaled $586 million and $749 million in 2008 and 2009, respectively.

Given the quality of our borrowers, and the 2008 first quarter decline in interest rates, we believe that we have a relatively limited exposure to ARM reset risk. Nonetheless, we have taken actions to mitigate our risk exposure. We initiate borrower contact at least six months prior to the interest rate resetting, and have been successful in converting many ARMs to fixed-rate loans through this process. Additionally, where borrowers are experiencing payment difficulties, loans may be re-underwritten or restructured based on the borrower’s ability to repay the loan.

We had $0.5 billion of Alt-A mortgages in the residential mortgage loan portfolio at March 31, 2008. These loans have a higher risk profile than the rest of the portfolio as a result of origination policies including stated income, stated assets, and higher acceptable LTV ratios. Our exposure related to this product will decline in the future as we stopped originating these loans in 2007.

Interest-only loans comprised $0.8 billion, or 16%, of residential real estate loans at March 31, 2008. Interest-only loans are underwritten to specific standards including minimum FICO credit scores, stressed debt-to-income ratios, and extensive collateral evaluation. At March 31, 2008, borrowers for interest-only loans had an average current FICO score of 726 and the loans had an average LTV ratio of 78%. We continue to believe that we have mitigated the risk of such loans by matching this product with appropriate borrowers.

Credit Quality

Credit quality performance in the 2008 first quarter was mixed, with the net charge-off ratio results below our full-year expectations, whereas there were absolute and relative increases in the level of reserves. The reserve increase reflected the impact of the continued economic weakness across our Midwest markets, most notably in portfolios related to the residential housing sector, both commercial and consumer. These economic factors influenced the performance of net charge-offs (NCOs), non-accrual loans (NALs), and non-performing assets (NPAs). To maintain the adequacy of our reserves, there was a commensurate significant increase in the provision for credit losses (see “Provision for Credit Losses” discussion) in order to increase the absolute and relative levels of our allowance for credit losses (ACL).

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

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

NPAs consist of (1) NALs, which represent loans and leases that are no longer accruing interest and/or have been renegotiated to below market rates based upon financial difficulties of the borrower, (2) troubled-debt restructured loans, (3) NALs held-for-sale, (4) real estate acquired through foreclosure, and (5) other NPAs. C&I and CRE business loans are generally placed on nonaccrual status when collection of principal or interest is in doubt or when the loan is 90-days past due. When interest accruals are suspended, accrued interest income is reversed with current year accruals charged to earnings and prior-year amounts generally charged-off as a credit loss.

Table 15 reflects period-end NALs, NPAs, and past due loans and leases detail for each of the last five quarters.

Table 15 — Nonaccruing Loans (NALs), Nonperforming Assets (NPAs) and Past Due Loans and Leases


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

Non-accrual loans and leases:
Commercial and industrial	$	101,842		$	87,679		$	82,960		$	65,846		$	58,343
Commercial real estate		183,000			148,467			95,587			88,965			47,100
Residential mortgage		66,466			59,557			47,738			39,868			35,491
Home equity		26,053			24,068			23,111			16,837			16,396

Total NALs		377,361			319,771			249,396			211,516			157,330

Restructured loans		1,157,361			1,187,368			—			—			—
Other real estate:
Residential		63,675			60,804			49,555			47,590			46,892
Commercial		10,181			14,467			19,310			2,079			2,456

Total other real estate		73,856			75,271			68,865			49,669			49,348
Impaired loans held for sale ⁽¹⁾		66,353			73,481			100,485			—			—
Other NPAs ⁽²⁾		2,836			4,379			16,296			—			—

Total NPAs	$	1,677,767		$	1,660,270		$	435,042		$	261,185		$	206,678


NALs as a % of total loans and leases		0.92	%		0.80	%		0.62	%		0.79	%		0.60	%

NPA ratio ⁽³⁾		4.08			4.13			1.08			0.97			0.79

Accruing loans and leases past due 90 days or more	$	152,897		$	140,977		$	115,607		$	67,277		$	70,179

Accruing loans and leases past due 90 days or more as a percent of total loans and leases		0.37	%		0.35	%		0.29	%		0.25	%		0.27	%


⁽¹⁾		Impaired loans held for sale represent impaired loans obtained from the Sky Financial acquisition that are intended to be sold. Impaired loans held for sale are carried at the lower of cost or fair value less costs to sell.

⁽²⁾		Other NPAs represent certain investment securities backed by mortgage loans to borrowers with lower FICO scores.

⁽³⁾		Nonperforming assets divided by the sum of loans and leases, impaired loans held for sale, other real estate, and other NPAs.

The $57.6 million, or 18%, increase in NALs from the end of the prior quarter primarily reflected a $34.5 million, or 23%, increase in CRE NALs and a $14.2 million, or 16%, increase in C&I NALs. These increases reflected the continued softness in the residential real estate development markets and overall economic weakness in our markets, particularly among our borrowers in eastern Michigan and northern Ohio. Residential mortgage and home equity NALs increased 12% and 8%, respectively, also reflecting the overall economic weakness in our markets.

NPAs, which include NALs, were $1.678 billion at March 31, 2008. This compared with $206.7 million at the end of the year-ago period and $1.660 billion at December 31, 2007. The $17.5 million, or 1%, increase in NPAs from the end of the prior quarter reflected:

•

$57.6 million increase in NALs as discussed above.

Partially offset by:

	•		$30.0 million, or 3%, reduction in restructured Franklin loans.

	•		$7.1 million, or 10%, reduction in impaired loans held for sale, reflecting payments.

	•		$1.5 million decline in other NPAs, representing the further write down of certain investment securities backed by mortgage loans.

The 2 basis point increase in the 90-day delinquent ratio from December 31, 2007, reflected a 2 basis point increase in the total commercial loan 90-day delinquent ratio to 0.18% from 0.16%, and a 3 basis point increase in the total consumer loan 90-day delinquent ratio to 0.62% from 0.59%.

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

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

Table 16 — Non-Performing Assets (NPAs) Activity


	2008			2007
(in thousands)	First			Fourth			Third			Second			First

NPAs, beginning of period	$	1,660,270		$	435,042		$	261,185		$	206,678		$	193,620
New NPAs		141,090			211,134			92,986			112,348			51,588
Restructured loans ⁽¹⁾		—			1,187,368			—			—			—
Acquired NPAs		—			—			144,492			—			—
Returns to accruing status		(13,484	)		(5,273	)		(8,829	)		(4,674	)		(6,176	)
Loan and lease losses		(27,896	)		(62,502	)		(28,031	)		(27,149	)		(9,072	)
Payments		(68,753	)		(30,756	)		(17,589	)		(19,662	)		(18,086	)
Sales		(13,460	)		(74,743	)		(9,172	)		(6,356	)		(5,196	)

NPAs, end of period	$	1,677,767		$	1,660,270		$	435,042		$	261,185		$	206,678


⁽¹⁾		Restructured loans are net of loan losses and payments.

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

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

Table 17 reflects activity in the ALLL and AULC for each of the last five quarters.

Table 17 — Quarterly Credit Reserves Analysis


	2008			2007
(in thousands)	First			Fourth			Third			Second			First

Allowance for loan and lease losses, beginning of period	$	578,442		$	454,784		$	307,519		$	282,976		$	272,068
Acquired allowance for loan and lease losses		—			—			188,128			—			—
Loan and lease losses		(60,804	)		(388,506	)		(57,466	)		(44,158	)		(27,813	)
Recoveries of loans previously charged off		12,355			10,599			10,360			9,658			9,695

Net loan and lease losses		(48,449	)		(377,907	)		(47,106	)		(34,500	)		(18,118	)

Provision for loan and lease losses		97,622			503,781			36,952			59,043			29,026
Allowance for loans transferred to held-for-sale		—			(2,216	)		(30,709	)		—			—

Allowance for loan and lease losses, end of period	$	627,615		$	578,442		$	454,784		$	307,519		$	282,976


Allowance for unfunded loan commitments and letters of credit, beginning of period	$	66,528		$	58,227		$	41,631		$	40,541		$	40,161

Acquired AULC		—			—			11,541			—			—
(Reduction in) provision for unfunded loan commitments and letters of credit losses		(8,972	)		8,301			5,055			1,090			380

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

Total allowances for credit losses	$	685,171		$	644,970		$	513,011		$	349,150		$	323,517


Allowance for loan and lease losses (ALLL) as % of:
Transaction reserve		1.34	%		1.27	%		0.97	%		0.94	%		0.89	%
Economic reserve		0.19			0.17			0.17			0.21			0.19

Total loans and leases		1.53	%		1.44	%		1.14	%		1.15	%		1.08	%

Nonaccrual loans and leases (NALs)		166			181			182			145			180

Total allowances for credit losses (ACL) as % of:
Total loans and leases		1.67	%		1.61	%		1.28	%		1.30	%		1.23	%
NALs		182			202			206			165			206

At March 31, 2008, the ALLL was $627.6 million, up from $283.0 million a year ago and from $578.4 million at December 31, 2007. During the quarter, we updated the expected loss factors used to estimate the AULC. The lower expected loss factors were based on our observations of how unfunded loan commitments have historically migrated to loan losses. Additionally, we also made other adjustments that increased the level of the ALLL during the quarter. In the aggregate, these changes did not have a significant impact to the 2008 first quarter provision for credit losses. Expressed as a percent of period-end loans and leases, the ALLL ratio at March 31, 2008, was 1.53%, up from 1.08% a year ago and from 1.44% at December 31, 2007. The $49.2 million increase from the end of the prior quarter primarily reflected declining credit quality in the CRE portfolio.

Given the current market conditions, we believe the increase in the ALLL is prudent. Our highly quantitative loan loss reserve methodology indicates the need for higher reserves in response to changes in underlying portfolio characteristics as reflected in the transaction reserve component, and changes in the economy as reflected in the economic reserve component. At March 31, 2008, the specific ALLL related to Franklin was $115.3 million, unchanged from December 31, 2007. Given the expectation of continued stress in commercial real estate markets, as well as weak performance of the eastern Michigan and northern Ohio economies, we expect modest increases in the ALLL ratio during the remainder of 2008.


Part I. Financial Information

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets at March 31, 2008, December 31, 2007, and March 31, 2007	52

	Condensed Consolidated Statements of Income for the three months ended March 31, 2008 and 2007	53

	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2008 and 2007	54

	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007	55

	Notes to Unaudited Condensed Consolidated Financial Statements	56

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

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	75

Item 4.	Controls and Procedures	75

Item 4T.	Controls and Procedures	75

Part II. Other Information

Item 6.	Exhibits	76

Signatures		77
EX-12.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2


	2008		2007
(in thousands)	First		Fourth		Third		Second		First

Net charge-offs by loan and lease type:
Commercial:
Commercial and industrial	$	10,732	$	323,905	$	12,641	$	7,251	$	2,043
Commercial real estate:
Construction		122		6,800		2,157		2,888		9
Commercial		4,153		13,936		2,506		10,396		412

Commercial real estate

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