UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Commission File Number 1-34073

Huntington Bancshares Incorporated

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

41 South High Street, Columbus, Ohio 43287

Registrant’s telephone number (614) 480-8300

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes o No

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

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

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

There were 864,074,883 shares of Registrant’s common stock ($0.01 par value) outstanding on September 30, 2011.

 

 

HUNTINGTON BANCSHARES INCORPORATED
INDEX

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at September 30, 2011, December 31, 2010, and September 30, 2010			76
Condensed Consolidated Statements of Income for the three months and nine months ended September 30, 2011 and 2010			77
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended September 30, 2011 and 2010			78
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010			79
Notes to Unaudited Condensed Consolidated Financial Statements			80
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Overview			7
Discussion of Results of Operations			10
Risk Management and Capital:
Credit Risk			29
Market Risk			48
Liquidity Risk			50
Operational Risk			54
Compliance Risk			55
Capital			55
Business Segment Discussion			59
Additional Disclosures			73
Item 3. Quantitative and Qualitative Disclosures about Market Risk			142
Item 4. Controls and Procedures			142
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			142
Item 1A. Risk Factors			142
Item 6. Exhibits			142
Signatures			144
Exhibit 12.1
Exhibit 12.2
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

Glossary of Acronyms and Terms

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

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

FTP		Funds Transfer Pricing
GAAP		Generally Accepted Accounting Principles in the United States of America
GSIFI		Globally Systemically Important Financial Institution
GSE		Government Sponsored Enterprise
HASP		Homeowner Affordability and Stability Plan
HCER Act		Health Care and Education Reconciliation Act of 2010
IPO		Initial Public Offering
IRS		Internal Revenue Service
ISE		Interest Sensitive Earnings
LIBOR		London Interbank Offered Rate
LGD		Loss-Given-Default
LTV		Loan to Value
MD&A		Management’s Discussion and Analysis of Financial Condition and Results of Operations
MRC		Market Risk Committee
MSA		Metropolitan Statistical Area
MSR		Mortgage Servicing Rights
NALs		Nonaccrual Loans
NAV		Net Asset Value
NCO		Net Charge-off
NPAs		Nonperforming Assets
NSF / OD		Nonsufficient Funds and Overdraft
OCC		Office of the Comptroller of the Currency
OCI		Other Comprehensive Income (Loss)
OCR		Optimal Customer Relationship
OLEM		Other Loans Especially Mentioned
OREO		Other Real Estate Owned
OTTI		Other-Than-Temporary Impairment
PD		Probability-Of-Default
Plan		Huntington Bancshares Retirement Plan
Reg E		Regulation E, of the Electronic Fund Transfer Act
REIT		Real Estate Investment Trust
SAD		Special Assets Division
SBA		Small Business Administration
SEC		Securities and Exchange Commission
SERP		Supplemental Executive Retirement Plan
SIFIs		Systemically Important Financial Institutions
Sky Financial		Sky Financial Group, Inc.
SRIP		Supplemental Retirement Income Plan
Sky Trust		Sky Bank and Sky Trust, National Association
TAGP		Transaction Account Guarantee Program
TARP		Troubled Asset Relief Program
TARP Capital		Series B Preferred Stock
TCE		Tangible Common Equity
TDR		Troubled Debt Restructured Loan
TLGP		Temporary Liquidity Guarantee Program
Treasury		U.S. Department of the Treasury

UCS		Uniform Classification System
Unizan		Unizan Financial Corp.
UPB		Unpaid Principal Balance
USDA		U.S. Department of Agriculture
VA		U.S. Department of Veteran Affairs
VIE		Variable Interest Entity
WGH		Wealth Advisors, Government Finance, and Home Lending

PART I. FINANCIAL INFORMATION

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

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

INTRODUCTION

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

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

Our discussion is divided into key segments:

•

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

•

Discussion of Results of Operations - Reviews financial performance from a consolidated Company perspective. It also includes a Significant Items section that summarizes key issues helpful for understanding performance trends. Key consolidated average balance sheet and income statement trends are also discussed in this section.

•

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

•

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

•

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

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

EXECUTIVE OVERVIEW

Summary of 2011 Third Quarter Results

For the quarter, we reported net income of $143.4 million, or $0.16 per common share, compared with $145.9 million, or $0.16 per common share, in the prior quarter (see Table 1).

Fully-taxable equivalent net interest income was $410.1 million for the quarter, up $3.0 million, or 1%, from the prior quarter. The increase reflected the benefit of a 2% (6% annualized) increase in average earning assets, partially offset by a 6 basis point decline in the fully-taxable equivalent net interest margin to 3.34% from 3.40%.

The provision for credit losses in the 2011 third quarter was $43.6 million, up $7.8 million, or 22%, from the prior quarter. This reflected the combination of strong loan growth and the expectation of a weaker and prolonged economic recovery. These were partially offset by the benefits of an end-of-period decline of 8% in nonaccrual loans and a 4% decline in total Criticized commercial loans.

Total noninterest income increased $2.8 million, or 1%, from the prior quarter. This included an increase in other income of $15.1 million, or 33%, reflecting a $15.5 million gain on sale from the automobile securitization and a $2.8 million increase in market-related gains and capital markets income, which was partially offset by a $5.8 million decline in SBA servicing income. Service charges on deposit accounts and electronic banking income increased $4.5 million, or 7%, and $1.0 million, or 3%, respectively, primarily driven by new account growth. These benefits were partially offset by an $11.0 million decline in mortgage banking income, primarily driven by a negative $13.9 million linked quarter change in the net MSR valuation, the majority of which occurred over the last two weeks of the quarter.

Noninterest expense increased $10.7 million, or 2%. Personnel costs increased $8.3 million, or 4%, due to higher salary, severance, and healthcare costs. Outside data processing and other services increased $5.7 million, or 13%, primarily due to costs associated with a conversion to a new debit card processor.

The period end ACL as a percentage of total loans and leases decreased to 2.71% from 2.84%. However, the ACL as a percentage of period end NALs increased to 187% from 181%. Net charge-offs were $90.6 million, or an annualized 0.92% of average total loans and leases, down 7% from $97.5 million, or 1.01%, in the prior quarter. Credit quality continued its expected improvement. Even so, many of these performance metrics remain elevated compared with historical performance. We expect to see continued declines in nonaccrual loans and net charge-offs going forward.

Business Overview

General

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

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

Our emphasis on cross-sell, coupled with customers increasingly being attracted by the benefits offered through our “Fair Play” banking philosophy is having a positive effect. The number of consumer checking account households grew at a 10.8% annualized rate for the first three quarters of 2011. These new households are not just focused around single service. We have been able to continue to grow our share of wallet with new and existing customers. Almost 73% of our consumer customers now have four or more products or services. On the commercial side, we also saw an increase with commercial relationships growing for the first nine months at an 8.6% annualized rate.

Economy

Wavering business and consumer confidence, U.S. debt and fiscal uncertainties, and slow economic growth remain challenges to the operating environment. Consumer sentiment has dropped to the lowest level since the recessionary period in 2008. Elevated housing inventories continue to present a near-term drag; however housing affordability is near record highs on historically low mortgage rates and lower home prices.

Legislative and Regulatory

Regulatory reforms continue to be adopted which impose additional restrictions on current business practices. Recent actions affecting us included the Federal Reserve’s maturity extension program, and the rules and regulations that have been issued pursuant to the Dodd-Frank Act.

Federal Reserve Maturity Extension Program — Under the maturity extension program announced on September 21, 2011, the Federal Reserve intends to sell $400 billion of shorter-term Treasury securities by the end of 2012 and use the proceeds to buy longer-term securities. This will extend the average maturity of the securities in the Federal Reserve’s portfolio. By reducing the supply of longer-term securities in the market, it is the FOMC’s intention to put downward pressure on longer-term interest rates, including rates on financial assets that investors consider to be close substitutes for longer-term Treasury securities. Further, it is their objective that the reduction in longer-term interest rates, in turn, will contribute to a broad easing in financial market conditions that will provide additional stimulus to support the economic recovery. We do not anticipate that this recent announcement will have a material impact on our current securities portfolio or future investment strategy. However, it could cause our net interest margin to drop modestly.

Resolution Plan — The FRB and FDIC issued final regulations as required by section 165 of the Dodd-Frank Act regarding resolution plans, also referred to as “living wills.” Insured depository institutions with $50 billion or more in total assets must submit to the FDIC a plan whereby the institution can be resolved by the FDIC, in the event of failure, in a manner that ensures depositors will receive access to insured funds within the required timeframes and generally ensures an orderly liquidation of the institution. Additionally, bank holding companies with assets of $50 billion or more are required to submit to the FRB and the FDIC a plan that, in the event of material financial distress or failure, establishes the rapid and orderly liquidation of the company under the bankruptcy code and in a way that would not pose systemic risk to the financial system of the United States. The regulations allow for a tier approach for complying with the requirements based on materiality of the institution. Currently, we are required to submit resolution plans as prescribed by December 31, 2013.

Durbin Amendment — The Durbin Amendment to the Dodd-Frank Act instructed the Federal Reserve to establish the rate merchants pay banks for electronic clearing of debit card transactions (i.e., the interchange rate). The Federal Reserve recently issued its final rule establishing standards for debit card interchange fees and prohibiting network exclusivity arrangements and routing restrictions. The final rule establishes standards for assessing whether debit card interchange fees received by debit card issuers are reasonable and proportional to the costs incurred by issuers for electronic debit transactions. Under the final rule, the maximum permissible interchange fee that an issuer may receive for an electronic debit transaction will be the sum of 21 cents per transaction, 1 cent fraud prevention adjustment, and 5 basis points multiplied by the value of the transaction. This provision regarding debit card interchange fees became effective on October 1, 2011. Based on the final rule, we expect our 2011 fourth quarter electronic banking income to decline from the 2011 third quarter level by approximately 50%, or $16 million.

Recent Industry Developments

Recent industry events and related supervisory guidance brought about by the continued weak housing market have caused us to evaluate certain aspects of our mortgage operations. This included a review of our foreclosure documentation, MSR valuation, and representation and warranty reserve level. Additionally, we are evaluating potential impacts from recent announcements of the enhanced Home Affordable Refinance Program (HARP) and by PMI Mortgage Insurance Co. (PMI).

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

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

Representation and Warranty Reserve —We primarily conduct our loan sale and securitization activity with FNMA and FHLMC. In connection with these and other sale and securitization transactions, we make representations and warranties that the loans meet certain criteria, such as collateral type and underwriting standards. We may be required to repurchase individual loans and / or indemnify these organizations against losses due to material breaches of these representations and warranties. At September 30, 2011, we had a reserve for such losses of $23.9 million, which is included in accrued expenses and other liabilities.

Home Affordable Refinance Program — The FHFA has announced changes to the Home Affordable Refinance Program designed to attract more borrowers with FNMA and FHLMC backed mortgages that can benefit from refinancing their residential mortgage loans under current low interest rates. The new operational details are to be issued by November 15, 2011. We do not expect the impact to be material.

PMI Mortgage Insurance Co. (PMI) — On August 19, 2011, PMI informed its customers that it was required to stop writing new commitments and we stopped doing new business with PMI at that time. On October 24, 2011, PMI informed all policyholders, insured parties, and servicers of loans insured by PMI that the Director of the Arizona Department of Insurance (Director) obtained an “Order Directing Full and Exclusive Possession and Control of Insurer” (the Order) with respect to PMI. Effective October 24, 2011, and pursuant to the Order, instead of a moratorium on claims payments, the Director instituted a partial claims payment plan. Claim payments will be made at 50%, with the remaining amount deferred as a policyholder claim. PMI has not been a significant provider of mortgage insurance for loans in our portfolio. We utilize a number of insurance providers, limiting our risk associated with any one provider. We do not expect the exposure associated with our owned residential mortgage portfolio to have a material impact on our results of operations or financial position.

Expectations

The lack of prospects for meaningful economic improvement, higher interest rates, and wider spreads between short-term and long-term interest rates for the foreseeable future is a challenge. For example, broad-based loan growth, as well as growth in certain fee income activities, is expected to be less than would otherwise be the case in an expanding economy, even though growth in certain portfolios and activities is anticipated. Further, a period of prolonged low interest rates is expected to put pressure on our net interest margin. This would reflect more compression in loan and investment securities yields relative to any declines in deposit and funding rates. In addition, deposit inflows over and above any reinvestment opportunities at appropriate risk adjusted spreads means we may elect to curtail deposit growth, typically an engine of revenue growth. These revenue headwinds are magnified by the continued fragility of business and consumer confidence that is expected to continue the postponement of borrowing and investment decisions. Nevertheless, our success in growing and deepening relationships presents us with an opportunity to selectively expand revenue, while maintaining disciplined loan and deposit pricing, as well as conservative credit underwriting.

Net interest income is expected to continue to show very modest improvement from the third quarter level. The momentum we are seeing in loan and low cost deposit growth is expected to continue, yet the benefits will be mostly offset by pressure on the net interest margin due to the expected continued mix shift to higher quality loans and lower securities reinvestment rates that reflect the low absolute level and shape of the yield curve. If the current interest rate environment, which has partially resulted from the Federal Reserve Maturity Extension Program “Operation Twist”, remains unchanged through 2012, it could cause our net interest margin to drop modestly below our long-term range of 3.30% to 3.75%. Our C&I portfolio is expected to continue to show meaningful growth with much of this reflecting the positive impact from strategic initiatives to expand our commercial lending expertise into areas like specialty banking, asset based lending, and equipment financing, in addition to our long-standing continued support of middle market and small business lending. For automobile loans, we expect to see strong growth from September 30, 2011 balances. Residential mortgages are expected to show modest growth, with CRE continuing to experience modest declines.

We again anticipate the increase in total core deposits to match that of loans, reflecting continued growth in consumer households and commercial relationships. Further, we expect the shift toward low and no cost demand deposits and money market accounts will continue.

Noninterest income is expected to show a modest decline in the 2011 fourth quarter, primarily due to an anticipated 50%, or $16 million, decline in electronic banking income from the third quarter, given the newly mandated lower interchange fee structure implemented October 1, 2011. We expect to see continued growth of service charge income commensurate with customer growth and increased product penetration. Mortgage banking income should increase as the third quarter’s sizable MSR impairment is not expected to repeat. We also anticipate continued growth in the contribution from other key fee income activities including capital markets, treasury management services, and brokerage, reflecting the impact of our cross-sell and product penetration initiatives throughout the company as well as the positive impact from strategic initiatives.

Expense levels are expected to modestly decline in coming quarters though strategic actions like the current debit card conversion may cause short-term fluctuations.

Nonaccrual loans and net charge-offs are expected to continue to decline. Provision for credit losses should remain near current levels, yet there could be some volatility given the uncertain and uneven nature of the economic recovery.

We anticipate the effective tax rate for the foreseeable future to be in the range of 24% to 27%.

DISCUSSION OF RESULTS OF OPERATIONS

This section provides a review of financial performance from a consolidated perspective. It also includes a “Significant Items” section that summarizes key issues important for a complete understanding of performance trends. Key Unaudited Condensed Consolidated Balance Sheet and Statement of Income trends are discussed. All earnings per share data are reported on a diluted basis. For additional insight on financial performance, please read this section in conjunction with the “Business Segment Discussion.”

Table 1 — Selected Quarterly Income Statement Data (1)

		2011												2010
(dollar amounts in thousands, except per share amounts)		Third				Second				First				Fourth				Third
Interest income		$	490,996			$	492,137			$	501,877			$	528,291			$	534,669
Interest expense			84,518				88,800				97,547				112,997				124,707
Net interest income			406,478				403,337				404,330				415,294				409,962
Provision for credit losses			43,586				35,797				49,385				86,973				119,160
Net interest income after provision for credit losses			362,892				367,540				354,945				328,321				290,802
Service charges on deposit accounts			65,184				60,675				54,324				55,810				65,932
Mortgage banking income			12,791				23,835				22,684				53,169				52,045
Trust services			29,473				30,392				30,742				29,394				26,997
Electronic banking			32,714				31,728				28,786				28,900				28,090
Insurance income			17,220				16,399				17,945				19,678				19,801
Brokerage income			20,349				20,819				20,511				16,953				16,575
Bank owned life insurance income			15,644				17,602				14,819				16,113				14,091
Automobile operating lease income			5,890				7,307				8,847				10,463				11,356
Securities gains (losses)			(1,350	)			1,507				40				(103	)			(296	)
Other income			60,644				45,503				38,247				33,843				32,552
Total noninterest income			258,559				255,767				236,945				264,220				267,143
Personnel costs			226,835				218,570				219,028				212,184				208,272
Outside data processing and other services			49,602				43,889				40,282				40,943				38,553
Net occupancy			26,967				26,885				28,436				26,670				26,718
Deposit and other insurance expense			17,492				23,823				17,896				23,320				23,406
Professional services			20,281				20,080				13,465				21,021				20,672
Equipment			22,262				21,921				22,477				22,060				21,651
Marketing			22,251				20,102				16,895				16,168				20,921
Amortization of intangibles			13,387				13,386				13,370				15,046				15,145
OREO and foreclosure expense			4,668				4,398				3,931				10,502				12,047
Automobile operating lease expense			4,386				5,434				6,836				8,142				9,159
Other expense			30,987				29,921				48,083				38,537				30,765
Total noninterest expense			439,118				428,409				430,699				434,593				427,309
Income before income taxes			182,333				194,898				161,191				157,948				130,636
Provision for income taxes			38,942				48,980				34,745				35,048				29,690
Net income		$	143,391			$	145,918			$	126,446			$	122,900			$	100,946
Dividends on preferred shares			7,703				7,704				7,703				83,754				29,495
Net income applicable to common shares		$	135,688			$	138,214			$	118,743			$	39,146			$	71,451
Average common shares — basic			863,911				863,358				863,359				757,924				716,911
Average common shares — diluted (2)			867,633				867,469				867,237				760,582				719,567
Net income per common share — basic		$	0.16			$	0.16			$	0.14			$	0.05			$	0.10
Net income per common share — diluted			0.16				0.16				0.14				0.05				0.10
Cash dividends declared per common share			0.04				0.01				0.01				0.01				0.01
Return on average total assets			1.05	%			1.11	%			0.96	%			0.90	%			0.76	%
Return on average common shareholders’ equity			10.8				11.6				10.3				3.8				7.4
Return on average tangible common shareholders’ equity (3)			13.0				13.3				12.7				5.6				10.0
Net interest margin (4)			3.34				3.40				3.42				3.37				3.45
Efficiency ratio (5)			63.5				62.7				64.7				61.4				60.6
Effective tax rate			21.4				25.1				21.6				22.2				22.7
Revenue — FTE
Net interest income		$	406,478			$	403,337			$	404,330			$	415,294			$	409,962
FTE adjustment			3,658				3,834				3,945				3,708				2,631
Net interest income (4)			410,136				407,171				408,275				419,002				412,593
Noninterest income			258,559				255,767				236,945				264,220				267,143
Total revenue (4)		$	668,695			$	662,938			$	645,220			$	683,222			$	679,736

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

		Nine Months Ended September 30,								Change
(dollar amounts in thousands, except per share amounts)		2011				2010				Amount				Percent
Interest income		$	1,485,010			$	1,617,101			$	(132,091	)			(8	)%
Interest expense			270,865				413,590				(142,725	)			(35	)
Net interest income			1,214,145				1,203,511				10,634				1
Provision for credit losses			128,768				547,574				(418,806	)			(76	)
Net interest income after provision for credit losses			1,085,377				655,937				429,440				65
Service charges on deposit accounts			180,183				211,205				(31,022	)			(15	)
Mortgage banking income			59,310				122,613				(63,303	)			(52	)
Trust services			90,607				83,161				7,446				9
Electronic banking			93,228				81,334				11,894				15
Insurance income			51,564				56,735				(5,171	)			(9	)
Brokerage income			61,679				51,901				9,778				19
Bank owned life insurance income			48,065				44,953				3,112				7
Automobile operating lease income			22,044				35,501				(13,457	)			(38	)
Securities gains (losses)			197				(171	)			368				N.R.
Other income			144,394				90,406				53,988				60
Total noninterest income			751,271				777,638				(26,367	)			(3	)
Personnel costs			664,433				586,789				77,644				13
Outside data processing and other services			133,773				118,305				15,468				13
Net occupancy			82,288				81,192				1,096				1
Deposit and other insurance expense			59,211				74,228				(15,017	)			(20	)
Professional services			53,826				67,757				(13,931	)			(21	)
Equipment			66,660				63,860				2,800				4
Marketing			59,248				49,756				9,492				19
Amortization of intangibles			40,143				45,432				(5,289	)			(12	)
OREO and foreclosure expense			12,997				28,547				(15,550	)			(54	)
Automobile operating lease expense			16,656				28,892				(12,236	)			(42	)
Other expense			108,991				94,455				14,536				15
Total noninterest expense			1,298,226				1,239,213				59,013				5
Income before income taxes			538,422				194,362				344,060				177
Provision for income taxes			122,667				4,915				117,752				2,396
Net income		$	415,755			$	189,447			$	226,308				119	%
Dividends declared on preferred shares			23,110				88,278				(65,168	)			(74	)
Net income applicable to common shares		$	392,645			$	101,169			$	291,476				288	%
Average common shares — basic			863,542				716,604				146,938				21	%
Average common shares — diluted (2)			867,446				719,182				148,264				21
Per common share
Net income per common share — basic		$	0.45			$	0.14			$	0.31				221	%
Net income per common share — diluted			0.45				0.14				0.31				221
Cash dividends declared			0.06				0.03				0.03				100
Return on average total assets			1.04	%			0.49	%			0.55	%			112	%
Return on average common shareholders’ equity			10.9				3.6				7.3				203
Return on average tangible common shareholders’ equity (3)			13.2				5.6				7.6				136
Net interest margin (4)			3.39				3.46				(0.07	)			(2	)
Efficiency ratio (5)			63.6				60.0				3.6				6
Effective tax rate			22.8				2.5				20.3				812
Revenue — FTE
Net interest income		$	1,214,145			$	1,203,511			$	10,634				1	%
FTE adjustment			11,437				7,369				4,068				55
Net interest income (4)			1,225,582				1,210,880				14,702				1
Noninterest income			751,271				777,638				(26,367	)			(3	)
Total revenue (4)		$	1,976,853			$	1,988,518			$	(11,665	)			(1)	%

Significant Items

Definition of Significant Items

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

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

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

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

Significant Items Influencing Financial Performance Comparisons

Earnings comparisons were impacted by the Significant Items summarized below.

1.

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

2.

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

	•		On March 31, 2009, we restructured our relationship with Franklin. During the 2010 first quarter, a $38.2 million ($0.05 per common share) net tax benefit was recognized, primarily reflecting the increase in the net deferred tax asset relating to the assets acquired from the March 31, 2009 restructuring.
	•		During the 2010 second quarter, the remaining portfolio of Franklin-related loans ($333.0 million of residential mortgages, and $64.7 million of home equity loans) was transferred to loans held for sale. At the time of the transfer, the loans were marked to the lower of cost or fair value, less costs to sell, of $323.4 million, resulting in $75.5 million of charge-offs, and the provision for credit losses commensurately increased $75.5 million ($0.07 per common share).

The following table reflects the earnings impact of the above-mentioned significant items for periods affected by this Results of Operations discussion:

Table 3 — Significant Items Influencing Earnings Performance Comparison

		Three Months Ended
(dollar amounts in thousands, except per		September 30, 2011								June 30, 2011								September 30, 2010
share amounts)		After-tax				EPS				After-tax				EPS				After-tax				EPS
Net income		$	143,391							$	145,918							$	100,946
Earnings per share, after-tax						$	0.16							$	0.16							$	0.10
Change from prior quarter — $							—								0.02								0.07
Change from prior quarter — %							—	%							14.3	%							233.3	%
Change from year-ago — $						$	0.06							$	0.13							$	0.43
Change from year-ago — %							60	%							433	%							N.R.	%

		Nine Months Ended
		September 30, 2011								September 30, 2010
(dollar amounts in thousands)		After-tax				EPS				After-tax				EPS
Net income		$	415,755							$	189,447
Earnings per share, after-tax						$	0.45							$	0.14
Change from a year-ago — $							0.31								6.22
Change from a year-ago — %							221	%							N.R.	%

Significant Items - favorable (unfavorable) impact:		Earnings (1)				EPS				Earnings (1)				EPS
Franklin-related loans transferred to held for sale		$	—			$	—			$	(75,500	)		$	(0.07	)
Net tax benefit recognized (2)			—				—				38,222				0.05
Litigation reserves addition			(17,028	)			(0.01	)			—				—

Pretax, Pre-provision Income Trends

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

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

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

		2011												2010
(dollar amounts in thousands)		Third				Second				First				Fourth				Third
Income before income taxes		$	182,333			$	194,898			$	161,191			$	157,948			$	130,636
Add: Provision for credit losses			43,586				35,797				49,385				86,973				119,160
Less: Securities gains (losses)			(1,350	)			1,507				40				(103	)			(296	)
Add: Amortization of intangibles			13,387				13,386				13,370				15,046				15,145
Less: Litigation reserves addition			—				—				(17,028	)			—				—
Total pretax, pre-provision income		$	240,656			$	242,574			$	240,934			$	260,070			$	265,237
Change in total pretax, pre-provision income:
Prior quarter change — amount		$	(1,918	)		$	1,640			$	(19,136	)		$	(5,167	)		$	(5,237	)
Prior quarter change — percent			(1)	%			1	%			(7)	%			(2)	%			(2)	%

Pretax, pre-provision income was $240.7 million in the 2011 third quarter, down $1.9 million, or 1%, from the prior quarter. As discussed in the sections that follow, the decrease primarily reflected the negative impact from a lower net interest margin percentage and higher noninterest expense as compared to the prior quarter.

Net Interest Income / Average Balance Sheet

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

Table 5 — Average Loans/Leases and Deposits

		Third Quarter								Second Quarter				3Q11 vs 3Q10								3Q11 vs 2Q11
(dollar amounts in millions)		2011				2010				2011				Amount				Percent				Amount				Percent
Loans/Leases
Commercial and industrial		$	13,664			$	12,393			$	13,370			$	1,271				10	%		$	294				2	%
Commercial real estate			6,111				7,073				6,233				(962	)			(14	)			(122	)			(2	)
Total commercial			19,775				19,466				19,603				309				2				172				1
Automobile			6,211				5,140				5,954				1,071				21				257				4
Home equity			8,002				7,567				7,874				435				6				128				2
Residential mortgage			4,788				4,389				4,566				399				9				222				5
Other loans			521				653				538				(132	)			(20	)			(17	)			(3	)
Total consumer			19,522				17,749				18,932				1,773				10				590				3
Total loans and leases		$	39,297			$	37,215			$	38,535			$	2,082				6	%		$	762				2	%
Deposits
Demand deposits — noninterest-bearing		$	8,719			$	6,768			$	7,806			$	1,951				29	%		$	913				12	%
Demand deposits — interest-bearing			5,573				5,319				5,565				254				5				8				—
Money market deposits			13,321				12,336				12,879				985				8				442				3
Savings and other domestic time deposits			4,752				4,639				4,778				113				2				(26	)			(1	)
Core certificates of deposit			7,592				8,948				8,079				(1,356	)			(15	)			(487	)			(6	)
Total core deposits			39,957				38,010				39,107				1,947				5				850				2
Other deposits			2,321				2,636				2,147				(315	)			(12	)			174				8
Total deposits		$	42,278			$	40,646			$	41,254			$	1,632				4	%		$	1,024				2	%

2011 Third Quarter versus 2010 Third Quarter

Fully-taxable equivalent net interest income decreased $2.5 million, or 1%, from the year-ago quarter. This reflected the benefit of a $1.3 billion, or 3%, increase in average total earning assets partially offset by an 11 basis point decline in the net interest margin. The increase in average earning assets reflected:

•

$2.1 billion, or 6%, increase in average total loans and leases.

Partially offset by:

•

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

•

$0.4 billion, or 64%, decrease in average loans held for sale.

The 11 basis point decline in the net interest margin reflected a reduction in derivatives income, lower loan and securities yields, partially offset by the positive impacts of increases in low cost deposits and improved deposit pricing.

The $2.1 billion, or 6%, increase in average total loans and leases primarily reflected:

•

$1.3 billion, or 10%, growth in the average C&I portfolio reflected a combination of factors. This included the benefits from our strategic initiatives including a focus on large corporate, asset based lending, and equipment finance. In addition, we continued to see growth in more traditional middle-market, business banking, and automobile floorplan loans. This growth was evident despite line utilization rates that remained well below historical norms.

•

$1.1 billion, or 21%, increase in the average automobile portfolio. Automobile lending is a core competency and continues to be an area of targeted growth. The growth from the year-ago quarter exhibited further penetration within our historical geographic footprint, as well as the positive impacts of our expansion into Eastern Pennsylvania and five New England states. Origination quality remained high as measured by all of our internal quality metrics.

•

$0.4 billion, or 9%, increase in average residential mortgages.

•

$0.4 billion, or 6%, increase in average home equity loans.

Partially offset by:

•

$1.0 billion, or 14%, decrease in the average CRE portfolio, reflecting the continued execution of our plan to reduce the total CRE exposure, primarily in the noncore CRE portfolio. This reduction is expected to continue, reflecting the combined impact of amortization, pay downs, refinancing, and restructures.

The $1.6 billion, or 4%, increase in average total deposits from the year-ago quarter reflected:

•

$1.9 billion, or 5%, growth in average total core deposits. The drivers of this change were a $2.2 billion, or 18%, growth in average total demand deposits, and a $1.0 billion, or 8%, growth in average money market deposits. Partially offset by $1.4 billion, or 15%, decline in average core certificates of deposit.

Partially offset by:

•

$0.3 billion, or 44%, decline in average other domestic deposits of $250,000 or more, reflecting a strategy of reducing such noncore funding.

2011 Third Quarter versus 2011 Second Quarter

FTE net interest income increased $3.0 million, or 1%, from the 2011 second quarter. This reflected a $0.8 billion, or 2%, increase in average earning assets partially offset by a 6 basis point decline in the FTE net interest margin. The increase in average earning assets reflected:

•

$0.8 billion, or 2%, increase in average total loans and leases.

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

The $0.8 billion, or 2% (8% annualized), increase in average total loans and leases reflected:

•

$0.3 billion, or 2% (9% annualized), growth in the average C&I portfolio. The growth in the C&I portfolio during the third quarter came from several business lines including large corporate, equipment finance, business banking, and middle market. C&I utilization rates were little changed from the end of the prior quarter.

•

$0.3 billion, or 4% (17% annualized), growth in the average automobile portfolio. In September, the bank completed a $1.0 billion securitization of automobile loans. We continued to originate very high quality loans with attractive returns. We focus on larger, multi-franchised, well-capitalized dealers that are rarely reliant on the success of one franchise to generate profitability. While the used car market remained very strong, we increased our originations of new vehicle loans, which reflected a reduced level of manufacturer captive finance company incentive programs due to lower new vehicle inventory levels in the market.

•

$0.2 billion, or 5% (19% annualized), growth in residential mortgages as the bank experienced the continuation of a year-long trend of customer preferences shifting to shorter-term and variable rate mortgages.

Partially offset by:

•

$0.1 billion, or 2% (8% annualized), decline in the average CRE portfolio, primarily as a result of our on-going strategy to reduce our exposure to the commercial real estate market. We were successful in reducing exposure across virtually all of the CRE project types that we actively manage via our concentration management process. The decline in the noncore CRE portfolio accounted for the vast majority of the decline in the total CRE portfolio. The noncore CRE portfolio declines reflected paydowns, refinancing, and NCOs. The core CRE portfolio continued to exhibit high quality characteristics with minimal downgrade or NCO activity.

The $1.0 billion, or 2% (10% annualized), increase in average total deposits from the 2011 second quarter reflected:

•

$0.9 billion, or 7% (28% annualized), increase in total demand deposits. This was driven primarily by growth in commercial and consumer noninterest-bearing demand deposits. Commercial demand deposit growth reflected, in part, temporary deposits from several large relationships.

•

$0.4 billion, or 3% (14% annualized), increase in average money market deposits.

Partially offset by:

•

$0.5 billion, or 6% (24% annualized), decrease in core certificates of deposits.

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

Table 6 — Consolidated Quarterly Average Balance Sheets

		Average Balances																				Change
		2011												2010								3Q11 vs. 3Q10
(dollar amounts in millions)		Third				Second				First				Fourth				Third				Amount				Percent
Assets
Interest-bearing deposits in banks		$	164			$	131			$	130			$	218			$	282			$	(118	)			(42)	%
Trading account securities			92				112				144				297				110				(18	)			(16	)
Federal funds sold and securities purchased under resale agreement			—				21				—				—				—				—				—
Loans held for sale			237				181				420				779				663				(426	)			(64	)
Available-for-sale and other securities:
Taxable			7,902				8,428				9,108				9,747				8,876				(974	)			(11	)
Tax-exempt			421				436				445				449				365				56				15
Total available-for-sale and other securities			8,323				8,864				9,553				10,196				9,241				(918	)			(10	)
Held-to-maturity securities — taxable			665				174				—				—				—				665				—
Loans and leases: (1)
Commercial:
Commercial and industrial			13,664				13,370				13,121				12,767				12,393				1,271				10
Commercial real estate:
Construction			670				554				611				716				989				(319	)			(32	)
Commercial			5,441				5,679				5,913				6,082				6,084				(643	)			(11	)
Commercial real estate			6,111				6,233				6,524				6,798				7,073				(962	)			(14	)
Total commercial			19,775				19,603				19,645				19,565				19,466				309				2
Consumer:
Automobile			6,211				5,954				5,701				5,520				5,140				1,071				21
Home equity			8,002				7,874				7,728				7,709				7,567				435				6
Residential mortgage			4,788				4,566				4,465				4,430				4,389				399				9
Other consumer			521				538				559				576				653				(132	)			(20	)
Total consumer			19,522				18,932				18,453				18,235				17,749				1,773				10
Total loans and leases			39,297				38,535				38,098				37,800				37,215				2,082				6
Allowance for loan and lease losses			(1,066	)			(1,128	)			(1,231	)			(1,323	)			(1,384	)			318				(23	)
Net loans and leases			38,231				37,407				36,867				36,477				35,831				2,400				7
Total earning assets			48,778				48,018				48,345				49,290				47,511				1,267				3
Cash and due from banks			1,700				1,068				1,299				1,187				1,618				82				5
Intangible assets			639				652				665				679				695				(56	)			(8	)
All other assets			4,142				4,160				4,291				4,313				4,277				(135	)			(3	)
Total assets		$	54,193			$	52,770			$	53,369			$	54,146			$	52,717			$	1,476				3	%
Liabilities and Shareholders’ Equity
Deposits:
Demand deposits — noninterest-bearing		$	8,719			$	7,806			$	7,333			$	7,188			$	6,768			$	1,951				29	%
Demand deposits — interest-bearing			5,573				5,565				5,357				5,317				5,319				254				5
Money market deposits			13,321				12,879				13,492				13,158				12,336				985				8
Savings and other domestic deposits			4,752				4,778				4,701				4,640				4,639				113				2
Core certificates of deposit			7,592				8,079				8,391				8,646				8,948				(1,356	)			(15	)
Total core deposits			39,957				39,107				39,274				38,949				38,010				1,947				5
Other domestic time deposits of $250,000 or more			387				467				606				737				690				(303	)			(44	)
Brokered deposits and negotiable CDs			1,533				1,333				1,410				1,575				1,495				38				3
Deposits in foreign offices			401				347				374				443				451				(50	)			(11	)
Total deposits			42,278				41,254				41,664				41,704				40,646				1,632				4
Short-term borrowings			2,251				2,112				2,134				2,134				1,739				512				29
Federal Home Loan Bank advances			285				97				30				112				188				97				52
Subordinated notes and other long-term debt			3,030				3,249				3,525				3,558				3,672				(642	)			(17	)
Total interest-bearing liabilities			39,125				38,906				40,020				40,320				39,477				(352	)			(1	)
All other liabilities			1,017				913				994				993				952				65				7
Shareholders’ equity			5,332				5,145				5,022				5,645				5,520				(188	)			(3	)
Total liabilities and shareholders’ equity		$	54,193			$	52,770			$	53,369			$	54,146			$	52,717			$	1,476				3	%