HUNTINGTON 2007 Huntington Center, 41 South High Street HUNTINGTON BANCSHARES INCORPORATED ANNUAL Columbus, Ohio 43287 (614) 480-8300 huntington.com REPORT ® and Huntington® are federally registered service marks of Huntington Bancshares Incorporated. © 2008 Huntington Bancshares Incorporated. 03008AR 10214 HUN AR_07_cvr_fnl.indd 1 2/25/08 10:21:01 AM Huntington Bancshares Incorporated (NASDAQ: HBAN) is a $55 billion regional bank holding company head- quartered in Columbus, Ohio. Its principal markets are Ohio, Michigan, Pennsylvania, Indiana, West Virginia, and Kentucky. Founded in 1866, Huntington serves its customers as the “local bank with national resources.” Nearly 12,000 associates provide consumer and commercial banking, mortgage banking, automobile financing, equipment leasing, investment management, brokerage, trust, and insurance services. Customers have con- venient access to banking services through more than 600 regional banking offices; the customer service call center at (800) 480-BANK (2265); online at www.huntington.com; and through its network of nearly 1,400 ATMs. Non-banking financial services are provided through selected banking offices, as well as other local facilities. CONSOLIDATED FINANCIAL HIGHLIGHTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 2007 2006 Change NET INCOME $ 75,169 $ 461,221 (84)% PER COMMON SHARE AMOUNTS Net income per common share – diluted $ 0.25 $ 1.92 (87) % Cash dividends declared per common share 1.06 1.00 6 Tangible book value per share(1) 7.13 10.21 (30) PERFORMANCE RATIOS Return on average assets 0.17 % 1.31 % Return on average shareholders’ equity 1.6 15.7 Net interest margin(2) 3.36 3.29 Efficiency ratio(3) 62.5 59.4 Tangible equity/assets ratio(1) 5.08 6.93 CREDIT QUALITY MEASURES Net charge-offs (NCOs) $ 477,631 $ 82,376 $ 395,255 NCOs as a % of average loans and leases 1.44 % 0.32 % Non-accrual loans (NALs)(1) $ 319,771 $ 144,133 $ 175,638 NALs as a % of total loans and leases(1) 0.80 % 0.55 % Non-performing assets (NPAs)(1) $ 1,660,270 $ 193,620 $ 1,466,650 Allowance for credit losses (ACL)(1) 644,970 312,229 332,741 ACL as a % of total loans and leases(1) 1.61 % 1.19 % ACL as a % of NALs(1) 202 217 BALANCE SHEET – DECEMBER 31, Total loans and leases $ 40,054,338 $ 26,153,425 53 % Total assets 54,697,468 35,329,019 55 Total deposits 37,742,921 25,047,770 51 Total shareholders’ equity 5,949,140 3,014,326 97 (1) AT DECEMBER 31. (2) ON A FULLY-TAXABLE EQUIVALENT BASIS ASSUMING A 35% TAX RATE. (3) NON-INTEREST EXPENSE LESS AMORTIZATION OF INTANGIBLE ASSETS DIVIDED BY THE SUM OF FULLY-TAXABLE EQUIVALENT NET INTEREST INCOME AND NON-INTEREST INCOME EXCLUDING SECURITIES GAINS. 10214 HUN AR_07_insidecvr_fnl.indd 1 2/25/08 9:49:30 AM THOMAS E. HOAGLIN CHAIRMAN, PRESIDENT, AND CHIEF EXECUTIVE OFFICER TO OUR SHAREHOLDERS AND FRIENDS: For Huntington and the entire banking industry, 2007 was a year like no other in modern history. We began the year with cautious optimism, expecting modest growth in core earnings per share and a relatively stable credit environment, and with great excitement about the pending acquisition of Sky Financial Group, Inc. What we encountered was a crisis in the housing sector, with a collapse of single family residential development in most of our local markets. Nationally and internationally, mortgage markets panicked; by year-end, banks had written down over $100 billion in mortgage-related loans and investments. Much of the Midwest was already suffering from a weak economy. The housing crisis exacerbated this trend, with an accompanying slowdown in loan demand. 10214 HUN AR_07_txt_fnl.indd 1 2/25/08 10:37:01 AM Huntington began to feel the effects of the housing collapse in the second quarter, and we announced a significant increase in charge-offs and loan loss reserves related to two major homebuilders in southeast Michigan. Credit quality continued to deteriorate throughout the second half of 2007, predominantly with residential developers. Accord- ingly, we substantially increased the allowance for credit losses. As we entered 2008, our primary concerns were with single family home builders headquartered in southeast Michigan and northern Ohio regions. By far the most significant event for Huntington during 2007 was the acquisition of Sky Financial, which was effective on July 1, 2007. We completed the conversion of over 400,000 retail and over 50,000 business customers in late September. The merger integration was challenging, and some customers encountered bumps along the way. By year-end the transition was behind us, and we are pleased to have achieved a very high rate of customer retention, exceeding our expectations. We are grateful for the hard work and dedication of many Huntington and former Sky Financial associates in making the integration a success. With $55 billion in assets, $40 billion in total loans and leases, and $38 billion in deposits, Huntington is now the 22nd largest U.S.-based banking company. We have achieved our goal of increasing market density, now ranking a strong #3 in deposits in Ohio and #4 in the attractive Indianapolis market. Based on the most recent FDIC data, 40% of our deposits are now in markets where we rank #1, including the Ohio MSAs of Columbus, Toledo, Canton, and Youngstown. We are also very pleased to enter Western Pennsylvania, including the Pittsburgh area. Huntington now has over 600 banking offices and approximately 1,400 ATMs to serve the needs of our customers. In December 2006, when we announced the agreement to acquire Sky Financial, we estimated that we would achieve cost savings of $115 million. As of the 2007 fourth quarter, we had achieved 90% of these targeted expense efficien- cies; we will capture the remainder in the first half of 2008. Though we did not initially estimate revenue synergies from the merger, we now expect to realize almost $90 million of incremental revenues over the next 3-5 years, includ- ing over $30 million in 2008. Much of this additional revenue will come from the sale of new or more sophisticated capital markets and money management services to the former Sky Financial customer base and from consistent achievement of Huntington sales penetration levels of retail securities and core banking services. We will also benefit from the sale of insurance agency products distributed by the former Sky Insurance team to Huntington clients. By far the biggest disappointment of 2007 occurred with the $424 million pre-tax earnings charge we took in the fourth quarter associated with our credit exposure to Franklin Credit Management Corporation. Sky Financial had a successful 17-year relationship with Franklin, which was in the business of acquiring/originating, servicing, and collecting so called “scratch and dent” and subprime first mortgage and second mortgage loans throughout the U.S. By the time of the merger in mid-year, the relationship had grown to $1.6 billion. Unfortunately, as a result of the freeze in the mortgage markets, we were unable to sell-off as much of the credit exposure as we had intended to do. The performance of Franklin’s more than 30,000 borrowers deteriorated in the fall, resulting in the November 16 announcement of our intention to take a pre-tax charge to earnings of up to $450 million. With the successful 2 LETTER TO SHAREHOLDERS 10214 HUN AR_07_txt_fnl.indd 2 2/25/08 10:37:21 AM restructuring of the relationship on December 28, we believe the actual pre-tax charge to earnings of $424 million represents our best estimate of the inherent loss within this credit relationship. This has been a deeply disappointing and painful experience. Including the Franklin impact, reported 2007 earnings were $75.2 million, or $0.25 per common share. This was sharply lower than the level of $461.2 million, or $1.92 per share, we achieved in 2006. Reflecting the impact of the merger, as well as our 2007 financial performance, capital ratios declined. At December 31, 2007, our tangible equity ratio was 5.08%, below our 6.00%-6.25% targeted level. Regulatory Tier 1 and total risk-based capital ratios declined to 7.51% and 10.85%, respectively, but remained well above the “well-capitalized” regulatory minimums. Though credit performance clearly was the dominant story of 2007, there were many financial successes which bode well for the future. Non-real estate, non-merger-related commercial loan growth was a strong 7%, and average total core deposits rose 2% in spite of continued fierce competition. In the first half of 2007, prior to the intense merger integration period, we opened a record number of checking accounts. Fee-based income increased nicely, especially in the areas of deposit and other service charges and revenue from the sale of retail securities, insurance, and trust services. And non-interest expenses were well-controlled. There were many other operating highlights. The Huntington Funds, our family of mutual funds, continued the strong, impressive performance of recent years. Our indirect auto business withstood weak retail auto sales as a result of our strong, long-term dealer relationships and our new, unique Huntington Plus program by which we generate fees. Through this program we electronically send to a third party certain loan applications for funding. The customer gets quick and convenient loan approval. We get a fee and a higher flow of other applications from the dealer as we are viewed as a full spectrum lender. Service to small businesses continued to be important to Huntington, and we are proud to have been ranked #1 in Ohio and West Virginia in SBA lending, with Greenwich recognizing us for our “excellence” in overall small business customer satisfaction, cash management services, online banking, and branch services.