MANAGEMENT’S DISCUSSION AND ANALYSIS

Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

Huntington Bancshares Incorporated (Huntington or the company) is a multi-state diversified financial holding company organized under Maryland law in 1966 and headquartered in Columbus, Ohio. Through its subsidiaries, Huntington is engaged in providing full-service commercial and consumer banking services, mortgage banking services, automobile financing, equipment leasing, investment management, trust services, and discount brokerage services, as well as underwriting credit life and disability insurance, and selling other insurance and financial products and services. Huntington’s banking offices are located in Ohio, Michigan, West Virginia, Indiana, and Kentucky. Selected financial services are also conducted in other states including Arizona, Florida, Georgia, Maryland, New Jersey, Pennsylvania, and Tennessee. Huntington has a foreign office in the Cayman Islands and a foreign office in Hong Kong. The Huntington National Bank (the Bank), organized in 1866, is Huntington’s only bank subsidiary.

The following discussion and analysis provides investors and others with information that Management believes to be necessary for an understanding of Huntington’s 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.

F ORWARD -L OOKING S TATEMENTS

This report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements about Huntington. These include descriptions of products or services, plans or objectives of Management for future operations, including pending acquisitions, and forecasts of revenues, earnings, cash flows, or other measures of economic performance. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts.

By their nature, forward-looking statements are subject to numerous assumptions, risks, and uncertainties. A number of factors could cause actual conditions, events, or results to differ significantly from those described in the forward-looking statements. These factors include, but are not limited to, those set forth under the heading “Business Risks” included in Item 1 of Huntington’s Annual Report on Form 10-K for the year ended December 31, 2003, and other factors described in this report and from time to time in other filings with the Securities and Exchange Commission.

Management encourages readers of this report to understand forward-looking statements to be strategic objectives rather than absolute forecasts of future performance. Forward-looking statements speak only as of the date they are made. Huntington does not 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.

R ISK F ACTORS

Huntington, like other financial companies, is subject to a number of risks, many of which are outside of Management’s control, though Management strives 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 Huntington’s financial condition or results of operation, (3) liquidity risk, which is the risk that Huntington and / or the Bank will have insufficient cash or access to cash to meet operating needs, and (4) operational risk, which is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. The description of Huntington’s business contained in Item 1 of its Annual Report on Form 10-K for the year ended December 31, 2003, while not all inclusive, discusses a number of business risks that, in addition to the other information in this report, readers should carefully consider.

S ECURITIES AND E XCHANGE C OMMISSION I NVESTIGATION

On June 26, 2003, Huntington announced that the Securities and Exchange Commission (SEC) staff is conducting a formal investigation. The SEC investigation began following Huntington’s announcement on April 16, 2003, that it intended to restate its financial statements in order to reclassify its accounting for automobile leases from the direct financing lease method to the operating lease method, and following allegations by a former Huntington employee regarding certain aspects of Huntington’s accounting and

MANAGEMENT’S DISCUSSION AND ANALYSIS

financial reporting practices, including the recognition of automobile loan and lease origination fees and costs, as well as certain year- end reserves. The investigation is ongoing and Huntington continues to cooperate fully with the SEC. To the best of its knowledge, Management believes that the actions it has taken to date have addressed all known accounting issues.

C RITICAL A CCOUNTING P OLICIES AND U SE OF S IGNIFICANT E STIMATES

Huntington’s 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 Management to establish critical accounting policies and make accounting estimates, assumptions, and judgments that affect amounts recorded and reported in its financial statements. Note 1 of the Notes to Consolidated Financial Statements included in this report lists significant accounting policies used by Management in the development and presentation of Huntington’s 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 that are necessary for an understanding and evaluation of the organization and its 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. Management has identified the following as the most significant accounting estimates and their related application. This analysis is included to emphasize that estimates are used in connection with the critical and other accounting policies and to illustrate the potential effect on the financial statements if the actual amount were different from the estimated amount.

MANAGEMENT’S DISCUSSION AND ANALYSIS

DISCUSSION OF RESULTS

Summary

Huntington reported net income in 2003 of $372.4 million, or $1.61 per common share (diluted), up 15% and 21%, respectively, from 2002. Earnings in 2002 were $323.7 million, or $1.33 per common share (diluted), up from $134.8 million, or $0.54 per common share (diluted), in 2001. The returns on average common equity (ROE) for 2003, 2002, and 2001 were 17.6%, 14.5%, and 5.8%, respectively, with returns on average assets of 1.33%, 1.24%, and 0.48%, respectively (see Table 1).

The period 2001 to 2003 was one of significant transformation for the company. During 2001, the equity markets continued to weaken, economic activity started to slow appreciably after a decade-long expansion, and interest rates fell to historical lows. In addition, consumer confidence was shaken with the 9/11 terrorist attack. There was significant deterioration in both consumer and commercial credit quality trends due to these factors. These external factors influenced Huntington’s 2001 performance and its comprehensive strategic refocusing plan to improve competitiveness and long-term financial performance, which was announced in July 2001.

Actions taken to further the strategic plan included the hiring of new executive leadership as part of the first phase of building a new management team. The company’s basic business model was changed to one of local decision-making with a strategic refocusing on Midwest markets. As such, a decision was made to sell the Florida banking operations (see additional discussion below), consolidate banking offices outside of Florida, and use the capital generated to repurchase common stock, as well as reinvest in the business. Management refocused technology spending on investments to improve customer service, rather than making equity investments in technology companies, mostly e-commerce ventures, which had been the strategy in previous years. The quarterly common stock dividend was reduced 20%, and $80.0 million pre-tax in restructuring charges were taken to effect the changes.

The key element of the 2001 strategic refocusing plan was the decision to sell the Florida banking operations. There were several factors influencing this decision. First, the Florida banking offices and markets had no geographic or strategic connection to the company’s primary business of retail and commercial banking centered in Midwest markets. Second, while the Florida market for bank deposits was growing more rapidly than Midwest markets, the net interest margin in Florida was lower than that of the rest of the company, given the higher cost of deposits in that market. Third, to capitalize on the growth opportunities of the Florida market, a commercial banking capability needed to be developed on what was primarily a retail banking franchise. Management believed building this capability would have added significantly to operating expenses and further lowered the already low return on invested capital for several years in the future.

Earnings per common share (diluted) in 2001 were $0.54, down from $1.29 per common share (diluted) in 2000. Earnings in 2001 were significantly impacted by the actions described above, as well as a restructuring charge related to actions contemplated by the 2001 strategic refocusing plan. In addition, as a result of deteriorating consumer and commercial credit quality trends during the year, credit underwriting practices and policies were strengthened at the point of origination, and an aggressive credit quality review was initiated by Management. Earnings also were negatively impacted by higher loan loss provision expense, which had the effect of increasing the allowance for loan and lease losses (ALLL) as a percent of total loans and leases to 2.00% at the end of 2001 from 1.50% at the end of 2000.

Earnings per common share (diluted) in 2002 were $1.33, up from $0.54 in 2001. Earnings in 2002 were impacted by the completion of the sale of the Florida banking operations and restructuring of the company’s Merchant Services business, both of which resulted in significant gains. Capital from these gains, as well as the capital freed up by the sale of the Florida-related assets and liabilities, was used to repurchase 9% of common shares outstanding, and to reinvest in a number of activities including improvements in customer service technology, and the purchases of a small money management firm and a niche equipment leasing company. The Florida insurance operation was also sold, though this had no significant earnings impact. However, earnings were negatively impacted by additional restructuring charges as the 2001 strategic initiatives continued to be implemented. Deposits and loans increased, following prior-year performance of low growth. The level of non-performing assets (NPAs) was reduced significantly by year end. It was also a period in which interest rates declined significantly during the second half of the year, resulting in downward pressure on the net interest margin as interest rates on earning assets, both loans and investment securities, declined more rapidly than deposit rates. The yield on mortgage-backed securities declined sharply as the lower level of interest rates resulted in high prepayments on the underlying mortgages, with the resultant cash flow reinvested in lower-yielding earning assets.

NM, not a meaningful value.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Earnings per common share (diluted) were $1.61 in 2003, up from $1.33 the prior year. Earnings in 2003 saw the continuation of pressure on the net interest margin and mortgage-related earning asset yields, as interest rates continued to decline through mid-year. Some of this pressure was relieved in the second half of the year as interest rates rose. Late in the year, a portion of high cost, long-term debt was repaid. This resulted in a loss, but will lower funding costs in future periods. It was also a year of strong loan and deposit growth. Credit quality trends improved materially, and loan concentrations continued to be lowered, aided by the sales of automobile loans and underperforming commercial and industrial (C&I) and commercial real estate (CRE) loans, including NPAs, among other strategies. NPAs ended the year at the lowest level in many years. In addition, 2003 reflected the release of certain restructuring reserves as the costs of implementing the strategic decisions made in 2001, and carried out through 2002 and 2003, were completed, though their ongoing positive impacts are anticipated to benefit earnings in future periods. The company ended 2003 with a stronger balance sheet, much-improved credit quality and a decline in net charge-offs, a track record of growing loans and deposits, and earnings momentum.

Results of Operations

S IGNIFICANT F ACTORS I NFLUENCING F INANCIAL P ERFORMANCE C OMPARISONS

Significant changes in the strategic direction of Huntington initiated in 2001 to improve the overall financial performance of the company and the subsequent execution of those adopted strategies, materially impacted financial performance comparisons among 2001, 2002, and 2003. Understanding the nature and implications of these factors on financial results, which are described below and recapped in Table 3, therefore, is critical in assessing underlying performance trends.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Table 3 reflects the impact on reported (GAAP) net income and earnings per common share of these six items, which affect comparability in 2001-2003. GAAP income adjusted for these six items was the primary measurement Management used to assess underlying performance trends during this period. This adjusted earnings analysis is performed to help assess performance excluding the impact of such items, so that management and investors can better discern underlying performance trends during the period and is not intended to replace reported (GAAP) net income.

Table 3—Reconciliation of GAAP Earnings to Earnings Adjusted for Significant Items