Unizan Financial (UNIZ) 10-Q 2005 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2005

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 0-13270

Unizan Financial Corp.

(Exact name of registrant as specified in its charter)

Ohio	34-1442295
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

220 Market Avenue South, Canton, Ohio 44702

(Address of principal executive offices)

(Zip Code)

(330) 438-1118

(Registrant’s telephone number, including area code)

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

Class	Outstanding as of November 1, 2005
Common Stock, $1.00 Stated Value	22,172,570

INDEX

UNIZAN FINANCIAL CORP.

	PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets	3
Consolidated Statements of Income	4
Consolidated Statements of Comprehensive Income	5
Consolidated Statements of Cash Flows	6
Notes to Consolidated Financial Statements	7-14
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations	15-24
Item 3.Quantitative and Qualitative Disclosures About Market Risk	25-26
Item 4.Controls and Procedures	27
PART II. OTHER INFORMATION
Other Information	28-30
Item 1. Legal Proceedings	28
Item 2. Changes in Securities and Use of Proceeds	28
Item 3. Defaults upon Senior Securities	28
Item 4. Submission of Matters to a Vote of Security Holders	28
Item 5. Other Information	28
Item 6. Exhibits and Reports on Form 8-K	28
(a) Exhibits on Item 601 of Regulation S-K	28-30
Signatures	30
Exhibit 31.1	31
Exhibit 31.2	32
Exhibit 32.1	33
Exhibit 32.2	34

2

Unizan Financial Corp.

CONSOLIDATED BALANCE SHEETS

(Unaudited, except December 31, 2004; in thousands except share and per share data)	September 30, 2005			December 31, 2004
ASSETS
Cash and cash equivalents	$	57,232		$	52,057
Federal funds sold		—			—
Interest bearing deposits with banks		7,843			7,139
Securities held-to-maturity, (Fair value: $1,462 and $1,881, respectively)		1,398			1,779
Securities available-for-sale, at fair value		425,751			420,787
Federal Home Loan Bank stock, at cost		37,471			36,170
Loans originated and held for sale		2,385			1,256
Loans:
Commercial, financial and agricultural		220,980			268,339
Aircraft		76,440			106,845
Commercial real estate		593,322			607,470
Residential real estate		421,066			439,866
Consumer		435,618			450,617
Total loans		1,747,426			1,873,137
Less allowance for loan losses		(24,426	)		(26,356	)
Net loans		1,723,000			1,846,781
Premises and equipment, net		21,719			22,226
Goodwill		91,971			91,971
Other intangible assets		13,556			15,473
Bank owned life insurance		55,930			55,038
Accrued interest receivable and other assets		21,675			22,157
Total Assets	$	2,459,931		$	2,572,834
LIABILITIES
Deposits:
Non-interest bearing deposits	$	219,659		$	231,004
Interest-bearing deposits		1,570,671			1,609,722
Total deposits		1,790,330			1,840,726
Short-term borrowings		68,726			31,676
Other borrowings		233,948			342,078
Subordinated note		20,619			20,619
Accrued taxes, expenses and other liabilities		26,826			25,810
Total Liabilities		2,140,449			2,260,909
SHAREHOLDERS’ EQUITY
Common stock ($1.00 stated value, 100,000,000 shares authorized; issued - 22,172,479 and 22,123,069 shares, respectively)		22,173			22,123
Additional paid-in capital		221,570			220,741
Retained earnings		81,125			74,854
Stock held by deferred compensation plan, 123,732 and 128,400 shares, respectively, at cost		(2,183	)		(2,279	)
Treasury stock, 783 and 43,956 shares, respectively, at cost		(15	)		(1,137	)
Accumulated other comprehensive loss		(3,188	)		(2,377	)
Total Shareholders’ Equity		319,482			311,925
Total Liabilities and Shareholders’ Equity	$	2,459,931		$	2,572,834

See Notes to the Consolidated Financial Statements

3

Unizan Financial Corp.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited; in thousands except share and per share data)	Three Months Ended September 30,					Nine Months Ended September 30,
	2005		2004			2005		2004
Interest income:
Interest and fees on loans:
Taxable	$	28,069	$	26,658		$	82,389	$	81,837
Tax exempt		23		35			70		103
Interest and dividends on securities
Taxable		3,926		2,540			10,992		10,426
Tax exempt		494		500			1,498		1,480
Interest on bank deposits and federal funds sold		87		21			253		42
Total interest income		32,599		29,754			95,202		93,888
Interest expense:
Interest on deposits		11,658		9,058			32,340		27,024
Interest on subordinated note		504		505			1,514		1,514
Interest on borrowings		3,518		4,071			10,589		11,765
Total interest expense		15,680		13,634			44,443		40,303
Net interest income		16,919		16,120			50,759		53,585
Provision for loan losses		1,650		3,750			4,374		7,700
Net interest income after provision for loan losses		15,269		12,370			46,385		45,885
Other income:
Trust, financial planning, brokerage and insurance sales		1,964		1,793			6,543		5,796
Customer service fees		1,752		1,854			5,044		5,546
Gains on sale of loans		1,267		1,008			3,523		2,939
Security gains (losses), net		—		(60	)		—		192
Gain on sale of merchant services agreements		800		—			800		—
Gain on sale of financial center		—		567			—		567
Merchant services income		423		501			1,226		1,381
Income on bank owned life insurance		1,410		581			2,559		1,829
Other operating income		1,050		977			3,039		3,169
Total other income		8,666		7,221			22,734		21,419
Other expenses:
Salaries, wages, pension and benefits		7,850		8,211			23,455		31,479
Occupancy expense		872		875			2,611		2,537
Furniture and equipment expense		516		521			1,505		1,627
Data processing expense		720		916			2,047		2,768
Taxes other than income taxes		659		557			2,025		1,797
Other intangible amortization expense		634		868			1,917		2,504
Other operating expense		4,898		3,735			14,279		12,919
Total other expenses		16,149		15,683			47,839		55,631
Income before income taxes		7,786		3,908			21,280		11,673
Provision for income taxes		2,091		1,029			6,049		3,251
Net income	$	5,695	$	2,879		$	15,231	$	8,422
Earnings per share:
Basic	$	0.26	$	0.13		$	0.69	$	0.39
Diluted	$	0.26	$	0.13		$	0.69	$	0.38
Dividends per share	$	0.135	$	0.135		$	0.405	$	0.405
Weighted average shares outstanding:
Basic		22,150,784		21,910,942			22,114,826		21,805,547
Diluted		22,263,301		22,052,059			22,229,672		22,005,003

See Notes to the Consolidated Financial Statements

4

Unizan Financial Corp.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited; in thousands)	Three Months Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
Net Income	$	5,695		$	2,879		$	15,231		$	8,422
Unrealized holding gains (losses) on available-for-sale securities		(2,812	)		4,431			(1,989	)		153
Reclassification adjustment for losses (gains) on securities included in net income		—			60			—			(192	)
Net		(2,812	)		4,491			(1,989	)		(39	)
Unrealized gains/(losses) on cash flow hedges		312			(646	)		258			(418	)
Reclassification adjustment for losses on cash flow hedges included in net income		98			388			483			1,220
Net		410			(258	)		741			802
Total		(2,402	)		4,233			(1,248	)		763
Tax benefit (expense)		841			(1,482	)		437			(267	)
Other comprehensive income (loss), net of tax		(1,561	)		2,751			(811	)		496
Comprehensive income	$	4,134		$	5,630		$	14,420		$	8,918

See Notes to the Consolidated Financial Statements

5

Unizan Financial Corp.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in thousands)	Nine months ended September 30,
	2005			2004
Cash flows from operating activities:
Net income	$	15,231		$	8,422
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		6,556			8,024
Provision for loan losses		4,374			7,700
Net securities gains		—			(192	)
Gain from sale of financial center		—			(567	)
Loans originated for resale		(68,481	)		(60,093	)
Proceeds from sale of loan originations		70,875			63,099
Gains on sale of loans		(3,523	)		(2,939	)
Federal Home Loan Bank stock dividend		(1,301	)		(1,072	)
Increase in cash surrender value of bank owned life insurance		(2,559	)		(1,829	)
Net change in interest receivable		512			1,191
Net change in interest payable		749			(362	)
Net change in other assets and liabilities		3,046			2,768
Net cash from operating activities		25,479			24,150
Cash flows from investing activities:
Net change in interest bearing deposits with banks		(704	)		(4,651	)
Net change in federal funds sold		—			(1,815	)
Proceeds from sales of securities available-for-sale		—			41,322
Proceeds from maturities of securities held-to-maturity		370			804
Proceeds from maturities of securities available-for-sale		76,880			76,424
Purchases of securities available-for-sale		(85,683	)		(51,166	)
Net decrease in loans made to customers		118,250			52,246
Proceeds from sale of residential real estate loans from portfolio		—			7,341
Purchases of premises and equipment		(1,250	)		(223	)
Net cash from investing activities		107,863			120,282
Cash flows from financing activities:
Net change in deposits		(50,370	)		(142,647	)
Proceeds from sale of financial center		—			(14,566	)
Cash dividends paid		(8,960	)		(8,844	)
Issuance of common stock for stock options exercised		1,093			—
Treasury stock sales		1,097			18,598
Treasury stock purchases		(188	)		(11,212	)
Net change in stock held in deferred compensation plan		96			(97	)
Net change in short-term borrowings		37,050			(5,180	)
Net change in Federal Home Loan Bank overnight borrowings		(29,175	)		69,535
Proceeds from other borrowings		—			124,585
Repayment of other borrowings		(78,810	)		(171,253	)
Net cash used by financing activities		(128,167	)		(141,081	)
Net change in cash and cash equivalents		5,175			3,351
Cash and cash equivalents at beginning of year		52,057			59,622
Cash and cash equivalents at end of period	$	57,232		$	62,973
Supplemental cash flow disclosures:
Income taxes paid	$	5,630		$	2,975
Interest paid		43,832			40,634
Non cash transfers –Transfer of loans to other assets owned		3,028			3,573

See the Notes to the Consolidated Financial Statements

6

UNIZAN FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2005 (Unaudited)

(In thousands, except share and per share data)

The consolidated financial statements for interim periods are unaudited; however, in the opinion of management of Unizan Financial Corp. (“Company”), the accompanying consolidated financial statements contain all material adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The unaudited financial statements are presented in accordance with the requirements of Form 10-Q and do not include all disclosures normally required by accounting principles generally accepted in the United States of America. Reference should be made to the Company’s consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K, as amended, for the year ended December 31, 2004 for additional disclosures, including a summary of the Company’s accounting policies. The results of operations for the three and nine month periods ended September 30, 2005 are not necessarily indicative of the results to be expected for the full year.

1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. Unless otherwise indicated, dollars are in thousands except per share data. Certain reclassifications have been made to the 2004 information to conform with the 2005 information.

Accounting Pronouncements: In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123-R”), which revises SFAS No. 123, “Accounting for Stock Based Compensation” and supersedes Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees.” SFAS No. 123-R focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. This Statement requires an entity to recognize the cost of employee services received in share-based payment transactions and measure the cost on a grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide service in exchange for the award. The effective date for the provisions of SFAS No. 123-R to be applied has been delayed and is now required for annual, rather than interim, periods that begin after June 15, 2005. The Company has not determined the methodology to be used when adopting this Statement.

In March 2004, the FASB ratified the consensus reached by the Emerging Issues Task Force (“EITF”) in Issue No. 03-1, “Measuring of Other-Than-Temporary Impairment and its Application to Certain Investments” (“EITF 03-1”). This issue provides guidance for determining when an investment is considered impaired, whether impairment is other than temporary and measurement of an impairment loss. In September 2004, the FASB issued FASB Staff Position 03-1-1 (“FSP 03-1-1”) which delayed the effective date for certain measurement and recognition guidance contained in paragraphs 10 – 20 of EITF 03-1. FSP 03-1-1 requires the application of pre-existing other-than-temporary guidance during the period of delay until a final consensus is reached. To date, no consensus has been reached on this issue.

Stock Options: Employee compensation expense for stock options is reported using the intrinsic value method. All options granted had an exercise price equal to or greater than the market price of the underlying common stock at the date of grant. Any tax benefit realized by the Company from the exercise of non-qualified stock options is added to paid-in-capital. During the nine month period ended September 30, 2004, an expense of $5,065 was recognized in connection with the settlement of certain options. No similar expense was recorded in the period ended September 30, 2005. The following table illustrates the effect on net income and earnings per share if expense was measured using the fair value method of SFAS No. 123, Accounting for Stock-Based Compensation:

7

	Three Months Ended September 30,				Nine Months Ended September 30,
	2005		2004		2005		2004
Net income, as reported	$	5,695	$	2,879	$	15,231	$	8,422
Deduct: Stock based compensation expense determined under fair value based method		18		—		124		15
Pro forma net income	$	5,677	$	2,879	$	15,107	$	8,407
Earnings per share, as reported:
Basic	$	0.26	$	0.13	$	0.69	$	0.39
Diluted	$	0.26	$	0.13	$	0.69	$	0.38
Pro forma earnings per share:
Basic	$	0.26	$	0.13	$	0.68	$	0.39
Diluted	$	0.25	$	0.13	$	0.68	$	0.38

For purposes of providing the pro forma disclosures required under SFAS No. 123, the fair values of the stock options granted were estimated at the date of grant using a Black-Scholes option pricing model. The weighted average assumptions used in the option pricing model and resulting fair values at the grant dates for options granted during the nine months ended September 30, 2005 and 2004 were as follows:

	2005			2004
Nonqualified Stock Options- Immediate Vesting
Number of shares		18,000			19,000
Exercise price	$	25.11		$	26.37
Fair value	$	6.88		$	1.20
Risk-free interest rate		3.74	%		1.02	%
Expected dividend yield		2.15	%		2.90	%
Expected option life (years)		5.00			0.67
Expected volatility		31.80	%		16.00	%
Nonqualified Stock Options- Delayed Vesting
Number of shares		79,800			—
Exercise price	$	24.77			N/A
Fair value	$	6.77			N/A
Risk-free interest rate		3.74	%		N/A
Expected dividend yield		2.18	%		N/A
Expected option life (years)		5.00			N/A
Expected volatility		31.90	%		N/A

The nonqualified stock options with delayed vesting granted in 2005 will vest immediately if the pending merger with Huntington closes.

The following summarizes the number of options outstanding at September 30, 2005 and activity during the nine months then ended for the Company’s various stock incentive plans:

	1987 Plan		1997 Plan			BFOH Plan			Total
Outstanding, December 31, 2004		7,184		342,257			238,333			587,774
Granted		—		97,800			—			97,800
Exercised		—		(17,976	)		(64,882	)		(82,858	)
Forfeited		—		(1,417	)		(904	)		(2,321	)
Outstanding, September 30, 2005		7,184		420,664			172,547			600,395
Average exercise price per share	$	13.12	$	19.08		$	18.90		$	18.96
Exercisable at September 30, 2005		7,184		340,864			172,547			520,595

8

2) PENDING MERGER

On January 27, 2004, Huntington Bancshares Incorporated (“Huntington”), a $33 billion regional bank holding company headquartered in Columbus, Ohio, and the Company announced the signing of a definitive agreement to merge the two organizations. Under terms of the agreement, the Company’s shareholders will receive 1.1424 shares of Huntington common stock, on a tax-free basis, for each share of the Company. The merger was unanimously approved by both boards and has also been approved by the Company’s shareholders. During the first nine months of 2004, the Company recorded $2,502 of expense for merger-related professional fees and severance and benefit accruals. Minimal amounts of merger-related expense were incurred in the first nine months of 2005.

In June 2004, the Federal Reserve Board informed Huntington that it had extended its review period to coordinate further with the staff of the Securities and Exchange Commission (“SEC”) regarding the SEC’s ongoing formal investigation of Huntington and to complete its review of the Community Reinvestment Act aspects of the merger. In November 2004, Huntington announced that it expected to enter into formal supervisory agreements with its banking regulators, the Federal Reserve Board and the Office of the Comptroller of the Currency (“OCC”), providing for a comprehensive action plan designed to address its financial reporting and accounting policies, procedures and controls and its corporate governance practices and that it was withdrawing its regulatory applications for approval of the merger with the Company pending the resolution of these various matters. As a result, Huntington and the Company agreed to extend the expiration date of the definitive agreement from January 27, 2005 to January 27, 2006. On March 1, 2005, Huntington announced that it had entered into formal written agreements with its banking regulators, the Federal Reserve Bank of Cleveland (“FRB”) and the OCC, to provide for a comprehensive action plan to address the aforementioned issues.

On June 2, 2005, Huntington announced that the SEC approved the settlement of its formal investigation. On October 6, 2005, Huntington announced that the OCC lifted its formal written agreement dated February 28, 2005 with The Huntington National Bank. Although the FRB written agreements remain in effect, Huntington, after consultation with the FRB, filed the application to acquire the Company on October 24, 2005. No assurances, however, can be provided as to the ultimate timing or outcome of these matters.

3) COMPUTATION OF EARNINGS PER SHARE

The computation of earnings per share follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2005		2004		2005		2004
Weighted average common shares outstanding – basic		22,150,784		21,910,942		22,114,826		21,805,547
Dilutive effect due to stock incentive plans		112,517		141,117		114,846		199,456
Weighted average common shares outstanding adjusted for dilutive common stock equivalents		22,263,301		22,052,059		22,229,672		22,005,003
Net income	$	5,695	$	2,879	$	15,231	$	8,422
Basic earnings per share	$	0.26	$	0.13	$	0.69	$	0.39
Diluted earnings per share	$	0.26	$	0.13	$	0.69	$	0.38

For the quarters ended September 30, 2005 and 2004, all stock options were dilutive.

9

4) SECURITIES

The amortized cost and fair value of available-for-sale securities were as follows:

	September 30, 2005
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available-for-sale:
U.S. Treasury securities	$	1,004	$	—	$	(29	)	$	975
Obligations of states and political subdivisions		42,644		1,553		(100	)		44,097
Mortgage-backed and related securities		372,000		428		(6,693	)		365,735
Other securities		13,969		975		—			14,944
Total securities available-for-sale	$	429,617	$	2,956	$	(6,822	)	$	425,751

	December 31, 2004
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available-for-sale:
U.S. Treasury securities	$	1,006	$	—	$	(23	)	$	983
Obligations of states and political subdivisions		43,265		1,240		(46	)		44,459
Mortgage-backed and related securities		364,458		906		(3,954	)		361,410
Other securities		13,935		—		—			13,935
Total securities available-for-sale	$	422,664	$	2,146	$	(4,023	)	$	420,787

Other securities at September 30, 2005 and December 31, 2004 included adjustable rate preferred stock issued by FNMA and FHLMC with a redemption value and an original amortized cost of $10,500. At December 31, 2004, these securities had estimated fair values totaling $7,150 and the Company determined that the decline in fair values of these securities was other than temporary. As a result, an impairment charge of $3,350 was recorded and a new cost basis of $7,150 was established for these securities. At September 30, 2005, the estimated fair values of these securities totaled $8,125.

Securities with a market value of $336,232 at September 30, 2005 were pledged to secure public funds and other obligations.

Available-for-sale securities with unrealized losses at September 30, 2005 not recognized in income were as follows:

	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
US Treasury securities	$	—	$	—	$	975	$	29	$	975	$	29
Obligations of state and political subdivisions		8,801		67		1,181		33		9,982		100
Mortgage-backed and related securities		185,177		2,387		169,158		4,306		354,335		6,693
Total temporarily impaired securities	$	193,978	$	2,454	$	171,314	$	4,368	$	365,292	$	6,822

10

Management believes the unrealized losses on these securities are temporary in nature. Management also believes that the issuers have the ability to re-pay their obligations and the Company has both the intent and ability to hold these securities for the time necessary to recover their amortized cost. Mortgage-backed and related securities with unrealized losses not recognized in income of 12 months or longer include twenty-three GNMA, FNMA or FHLMC issued collateralized mortgage obligations and fifteen FNMA or FHLMC mortgage pass-through securities. All of these securities are currently paying principal and interest monthly and have final maturity dates ranging from June 2008 to February 2026. In total, the amount of the unrealized loss is approximately 2.5% of the carrying value and ranges from 0.3% to 4.3% on an individual security basis.

5) LOANS

Impaired loans were as follows:

	September 30, 2005		December 31, 2004
Loans with no allowance for loan loss allocated	$	6,906	$	6,871
Loans with allowance for loan loss allocated		4,111		6,043
Amount of allowance allocated		1,592		2,221

At September 30, 2005 and December 31, 2004 the government guaranteed portions of government guaranteed impaired loans were $6,601 and $7,294, respectively. These amounts were not included in the impaired loan balances in the table above. All impaired loans were included in non-performing loans which were as follows:

	September 30, 2005		December 31, 2004
Loans past due over 90 days and still accruing	$	6	$	1,856
Nonaccrual loans		29,535		28,294

6) ALLOWANCE FOR LOAN LOSSES

An analysis of activity in the allowance for loan losses follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
Balance at beginning of period	$	25,273		$	24,922		$	26,356		$	24,611
Provision charged to expense		1,650			3,750			4,374			7,700
Loans charged off		(3,480	)		(2,952	)		(9,204	)		(8,007	)
Recoveries on loans previously charged off		983			667			2,900			2,083
Balance at end of period	$	24,426		$	26,387		$	24,426		$	26,387

7) BORROWINGS

Information concerning short-term borrowings, which consisted of federal funds purchased and securities sold under agreements to repurchase, follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
Balance at end of period	$	68,726		$	51,233		$	68,726		$	51,233
Average balance outstanding during period		68,451			53,825			60,932			56,273
Maximum amount outstanding as of any month end during period		69,382			53,003			69,382			67,487
Weighted average interest rate during period		3.40	%		0.93	%		2.60	%		0.75	%

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Federal Home Loan Bank (FHLB) advances and other borrowings were as follows:

	September 30, 2005				December 31, 2004
	Amount		Average Rate		Amount		Average Rate
FHLB advances	$	161,644	4.87	%	$	261,549	3.80	%
Term repurchase agreements		45,000	5.44			45,000	5.44
Line of credit with financial institution		27,000	5.00			35,000	3.25
Capital leases		279	6.70			369	6.75
Subordinated term notes		25	3.25			160	4.71
	$	233,948			$	342,078

At September 30, 2005, FHLB advances outstanding consisted of the following:

Maturity	Weighted Average Interest Rate		Amount
Within 1 year	4.56	%	$	60,484
1 year thru 2 years	4.93			22,028
2 years thru 3 years	5.28			43,489
3 years thru 4 years	—			—
4 years thru 5 years	6.85			10,000
More than 5 years	4.10			25,643
Total	4.87	%	$	161,644

FHLB advances must be secured by eligible collateral as specified by the FHLB. Accordingly, the Company has a blanket pledge of its one-to-four family residential mortgage loans held in the loan portfolio as collateral for the advances outstanding at September 30, 2005 with a required minimum ratio of collateral to advances of 135%. Also, the Company has an investment in FHLB stock of $37,471 at September 30, 2005 of which approximately $8,100 is pledged as collateral for outstanding advances. FHLB advances consist of a combination of fixed and variable rate advances. Variable rate advances can be paid off, in part or in full, on any interest reset date without penalty. Fixed rate advances are generally subject to early prepayment fees approximately equal to the present value of the lost cash flow to the FHLB.

The Company has a line of credit of $40,000 from a financial institution that is used for liquidity purposes and to facilitate additional investment in subsidiaries. The line of credit is secured by common stock of Unizan Bank, National Association (the “Bank”) and matures in January 2006. The total outstanding balance at September 30, 2005 was $27,000. The interest on each draw is variable and is priced off the Federal Funds Rate plus 1.00% per annum and is paid quarterly.

At September 30, 2005, the Company had $45,000 in term repurchase agreements with Salomon Brothers, Inc. under which the Company sold mortgage-backed and related securities classified as available-for-sale with a fair value of $49,083 at September 30, 2005. The repurchase agreements mature in April 2008 ($10,000) and June 2008 ($35,000). Also, such repurchase agreements are callable at the option of the counter-party. The securities are held at Salomon Brothers, Inc. and will be returned to the Company at maturity.

8) DIVIDEND RESTRICTIONS

Banking regulations require maintaining certain capital levels and may limit the amount of dividends paid by the Bank to the Company or by the Company to its shareholders. Currently, the payment of any dividend by the Company requires the prior approval of its primary regulator based on an understanding between the Company and such primary regulator.

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9) SEGMENT REPORTING

The Company manages and operates two major lines of businesses: community banking and investment and funds management. Community banking includes lending and related services to businesses and consumers, mortgage banking, and deposit gathering. Investment and funds management includes trust and investment services and retail sales of brokerage and insurance products. These business lines are identified by the entities through which the product or service is delivered.

The reported line of business results reflect the underlying core operating performance within the business units. Parent and Other includes activities that are not directly attributed to the identified lines of businesses and is comprised of the parent company and its special purpose trust subsidiary. Substantially all of the Company’s assets are part of the community banking line of business. Selected segment information is included in the following tables:

Three months ended September 30, 2005:	Community Banking		Investment and Funds Management		Parent and Other			Total
Net interest income (expense)	$	17,803	$	6	$	(890	)	$	16,919
Provision for loan losses		1,650		—		—			1,650
Non-interest income		6,686		1,964		16			8,666
Non-interest expense		14,283		1,292		574			16,149
Income tax expense (benefit)		2,365		232		(506	)		2,091
Net income (loss)	$	6,191	$	446	$	(942	)	$	5,695
Three months ended September 30, 2004:	Community Banking		Investment and Funds Management		Parent and Other			Total
Net interest income (expense)	$	16,844	$	5	$	(729	)	$	16,120
Provision for loan losses		3,750		—		—			3,750
Non-interest income		5,493		1,795		(67	)		7,221
Non-interest expense		14,191		1,086		406			15,683
Income tax expense (benefit)		1,205		245		(421	)		1,029
Net income (loss)	$	3,191	$	469	$	(781	)	$	2,879
Nine months ended September 30, 2005:	Community Banking		Investment and Funds Management		Parent and Other			Total
Net interest income (expense)	$	53,240	$	16	$	(2,497	)	$	50,759
Provision for loan losses		4,374		—		—			4,374
Non-interest income		16,143		6,545		46			22,734
Non-interest expense		41,930		3,928		1,981			47,839
Income tax expense (benefit)		6,698		900		(1,549	)		6,049
Net income (loss)	$	16,381	$	1,733	$	(2,883	)	$	15,231
Nine months ended September 30, 2004:	Community Banking		Investment and Funds Management		Parent and Other			Total
Net interest income (expense)	$	55,686	$	15	$	(2,116	)	$	53,585
Provision for loan losses		7,700		—		—			7,700
Non-interest income		15,685		5,801		(67	)		21,419
Non-interest expense		46,440		4,365		4,826			55,631
Income tax expense (benefit)		5,409		499		(2,657	)		3,251
Net income (loss)	$	11,822	$	952	$	(4,352	)	$	8,422

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10) LEGAL MATTERS

In May 2005, a Class Action Complaint was filed against more than 50 banks and financial institutions, including the Bank. The plaintiffs allege that they were induced to make fraudulent investments in two entities and that the checks they wrote for the investments were drawn on some of the defendant banks and financial institutions and deposited with other defendant banks and financial institutions. With respect to the Bank, plaintiffs allege that the checks deposited with the Bank were not endorsed by an authorized agent of the payee and were not deposited into accounts that were authorized by the payee. The claims against the Bank are for 1) fraud; 2) conversion; 3) negligence; 4) failure to act with ordinary care (Uniform Commercial Code (“UCC”)); 5) breach of duty of good faith (UCC); 6) conversion (UCC); and money had and received. Plaintiffs are seeking compensatory damages from the Bank in the amount of $4 million, plus punitive damages. This case is in the initial stages, counsel has been retained and Management has instructed counsel to vigorously defend this matter. No provision for loss has been recorded for this pending matter.

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ITEM 2:

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

UNIZAN FINANCIAL CORP.

For a comprehensive understanding of the Company’s financial condition and performance, this discussion should be considered in conjunction with the Company’s Consolidated Financial Statements, accompanying notes, and other information contained elsewhere herein.

This discussion contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 that involves risks and uncertainties. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included herein will prove to be accurate. Factors that could cause actual results to differ from the results discussed in the forward-looking statements include, but are not limited to: economic conditions (both generally and more specifically in the markets in which the Company and its subsidiaries operate); competition for the Company’s customers from other providers of financial services; government legislation and regulation (which changes from time to time); changes in interest rates; pre-payments of loans and securities; material unforeseen changes in the liquidity, results of operations, or financial position of the Company’s customers; and completion of the pending merger with Huntington, all of which are difficult to predict and many of which are beyond the control of the Company.

Overview

The reported results of the Company primarily reflect the operations of the Company’s bank subsidiaries, Unizan Bank, National Association and Unizan Financial Services Group, National Association. The Company’s results of operations are dependent on a variety of factors, including the general interest rate environment, competitive conditions in the industry, governmental policies and regulations and conditions in the markets for financial assets. Like most financial institutions, the primary contributor to the Company’s income is net interest income, which is defined as the difference between the interest the Company earns on interest-earning assets, such as loans and securities, and the interest the Company pays on interest-bearing liabilities, such as deposits and borrowings. The Company’s operations are also affected by non-interest income, such as checking account and trust fees and gains from sales of loans. The Company’s principal operating expenses, aside from interest expense, consist of salaries and employee benefits, occupancy costs, and other general and administrative expenses.

Average Balances and Yields

The following table presents, for each of the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and percentage rates, and the net interest margin. Net interest margin is calculated by dividing net interest income on a fully tax equivalent basis (FTE) by total interest-earning assets. The net interest margin is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities. FTE income includes tax-exempt income, restated to a pre-tax equivalent, based on the statutory federal income tax rate. All average balances are daily average balances. Non-accruing loans are included in average loan balances.

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Unizan Financial Corp.

Average Balance Sheet and Related Yields

	Three Months Ended September 30,														Nine Months Ended September 30,
	2005							2004							2005							2004
(dollars in thousands)	Average Balance			Income (1)/ Expense		Rate (2)		Average Balance			Income (1)/ Expense		Rate (2)		Average Balance			Income (1)/ Expense		Rate (2)		Average Balance			Income (1)/ Expense		Rate (2)
Interest-earning assets
Interest-bearing deposits and federal funds sold	$	10,076		$	87	3.43	%	$	9,113		$	21	0.92	%	$	13,399		$	253	2.52	%	$	6,535		$	42	0.86	%
Securities		464,571			4,686	4.00			431,971			3,309	3.05			455,582			13,297	3.90			480,472			12,703	3.53
Total loans (3)		1,765,161			28,104	6.32			1,935,094			26,704	5.49			1,797,584			82,496	6.14			1,956,844			81,978	5.60
Total interest-earning assets		2,239,808			32,877	5.82			2,376,178			30,034	5.03			2,266,565			96,046	5.67			2,443,851			94,723	5.18
Non-earning assets:
Cash and due from banks		51,435							58,010							50,347							58,164
Other non-earning assets		204,278							206,434							204,075							208,312
Allowance for loan losses		(24,836	)						(24,783	)						(25,503	)						(24,607	)
Total assets	$	2,470,685						$	2,615,839						$	2,495,484						$	2,685,720
Interest-bearing liabilities:
Demand deposits	$	185,831		$	377	0.80	%	$	231,466		$	308	0.53	%	$	197,610		$	1,069	0.72	%	$	245,507		$	997	0.54	%
Savings and money market deposits		526,153			3,468	2.61			505,279			1,561	1.23			525,217			8,904	2.27			513,807			4,058	1.05
Time deposits		884,591			7,813	3.50			886,615			7,189	3.23			879,646			22,367	3.40			920,700			21,969	3.19
Total deposits		1,596,575			11,658	2.90			1,623,360			9,058	2.21			1,602,473			32,340	2.70			1,680,014			27,024	2.15
Subordinated note		20,619			504	9.70			20,619			505	9.74			20,619			1,514	9.82			20,619			1,514	9.81
Other borrowings		294,922			3,518	4.73			418,646			4,071	3.87			316,868			10,589	4.47			436,032			11,765	3.60
Total interest-bearing liabilities		1,912,116			15,680	3.25			2,062,625			13,634	2.63			1,939,960			44,443	3.06			2,136,665			40,303	2.52
Non-interest-bearing liabilities:
Demand deposits		213,734							222,458							214,242							218,612
Other liabilities		24,705							22,138							24,099							23,554
Shareholders’ equity		320,130							308,618							317,183							306,889
Total liabilities and equity	$	2,470,685						$	2,615,839						$	2,495,484						$	2,685,720
Net interest income and interest rate spread				$	17,197	2.57	%				$	16,400	2.40	%				$	51,603	2.61	%				$	54,420	2.66	%
Net interest margin (4)						3.05	%						2.75	%						3.04	%						2.97	%

(1) Interest income is computed on a fully tax equivalent (FTE) basis, using a tax rate of 35%.

(2) Calculated on an annualized basis.

(3) Loan fees are included in interest income on loans.

(4) The net interest margin represents net interest income as a percentage of average interest-earning assets.

16

Comparison of Operating Results For The Three Months Ended September 30, 2005 and 2004

Net Income. Net income for the third quarter of 2005 was $5,695, or $0.26 per diluted share. This compares with net income of $2,879, or $0.13 per diluted share for the third quarter of 2004. During the third quarter of 2005, net interest income increased by 5.0%, non-interest income increased by 20.0% and the provision for loan loses decreased by 56.0% while non-interest expense increased by 3.0% as compared to the same period in 2004. The net interest margin increased to 3.05% for the third quarter of 2005, compared to 2.75% for the same period in 2004. The Company’s return on average assets and return on average equity increased to 0.91% and 7.06%, respectively, for the third quarter of 2005 compared to 0.44% and 3.71%, respectively, for the third quarter of 2004.

Interest Income. Total interest income increased 9.6% to $32,599 for the three months ended September 30, 2005, compared to $29,754 for the third quarter of 2004. This increase was attributed to a 79 basis point increase in yields on earning assets more than offsetting a $136.4 million, or 5.7%, decrease in average interest earning assets as compared to the year ago period.

The Company’s yield on average loans was 6.32% for the three months ended September 30, 2005 compared to 5.49% for the year ago period. The increase in the yield on loans was primarily due to increases in short term market rates over the past twelve months. Also, yields on the securities portfolio increased from 3.05% during the third quarter of 2004 to 4.00% during the third quarter of 2005, also benefiting from increases in market interest rates as well as lower levels of premium amortization resulting from declines in pre-payments of mortgage-backed and related securities.

Interest Expense. Total interest expense increased 15.0% to $15,680 for the three months ended September 30, 2005, compared to $13,634 for the three months ended September 30, 2004. The Company’s cost of interest-bearing liabilities increased to 3.25% for the three months ended September 30, 2005 compared to 2.63% for the same period in 2004. The increase in the cost of funds also resulted from higher short term market rates affecting the rates paid on all deposit products as well as the cost of shorter term borrowings. The average cost on interest-bearing deposits increased from 2.21% for the third quarter of 2004 to 2.90% for the third quarter of 2005 while the cost of other borrowings increased from 3.87% for the third quarter of 2004 to 4.73% for the third quarter of 2005.

Provision for Loan Losses. The provision for loan losses is the expense necessary to maintain the allowance for loan losses at an appropriate level to absorb management’s estimate of probable losses incurred in the loan portfolio. The evaluation of the allowance for loan losses takes into consideration such factors as current period net charge-offs that are charged against the allowance and a review of general economic conditions and uncertainties. The provision for loan losses was $1,650 for the three months ended September 30, 2005, compared to $3,750 for the third quarter of 2004. This decrease was primarily due to the 2004 provision being impacted by increases in non-accrual and impaired loans as well as by higher loss factors being applied to certain loan types. Net charge-offs were $2,497 in the 2005 period as compared to $2,285 in 2004. Charge-offs were made in accordance with the Company’s standard policy. The provision for loan losses was considered sufficient by management for maintaining an appropriate allowance for loan losses. Additional information regarding the allowance for loan losses and non-performing assets is included in the section captioned “Asset Quality.”

Management analyzes the appropriateness of the allowance for loan losses regularly through reviews of historical loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. The allowance for loan losses is an estimate that is particularly susceptible to significant changes in the near term and is established through a provision for loan losses based on management’s evaluation of the risk in the Company’s loan portfolio and the general economy. Loan losses are charged against the allowance when the uncollectibility of a loan balance is confirmed. Management believes that the allowance for loan losses was appropriate at September 30, 2005.

Non-Interest Income.Total non-interest income increased by $1,445, to $8,666 for the three months ended September 30, 2005 compared to $7,221 for the three months ended September 30, 2004.

Trust, brokerage and insurance sales income increased by $171, or 9.5%, to $1,964 in the third quarter of 2005 from $1,793 in the third quarter of 2004. Trust income increased by $132 primarily as a result pricing changes while brokerage and insurance sales revenue increased by $39 primarily due to increased sales efforts, including the hiring and licensing of additional sales professionals.

Customer service fees, representing service charges on deposits and fees for other banking services, decreased by $102, or 5.5%, to $1,752 in the third quarter of 2005 from $1,854 in the third quarter of 2004. The decrease was mainly attributed to changes in consumer behavior, particularly with respect to increased utilization of electronic and other means for payment transactions, as well as increases in earnings credits which offset business account service charges.

17

Gains on sales of loans totaled $1,267 for the third quarter of 2005 compared to $1,008 for the same period in 2004. During the third quarter of 2005, the Company sold $10,923 of the guaranteed portion of its Small Business Administration (“SBA”) and other government guaranteed loan originations in the secondary market compared to $9,806 during the third quarter of 2004, realizing gains of $1,045 in 2005 and $898 in 2004. Also, in the third quarter of 2005, the Company sold $18,397 of residential loans originated for sale compared to $11,698 during the same period in 2004, realizing gains of $222 in 2005 and $110 in 2004. Residential loan origination activity in the third quarter of 2005 benefited from lower market interest rates for fixed rate loans as compared to the year ago quarter.

The Company intends to continue to place emphasis on its small business lending activities. The nature of the political climate in Washington D.C. has consistently subjected many existing government programs to much scrutiny and possible cutbacks. While the Company believes that any future cutbacks could negatively affect its activities in SBA lending programs as well as any planned expansion of such activities, it has successfully managed through previous imposed changes.

No net security gains or losses were realized in the third quarter of 2005 as compared to $60 of net losses in the third quarter of 2004. The losses in the third quarter of 2004 resulted primarily from the sale of equity securities.

During the third quarter of 2005, the Company recognized a gain of $800 from the sale of its rights under merchant services agreements.

During the third quarter of 2004, the Company recognized a gain of $567 on the sale of its Wooster financial center.

Merchant service fees decreased $78 to $423 in the three months ended September 30, 2005 from $501 for the year ago quarter primarily as a result of a reduction in sales efforts due to the pending merger.

Income on bank owned life insurance (“BOLI”) increased $829 to $1,410 for the third quarter of 2005 from $581 for the same period a year ago. BOLI income for the 2005 period included $836 resulting from death benefit claims.

Other income increased by $73 to $1,050 for the third quarter of 2005 from $977 in the third quarter of 2004. This increase was primarily attributed to higher net servicing income on SBA loans and float earnings on outstanding checks. The 2004 period also included a recovery of $57 of previously recognized impairment charges on the mortgage servicing rights (“MSR”) portfolio. No similar recovery was recognized in the third quarter of 2005. The value of the MSR portfolio is analyzed quarterly by considering critical assumptions for pre-payment speeds, the targeted investor yield to a buyer of MSR’s, and float on escrows. At September 30, 2005 the recorded book value of MSR’s and aggregate estimated fair value was $1,155 and $1,638, respectively.

Non-Interest Expense.Total non-interest expense increased $466 to $16,149 in the three months ended September 30, 2005 compared to $15,683 in the three months ended September 30, 2004. Excluding $476 of expense recognized for merger-related professional fees and severance and benefits costs in the 2004 period, total non-interest expense increased $942, or 6.2%.

Salaries, wages and benefits decreased $361 to $7,850 for the three months ended September 30, 2005 compared to $8,211 for the same period in 2004 which included $357 of merger related severance and benefit expenses.

Occupancy expense decreased by $3 to $872 in the 2005 quarter from $875 in 2004.

Furniture and equipment expense decreased by $5 to $516 in the three months ended September 30, 2005 from $521 in year ago quarter.

Data processing expense decreased by $196 to $720 in the three months ended September 30, 2005 from $916 in the year ago quarter. This decrease was mainly attributed to lower depreciation and amortization expense as many new equipment and software purchases have been delayed due to the pending merger.

Taxes other than income taxes, which are primarily based on net worth levels, increased by $102 to $659 in the third quarter of 2005 from $557 in the third quarter of 2004. This increase resulted primarily from higher capital levels within the Company’s bank subsidiary.

Other intangible amortization expense decreased to $634 in the third quarter of 2005 from $868 in the same period a year ago. This decrease resulted from a decline in scheduled amortization rates.

Other non-interest expense increased $1,163, to $4,898 during the third quarter of 2005 compared to $3,735 in the third quarter of 2004. The increase was mainly due to an $865 increase in legal, accounting and other professional fees from $535

18

in the third quarter of 2004 to $1,400 in the third quarter of 2005. Higher expenses in the third quarter of 2005 were primarily attributed to filling staffing vacancies, outsourcing certain functions that were previously performed internally, and activities associated with reviewing, implementing and maintaining controls in accordance with provisions of Section 404 of the Sarbanes Oxley Act of 2004 (“SOX 404”). The prior year quarter included $119 of merger-related costs compared to minimal amounts in 2005. Also in the third quarter 2005, non-credit related losses totaled $230 while no similar losses were recognized in the third quarter of 2004.

Provision for Income Taxes. The Company’s provision for federal income taxes was $2,091, or 26.9% of pre-tax income, for the three months ended September 30, 2005 compared to $1,029, or 26.3% of pre-tax income, for the same period in 2004. The effective tax rate differed from the federal statutory rate principally as a result of tax-exempt income from obligations of states and political subdivisions and income from bank owned life insurance.

Comparison of Operating Results for the Nine Months Ended September 30, 2005 and 2004

Net Income. Net income for the nine months ended September 30, 2005 was $15,231, or $0.69 per diluted share. This compares with net income of $8,422, or $0.38 per diluted share, for the same period in 2004. During the first nine months of 2004, salary expense of $5,065 pre-tax, or $3,292 after-tax, was recognized in connection with the exercise of certain stock options and $2,502 pre-tax, or $1,831 after-tax, of expense was recognized for merger-related professional fees and severance and benefit accruals. The salary charge and merger-related expenses impacted net income by $0.23 per diluted share for the first nine months of 2004. During the first nine months of 2005, net interest income decreased by 5.3% while the provision for loan losses decreased 43.2%, non-interest income increased by 6.1% and non-interest expense decreased by 14.0% as compared to the same period in 2004. The net interest margin increased to 3.04% for the first nine months of 2005 compared to 2.97% for the same period in 2004. The Company’s return on average assets and return on average equity increased to 0.82% and 6.42%, respectively, for the nine months ended September 30, 2005 compared to 0.42% and 3.67%, respectively, for the same period in 2004.

Interest Income. Total interest income increased 1.4% to $95,202 for the nine months ended September 30, 2005 compared to $93,888 for the same period in 2004. This increase was primarily attributed to a 49 basis point increase in yields on interest-earning assets, offset in part by a $177.3 million, or 7.3%, decrease in average interest earning assets as compared to the year ago period.

The Company’s yield on average loans was 6.14% for the nine months ended September 30, 2005 compared to 5.60% for the year ago period. The increase in the yield on loans was primarily due to increases in short term market rates over the past twelve months. Also, yields on the securities portfolio increased from 3.53% during the first nine months of 2004 to 3.90% during the first nine months of 2005, also benefiting from increases in market interest rates.

Interest Expense. Total interest expense increased 10.3% to $44,443 for the nine months ended September 30, 2005 compared to $40,303 for the nine months ended September 30, 2004. The Company’s cost of interest-bearing liabilities increased to 3.06% for the nine months ended September 30, 2005 compared to 2.52% for the same period of 2004. The increase in the cost of funds was also a result of higher short term market rates affecting the rates paid on all deposit products as well as the cost of short term borrowings. The average cost on interest bearing deposits increased from 2.15% for the nine months ended September 30, 2004 to 2.70% for the same period in 2005 while the cost of other borrowings increased from 3.60% for the first nine months of 2004 to 4.47% for the first nine months of 2005.

Provision for Loan Losses. The provision for loan losses was $4,374 for the nine months ended September 30, 2005, compared to $7,700 for the same period of 2004. This decrease was primarily due to the 2004 provision being impacted by increases in non-accrual and impaired loans as well as by higher loss factors being applied to certain loan types. Net charge-offs for the nine months ended September 30, 2005 were $6,304 compared to $5,924 for the same period in 2004.

Non-Interest Income.Total non-interest income increased by $1,315 to $22,734 for the nine months ended September 30, 2005 compared to $21,419 for the nine months ended September 30, 2004.

Trust, brokerage and insurance sales income increased by $747, or 12.9%, to $6,543 for the nine months ended September 30, 2005 from $5,796 for the same period in 2004. Brokerage and insurance sales revenue increased by $510 primarily due to the hiring and licensing of additional sales professionals and more favorable market conditions while trust revenues increased by $237 primarily as a result of pricing changes.

Customer service fees, representing service charges on deposits and fees for other banking services, decreased by $502, or 9.1%, to $5,044 in the first nine months of 2005 from $5,546 for the same period of 2004. The decrease was mainly attributed to changes in consumer behavior as well as increases in earnings credits which offset business account service charges, previously discussed.

19

Gains on sales of loans totaled $3,523 for the nine months ended September 30, 2005 compared to $2,939 for the same period in 2004. During 2005, the Company sold $32,644 of the guaranteed portion of its SBA and other government guaranteed loan originations in the secondary market compared to $21,996 during the same period in 2004, realizing gains of $3,146 in 2005 and $2,175 in 2004. Also, in 2005, the Company sold $34,708 of residential loans originated for sale compared to $38,097 during the same period in 2004, realizing gains of $377 in 2005 and $505 in 2004. In addition, in 2004, the Company sold $7,082 of loans from the residential loan portfolio realizing gains of $259. No similar portfolio sales occurred in 2005.

No net security gains were realized in the nine months ended September 30, 2005 as compared to $192 of net gains in 2004. The net gains in 2004 resulted primarily for the Company’s sale of its trust preferred and equity securities portfolios.

During the nine months ended September 30, 2005, the Company recognized a gain of $800 from the sale of its rights under merchant services agreements, previously noted.

During the nine months ended September 30, 2004, the Company recognized a gain of $567 on the sale of its Wooster financial center, previously noted.

Merchant service fees decreased $155 to $1,226 for the nine months ended September 30, 2005 from $1,381 for the year ago period primarily as a result of a reduction in sales efforts due to the pending merger.

Income on BOLI increased to $2,559 for the nine months ended September 30, 2005 from $1,829 for the same period in 2004. This increased was primarily attributed to death benefit claims in 2005.

Other operating income decreased by $130, or 4.1%, to $3,039 for the nine months ended September 30, 2005 from $3,169 for the same period of 2004. Included in other operating income in the 2004 period was a $248 net recovery for previously recognized impairment charges on the MSR portfolio.

Non-Interest Expense.Total non-interest expense decreased $7,792 to $47,839 for the nine months ended September 30, 2005 compared to $55,631 for the nine months ended September 30, 2004. Excluding salary expense of $5,065 recognized in connection with the exercise of certain stock options and $2,502 of expense recognized for merger-related professional fees and severance and benefit accruals in 2004, total non-interest expense decreased $225, or 0.5%.

Excluding expenses of $5,065 related to the exercise of certain stock options and $782 for merger-related severance accruals recognized in 2004, salaries, wages and benefits decreased to $23,455 for the nine months ended September 30, 2005 from $25,632 for the same period in 2004. This decrease was mainly attributed to staffing levels which have declined from 734 full time equivalent employees at the beginning of 2004 to 610 at September 30, 2005.

Occupancy expense increased by $74 to $2,611 for the nine months ended September 30, 2005 from $2,537 for the same period in 2004. This increase was mainly attributed to higher utilities and maintenance costs.

Furniture and equipment expense decreased by $122 to $1,505 for the nine months ended September 30, 2005 from $1,627 for the year ago period. This decrease was mainly attributed to lower depreciation expense as many new equipment purchases have been delayed due to the pending merger.

Data processing expense decreased by $721 to $2,047 for the nine months ended September 30, 2005 from $2,768 for the same period a year ago. This decrease was also mainly attributed to lower depreciation and amortization expense as many new equipment and software purchases have been delayed due to the pending merger.

Taxes other than income taxes for the nine months ended September 30, 2005 were $2,025 compared with $1,797 for the same period in 2004. This increase resulted primarily from higher capital levels within the Company’s bank subsidiary.

Other intangible amortization expense decreased to $1,917 for the nine months ended September 30, 2005 from $2,504 for the same period a year ago. This decrease resulted from a decline in scheduled amortization rates.

Excluding merger-related professional fees of $1,720 in 2004, other non-interest expenses increased $3,080 to $14,279 during the first nine months of 2005 compared to $11,199 in 2004. The increase was mainly due to a $3,008 increase in legal, accounting and other professional fees from $1,331 for the first nine months of 2004 to $4,339 for the nine months ended September 30, 2005. Higher expenses in 2005 were primarily attributed to filling staffing vacancies, outsourcing certain functions that were previously performed internally, and activities associated with reviewing, implementing and maintaining controls in accordance with provisions of Section 404 of the Sarbanes Oxley Act of 2004.

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Provision for Income Taxes. The Company’s provision for federal income taxes was $6,049, or 28.4% of pre-tax income, for the nine months ended September 30, 2005 compared to $3,251, or 27.9% of pre-tax income, for the same period in 2004.

Asset Quality

Non-performing Assets. To maintain the loan portfolio’s level of credit risk at an appropriate level, management sets underwriting standards and internal lending limits and provides for proper diversification of the portfolio by placing constraints on the concentration of credits within the portfolio. In assessing the level of credit risk within the loan portfolio, management utilizes a formal loan review process to monitor, review, and consider relevant factors in evaluating specific credits in determining the appropriateness of the allowance for loan losses. The Company formally documents its evaluation of the appropriateness of the allowance for loan losses on a quarterly basis and the evaluation is approved by its board of directors.

Failure to receive principal and interest payments when due on a loan results in efforts by the Company to restore such loan to current status. Loans are classified as non-accrual when, in the opinion of management, full collection of principal and accrued interest in accordance with the contractual terms of the loan is in doubt. Continued unsuccessful collection efforts generally lead to initiation of foreclosure or other legal proceedings. Property acquired by the Company as a result of foreclosure, or by deed in lieu of foreclosure, is classified as “other assets owned” until such time as it is sold or otherwise disposed of. The Company owned $2,619 of such property at September 30, 2005 compared to $2,612 at December 31, 2004.

Non-performing loans totaled $29,541, or 1.69% of total loans, at September 30, 2005 compared to $30,150, or 1.61% of total loans, at December 31, 2004. Non-performing assets totaled $32,160, or 1.84% of loans and other assets owned at September 30, 2005 compared to $32,762, or 1.75%, at December 31, 2004. Non-performing loans consisted of $11,874 of residential mortgage and home equity loans, $2,029 of commercial loans, $4,642 of commercial real estate loans, $2,085 of aircraft loans, $8,862 of SBA and other government guaranteed loans, of which $6,601 was guaranteed by the government, and $49 of other consumer loans. Non-performing loans, excluding the portion of such loans guaranteed by the government ($6,601 at September 30, 2005 and $7,294 at December 31, 2004), totaled $22,940, or 1.31% of total loans, at September 30, 2005 compared to $22,856, or 1.22% of total loans, at December 31, 2004. Many of the SBA loans are collateralized by real estate which must be liquidated prior to receiving the guaranteed principal portion of the loan balance from the SBA. Also impacting non-performing loan levels are delinquency and bankruptcy trends in general. Residential delinquency trends are consistent with Ohio and national trends; bankruptcies have increased, and represent a significant part of non-performing loans. While these factors have caused higher relative levels of delinquencies and non-performing assets which, accordingly, are considered by Management in the evaluation of the adequacy of the allowance for loan losses, there continues to be little translation into losses. Management continues to remain cautious as the economic uncertainty extends into certain areas of the Company’s markets and high levels of bankruptcies continue. Management of the Company is not aware of any material amounts of loans outstanding, not disclosed in the tables below, for which there is significant uncertainty as to the ability of the borrower to comply with present payment terms.

The following is an analysis of the composition of non-performing assets and restructured loans:

	September 30, 2005			December 31, 2004
Non-accrual	$	29,535		$	28,294
Accruing loans 90 days or more past due		6			1,856
Total non-performing loans		29,541			30,150
Other assets owned and other non-performing assets		2,619			2,612
Total non-performing assets	$	32,160		$	32,762
Restructured loans	$	5,247		$	2,430
Non-performing loans to total loans		1.69	%		1.61	%
Non-performing assets to total assets		1.31	%		1.27	%
Non-performing assets to total loans plus other assets owned		1.84	%		1.75	%

Restructured loans at September 30, 2005 consisted of two loans. One such loan, with a balance of $2,318 at September 30, 2005, was initially restructured in May 1999. This loan performed in accordance with the restructured terms until its maturity date in May 2004 at which time the maturity date was extended to November 2005. Since that time, all required payments have been made in accordance with the extension agreement. The other restructured loan, with a balance

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of $2,929 at September 30, 2005, was modified in February 2005 to provide for a lower contractual interest rate and extension of the scheduled maturity date in return for the borrower / guarantors pledging additional collateral for the loan. Management does not anticipate any loss on this loan based on the value of the underlying collateral. These restructured loans were not included in non-performing assets.

As of September 30, 2005, impaired loans were $11,017 compared with $12,914 at December 31, 2004. Impaired loans exclude $6,601 and $7,294 at September 30, 2005 and December 31, 2004, respectively, which represents the government guaranteed portion of government guaranteed impaired loans. Commercial, commercial real estate and aircraft loans are classified as impaired if full collection of principal and interest in accordance with the terms of the loan documents is not probable. Impaired loans and non-performing loans have been considered in management’s analysis of the appropriateness of the allowance for loan losses.

Allowance for Loan Losses. The Company maintains the allowance for loan losses at a level considered appropriate for probable losses within the loan portfolio. The amount of the provision for loan losses charged to operating expense is the amount necessary, in the opinion of management, to maintain the balance in the allowance for loan losses at an appropriate level. The allowance is assessed based on historical experience, changes in portfolio size and mix, the relative quality of the loan portfolio, current and anticipated loan growth and economic conditions. Information about specific borrower situations, including their financial position and collateral values, are also important as well as assessments of current and future economic conditions, and other factors and estimates, which are subject to change over time. Specific borrower situations are based on a continuous analysis of loans by internal credit rating. The historical experience assessment is based upon a loss migration analysis that assesses the amount of loss likely based upon loan category and internal credit rating. The loss migration analysis is performed periodically and loss factors are updated regularly based upon actual experience.

The allowance for loan losses totaled $24,426, or 1.40% of total loans outstanding, at September 30, 2005 compared to $26,356, or 1.41% of total loans outstanding, at December 31, 2004. Net charge-offs for the three months and nine months ended September 30, 2005 were $2,497 and $6,304, respectively, compared to $2,285 and $5,924, respectively, for the same periods in 2004. Annualized net charge-offs as a percentage of average loans outstanding were 0.56% and 0.47%, respectively for the three month and nine month periods ended September 30, 2005 compared to 0.47% and 0.40%, respectively, for the same periods in 2004. Net charge-offs included aircraft loan net charge-offs of $628, primarily attributed to one charge-off in the amount of $590, for the three months ended September 30, 2005 compared to a net recovery of $47 in 2004 and $645 of net charge-offs for the nine months ended September 30 2005 compared to net charge-offs of $501, isolated primarily to two borrowers, for the same period in 2004. Charge-offs were made in accordance with the Company’s standard policy.

The allowance for loan losses as a percentage of non-performing loans (“coverage ratio”) was 82.7% at September 30, 2005 compared to 87.4% at December 31, 2004. Although used as a general indicator, the coverage ratio is not a primary factor in the determination of the appropriateness of the allowance by management, particularly given the extent to which the Company’s non-performing loans consist of single-family residential mortgage loans and given that $6,601 of non-performing loans at September 30, 2005 are guaranteed by the government. The allowance for loan losses as a percentage of non-performing loans, excluding the portion of such non-performing loans that are guaranteed by the government, was 106.5% at September 30, 2005 compared to 115.3% at December 31, 2004.

As of September 30, 2005, the aircraft portfolio of $76,440 represented 4.4% of the total loan portfolio compared to $106,845, or 5.7% of the total loan portfolio, at December 31, 2004. These loans are predominately to businesses that use their planes as a business tool and not actually within the aircraft industry, i.e. charters or flight schools, thus reducing the Bank’s exposure to the aircraft industry as a whole. The Company no longer originates aircraft loans and closed its aircraft lending centers during 2004.

Comparison of September 30, 2005 and December 31, 2004 Financial Condition

Total assets were $2.46 billion at September 30, 2005, a decrease of $112,903 from December 31, 2004.

Total securities increased by $5,884, or 1.3%, to $464,620 at September 30, 2005 from $458,736 at December 31, 2004. Substantially all principal payments received on the securities portfolio during the first nine months of 2005 were re-invested in mortgage-backed securities. The Company’s general investment strategy is to manage the portfolio to include rate sensitive assets, matched against interest sensitive liabilities to reduce interest rate risk. In recognition of this strategy, as well as to provide a secondary source of liquidity to accommodate loan demand and possible deposit withdrawals, the Company has chosen to classify the majority of its securities as available-for-sale. At September 30, 2005, 99.7% of the total securities portfolio, excluding FHLB stock, was classified as available-for-sale. Management periodically reviews the securities

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portfolio for possible impairment. Management believes that the gross unrealized losses of $6,822 at September 30, 2005 on securities available for sale are temporary in nature and due primarily to changes in interest rates and not a result of credit related issues. Management believes that the Company has the ability to hold securities with unrealized losses to maturity or until such time as the unrealized losses reverse.

Total loans, excluding loans held for sale, decreased $125,711 to $1.75 billion at September 30, 2005 from $1.87 billion at December 31, 2004. This decrease was primarily attributed to the expected repayment of a single commercial loan with an outstanding balance of $26,968, the full repayment of another single borrower relationship totaling $25,900, a $30,405 decline in aircraft loans due to the Company no longer originating this type of loan and a decrease of $14,408 in indirect consumer loans.

Total deposits decreased $50,396, or 2.7%, to $1.79 billion at September 30, 2005 from $1.84 billion at December 31, 2004. Non-interest bearing demand deposits decreased by $11,345, primarily attributed to business accounts, interest bearing demand deposits decreased by $33,584, savings deposits decreased by $13,494 and non-brokered certificates of deposit decreased by $39,043. The decline in non-brokered certificates of deposit was attributed primarily to significant maturities and resulting withdrawals during the third quarter of 2005 by holders of a particular certificate of deposit that was offered during a special promotional campaign in 2002. Many of these deposit holders represented highly rate sensitive and single relationship customers. These decreases were partially offset by a $34,853 increase in brokered deposits which totaled $72,748 at September 30, 2005 compared to $37,895 at December 31, 2005 and a $4,190 increase in money market deposits.

Short-term borrowings, which include sweep repurchase agreements and federal funds purchased, increased by $37,050 to $68,726 at September 30, 2005 compared to $31,676 at December 31, 2004. Other borrowings decreased by $108,130 to $233,948 at September 30, 2005 compared to $342,078 at December 31, 2004. The decline in other borrowings resulted primarily from a decrease in overnight borrowings of $29,175, the scheduled repayment of FHLB advances totaling $50,000 and the early repayment, without penalty, of a $25,000 variable rate FHLB advance.

Critical Accounting Policies

The Company follows financial accounting and reporting policies that are in accordance with generally accepted accounting principles in the United States of America. These policies are presented in Note 1 to the consolidated audited financial statements in Unizan Financial Corp.’s annual report on Form 10-K, as amended, for the year ended December 31, 2004. One of these accounting policies, as discussed below, is considered to be a critical accounting policy. Critical accounting policies are those policies that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company has identified one accounting policy that is a critical accounting policy and an understanding of this policy is necessary to understand the financial statements. This policy relates to determining the appropriateness of the allowance for loan losses. Additional information regarding this policy is included in the section captioned “Provision for Loan Losses.”

Management believes that the judgments, estimates and assumptions used in the preparation of the consolidated financial statements are appropriate given the factual circumstances at the time.

Liquidity and Capital Resources

The objective of liquidity management is to ensure the availability of funds to accommodate customer loan demand as well as deposit withdrawals while continuously seeking higher yields from longer-term lending and investing opportunities. This is accomplished principally by maintaining sufficient cash flows and liquid assets along with consistent stable core deposits and the capacity to maintain immediate access to funds. These immediately accessible funds may include federal funds sold, unpledged marketable securities, reverse repurchase agreements or available lines of credit from the Federal Reserve Bank, FHLB, or other financial institutions. An important factor in the preservation of liquidity is the maintenance of public confidence, as this facilitates the retention and growth of a large, stable supply of core deposits.

The Company’s principal source of funds to satisfy short-term liquidity needs comes from cash, due from banks, federal funds sold and borrowing capabilities through the FHLB and other sources. Changes in the balance of cash and due from banks are due to changes in volumes of federal funds sold and the float and reserves related to deposit accounts, which may fluctuate significantly on a day-to-day basis. As of September 30, 2005, cash, due from banks, federal funds sold and interest bearing deposits with banks totaled $65,075 compared with $59,196 at December 31, 2004. The securities portfolio serves as an additional source of liquidity for the Company. Securities with a market value of $425,751 were classified as available-for-sale as of September 30, 2005, representing 99.7% of the total securities portfolio. Classification of securities as available-for-sale provides for flexibility in managing net interest margin, interest rate risk, and liquidity. Securities with a market value of $336,232 at September 30, 2005 were pledged to secure public funds and other obligations.

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The Bank is a member of the FHLB. Membership provides an opportunity to control the Bank’s cost of funds by providing alternative funding sources, to provide flexibility in the management of interest rate risk through the wide range of available funding sources, to manage liquidity via immediate access to such funds, and to provide flexibility through utilization of customized funding products to fund various loan and investment products and strategies.

Shareholders’ equity at September 30, 2005 was $319,482, compared to $311,925 at December 31, 2004, an increase of $7,557. This increase was primarily the result of the retention of earnings after payment of dividends.

Under the risk-based capital guidelines, a minimum capital to risk-weighted assets ratio of 8.0% is required, of which, at least 4.0% must consist of Tier 1 capital (equity capital net of goodwill). Additionally, a minimum leverage ratio (Tier 1 capital to total assets) of 3.0% must be maintained. At September 30, 2005, the Company had a total risk-based capital ratio of 14.5%, of which 13.2% consisted of Tier 1 capital. The leverage ratio for the Company at September 30, 2005, was 10.0%.

Cash dividends declared and paid to shareholders of the Company totaled $8,960, or $0.405 per share, during the first nine months of 2005 compared to $8,844, or $0.405 per share, for the same period in 2004.

At September 30, 2005, the Company (parent only) had $11,470 of cash and cash equivalents. The Company’s ability to obtain additional funds for the payment of dividends and for other cash requirements is largely dependent on the amount of dividends which may be declared by the Bank and other subsidiaries. However, the Federal Reserve Board expects the Company to serve as a source of strength to its subsidiary banks, which may require the Company to retain capital for further investment in its subsidiary banks, rather than pay dividends to shareholders. Payment of dividends by the Bank may be restricted at any time at the discretion of its applicable regulatory authorities, if they deem such dividends to constitute an unsafe and/or unsound banking practice. These provisions could have the effect of limiting the Company’s ability to pay dividends on its common shares. Presently, based on an understanding between the Company and its primary regulator, any dividend payment or repurchase of common stock by the Company requires the prior approval of such primary regulator.

In addition, bank regulators limit the amount of dividends a subsidiary bank can declare in any calendar year without obtaining prior approval. Banks must have the approval of its regulatory authority if a dividend in any year would cause the total dividends for that year to exceed the sum of the Bank’s current year’s “net profits” (or net income, less dividends declared during the period based on regulatory accounting principles) and the retained net profits for the preceding two years, less required transfers to surplus. As of September 30, 2005, $12,483 was available to pay as dividends to the holding company. Dividends in excess of this amount require regulatory approval prior to being paid.

Considering the Company’s capital adequacy, profitability, available liquidity sources and funding sources, the Company’s liquidity is considered by management to be adequate to meet current and projected needs.

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Item 3:

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, the Company is exposed to interest rate risk caused by the differences in cash flows and repricing characteristics that occur in various assets and liabilities as a result of changes in interest rates. The asset and liability management process is designed to measure and manage that risk to maintain consistent levels of net interest income and net present value of equity under any interest rate scenario.

The Company uses a dynamic computer model to generate earnings simulations, duration and net present value forecasts and gap analyses, each of which measures interest rate risk from a different perspective. The model incorporates a large number of assumptions, including the absolute level of future interest rates, the slope of the yield curve, various spread relationships, pre-payment speeds, repricing opportunities, cash flow characteristics of instruments without contractual maturity dates and changes in the volumes of multiple loan, investment and deposit categories. Management believes that individually and in the aggregate these assumptions are reasonable, but the complexity of the simulation modeling process results in a sophisticated estimate, not a precise calculation of exposure.

One of the most significant assumptions is the assignment of deposit balances without a stated maturity date to specific time frames. Since these deposits are subject to withdrawal on demand, and have rates that can be changed at any time, they could be considered immediately repriceable and assigned to the shortest maturity, resulting in a significant level of liability sensitivity. However, actual experience indicates that balances are withdrawn and replaced over a much longer time frame, and rates are modified less frequently and in smaller increments than changes which occur in financial market rates. Prior to March 31, 2005, the Company used an estimated average decay rate to approximate deposit behavior over the simulation time horizon. Commencing with the March 31, 2005 analyses, decay rates have been developed based on a statistical analysis of historical deposit behavior.

The model then applies a predetermined immediate parallel increase or decrease in the level of interest rates to forecast the impact on both net interest income and capital one year forward. While such a change in interest rates is not necessarily indicative of actual or expected financial performance since changes in interest rates that affect the entire yield curve equally at a single point in time are not typical, Management believes this methodology provides a comprehensive appraisal of interest rate risk by estimating the maximum potential exposure to changes in interest rates. Other significant estimates include 1) assumptions regarding the magnitude of rate changes that are applied to various deposit products; 2) pre-payment assumptions applicable to residential mortgages, which are based on industry medians which could differ from the Company’s actual results due to non-financial pre-payment incentives and other local factors; and 3) the behavior of depositors, which is based on an analysis of historical changes in balances that might not fully reflect current attitudes toward other investment alternatives. Moreover, the model does not include any interim changes in strategy the Company might implement in response to shifts in interest rates.

At September 30, 2005, assuming an immediate, parallel 100 basis point shift in market yields, the Company’s net interest income for the next twelve months was calculated to decrease by 3.16% if rates decline and to increase by 2.26% if rates increase. At December 31, 2004, assuming an immediate, parallel 100 basis point shift in market yields, the Company’s net interest income for the next twelve months was calculated to decrease by 1.78% if rates declined and to increase by 1.21% if rates increased. Since interest rates on deposit products are relatively low, the Company would not expect to realize any significant future benefit from lower rates, but could see a continuing decrease in earning asset rates. The net present value of equity is defined as the difference between the present value of the Company’s assets and liabilities. In general, the present value of fixed rate financial instruments declines as market rates increase and increases as rates fall. Using the yield scenario defined above, the net present value of equity was forecasted to decline in a rising rate environment and to rise in a falling rate scenario.

Interest rate risk can be managed by using a variety of techniques, including but not limited to, selling existing assets or repaying liabilities, pricing loans and deposits to attract preferred maturities and developing alternative sources of funding or structuring new products to hedge existing exposures. In addition to these balance sheet strategies, the Company can also use derivative financial instruments such as interest rate swaps, caps, and floors to manage the potential impact of adverse changes in interest rates.

At September 30, 2005 the Company has an interest rate swap on which it pays a fixed rate and receives a variable rate that was executed to convert a variable rate borrowing to a fixed rate to reduce the risk of increased interest expense in a rising rate environment. Such swap, which had a total notional amount of $15,000, was recorded at its fair value of ($1,047) with changes in the fair value recognized in other comprehensive income. For the three months and nine months ended September 30, 2005, $98 and $483, respectively, was recognized in interest expense related to interest rate swaps compared with $388 and $1,220, respectively, for the same periods in 2004.

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Also, the Company has a program that provides long-term fixed rate loans to commercial borrowers without the Company incurring interest rate risk by executing simultaneous interest rate swaps. Each swap under this program has been structured to have the same amortization and rate reset schedule as its underlying loan, which results in an effective fair value hedge. At September 30, 2005, the notional value of swaps in this program totaled $29,271 and had a fair value of $303. Changes in the market value of these swaps and the underlying loans are included in earnings. For the three months and nine months ended September 30, 2005, $68 and $315, respectively, was recognized as a reduction in interest income related to these interest rate swaps compared with $95 and $300, respectively, for the same periods in 2004.

The Company also has a notional balance of $3,000 of options on the S & P 500 which offsets the equivalent risk of certificate of deposit liabilities that have a return contractually linked to the index. The options and the embedded derivative had a fair value of $163 at September 30, 2005.

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Item 4:

CONTROLS AND PROCEDURES

Management is responsible for establishing and maintaining effective disclosure controls and procedures as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. As of the end of the period covered by this quarterly report, an evaluation of the effectiveness and design and operation of the Company’s disclosure controls and procedures was performed under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer. Based on this evaluation, management concluded the Company’s disclosure controls and procedures as of September 30, 2005, were effective in ensuring material information required to be disclosed in this Quarterly Report on Form 10-Q was recorded, processed, summarized, and reported on a timely basis. Additionally, there were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2005 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

In May 2005, a Class Action Complaint was filed against more than 50 banks and financial institutions, including Unizan Bank, National Association (“Bank”). The plaintiffs allege that they were induced to make fraudulent investments in two entities and that the checks they wrote for the investments were drawn on some of the defendant banks and financial institutions and deposited with other defendant banks and financial institutions. With respect to the Bank, plaintiffs allege that the checks deposited with the Bank were not endorsed by an authorized agent of the payee and were not deposited into accounts that were authorized by the payee. The claims against the Bank are for 1) fraud; 2) conversion; 3) negligence; 4) failure to act with ordinary care (Uniform Commercial Code (“UCC”)); 5) breach of duty of good faith (UCC); 6) conversion (UCC); and money had and received. Plaintiffs are seeking compensatory damages from the Bank in the amount of $4 million, plus punitive damages. This case is in the initial stages, counsel has been retained and Management has instructed counsel to vigorously defend this matter.

Item 2. Changes in Securities and Use of Proceeds

	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan	Maximum Number of Shares that May Yet Be Purchased Under the Plan
July 1, 2005 to July 31, 2005	10	$	27.27	—
August 1, 2005 to August 31, 2005	—		—	—
September 1, 2005 to September 30, 2005	—		—	—
Total	10	$	27.27	—

The above shares were purchased from shareholders who participate in the Company’s Dividend Reinvestment Plan. In addition to the above share purchases, a total of 3,484 of treasury shares were issued in connection with stock option activity and 143 of treasury shares were issued in connection with the Company’s Dividend Reinvestment and Stock Purchase Plan during the third quarter of 2005.

Item 3. Defaults upon Senior Securities

Not Applicable

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits Required by Item 601 of Regulation S-K

Exhibit 2(a) — Agreement and Plan of Merger by and between Unizan Financial Corp. and Huntington Bancshares Incorporated dated January 27, 2004, is incorporated by reference to Form 10-K for the year ended December 31, 2003, Exhibit 2(a).

Exhibit 2(b) — Amendment No. 1 to the Agreement and Plan of Merger by and between Unizan Financial Corp. and Huntington Bancshares Incorporated, dated November 12, 2004, is incorporated by reference to Report on Form 8-K dated November 15, 2004.

Exhibit 3(a) — Articles of Incorporation, as amended is incorporated by reference to Appendix A to UNB Corp.’s Form S-4 dated October 15, 2001.

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Exhibit 3(b) — Code of Regulations, is incorporated by reference to Exhibit (4)B to UNB Corp.’s registration statement on Form S-3 (No. 33-27471).

Exhibit 10.2 — Indenture of the Company relating to the Junior Subordinated Debentures is incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-4, Registration Statement (No. 333-30570).

Exhibit 10.3 — Amended and Restated Trust Agreement of BFOH Capital Trust I is incorporated by reference to the Company’s Registration Statement of Form S-4, Registration Statement (No. 333-30570).

Exhibit 10.e — UNB Corp. 1997 Stock Option Plan, filed on February 28, 1998, is incorporated herein by reference to Form Definitive 14-A, dated April 15, 1997, Appendix A, as amended by Form S-8 filed on July 11, 2003.

Exhibit 10.y — Split Dollar Agreement for Salary Continuation Agreement Roger L. Mann, James J. Pennetti and Scott E. Dodds, dated May 1, 2001, is incorporated herein by reference to Form 10-Q for quarter ended September 30, 2001, Exhibit 10.y.

Exhibit 10.z — Key Man Split Dollar Agreement for Roger L. Mann, dated July 18, 2001, is incorporated herein by reference to Form 10-Q for quarter ended September 30, 2001, Exhibit 10.z.

Exhibit 10.aa — Group Term Carve Out Plan, dated June 19, 2003, is incorporated by reference to Form 10-K for the year ended December 31, 2003, Exhibit 10.aa.

Exhibit 10.ab — Unizan Financial Corp. Severance Agreement for Roger L. Mann entered into as of August 1, 2002, is incorporated herein by reference to Form 10-Q for quarter ended September 30, 2002, Exhibit 10.ab.

Exhibit 10.ac — Unizan Bank, National Association Amended Salary Continuation Agreement for Roger L. Mann entered into as of August 1, 2002, is incorporated herein by reference to Form 10-Q for quarter ended September 30, 2002, Exhibit 10.ac.

Exhibit 10.af — Unizan Financial Corp. Severance Agreement for Scott E. Dodds entered into as of August 1, 2002, is incorporated herein by reference to Form 10-Q for quarter ended September 30, 2002, Exhibit 10.af.

Exhibit 10.ag — Unizan Bank, National Association Amended Salary Continuation Agreement for Scott E. Dodds entered into as of August 1, 2002, is incorporated herein by reference to Form 10-Q for quarter ended September 30, 2002, Exhibit 10.ag.

Exhibit 10.ah — Unizan Financial Corp. Severance Agreement for James H. Nicholson entered into as of August 1, 2002, is incorporated herein by reference to Form 10-Q for quarter ended September 30, 2002, Exhibit 10.ah.

Exhibit 10.ai — Unizan Financial Corp. Severance Agreement for Edward N. Cohn entered into as of August 1, 2002, is incorporated herein by reference to Form 10-Q for quarter ended September 30, 2002, Exhibit 10.ai.

Exhibit 10.aj — Unizan Financial Corp. Severance Agreement for Robert J. Blackburn entered into as of August 1, 2002, is incorporated herein by reference to Form 10-Q for quarter ended September 30, 2002, Exhibit 10.aj.

Exhibit 10.ak — Unizan Financial Corp. Severance Agreement for James B. Baemel entered into as of August 1, 2002, is incorporated herein by reference to Form 10-Q for quarter ended September 30, 2002, Exhibit 10.ak.

Exhibit 10.al — Unizan Financial Corp. Severance Agreement for Gary L. McGlaughlin entered into as of August 1, 2002, is incorporated herein by reference to Form 10-Q for quarter ended September 30, 2002, Exhibit 10.al.

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Exhibit 10.am — Unizan Financial Corp. Severance Agreement for Thomas J. Selock entered into as of August 1, 2002, is incorporated herein by reference to Form 10-Q for quarter ended September 30, 2002, Exhibit 10.am.

Exhibit 10.an — Consulting and Noncompetition Agreement for James J. Pennetti entered into as of December 1, 2003, is incorporated by reference to Form 10-K for the year ended December 31, 2003, Exhibit 10.an.

Exhibit 10.ao — Unizan Financial Corp. Severance Agreement for Kim M. Taylor entered into as of February 15, 2005, is incorporated by reference to Report on Form 8-K dated February 16, 2005.

Exhibit 31.1 — Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Roger L. Mann, President and Chief Executive Officer.

Exhibit 31.2 — Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Kim M. Taylor, Chief Financial Officer.

Exhibit 32.1 — Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Roger L. Mann, President and Chief Executive Officer.

Exhibit 32.2 — Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Kim M. Taylor, Chief Financial Officer.

(b) Reports on Form 8-K filed during the quarter ended September 30, 2005:

Report on Form 8-K dated July 22, 2005 reporting earnings for the quarter ended June 30, 2005.

Report on Form 8-K dated September 7, 2005 announcing the declaration of a quarterly cash dividend of $0.135 per common share.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Unizan Financial Corp. (Registrant)
Date: November 7, 2005	/s/ ROGER L. MANN
	Roger L. Mann
	President and Chief Executive Officer
Date: November 7, 2005	/s/ KIM M. TAYLOR
	Kim M. Taylor
	Chief Financial Officer

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