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SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
  þ
    
    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the fiscal year ended December 31, 2006
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
 Commission file Number 000-33243
 Huntington Preferred Capital, Inc.
  Ohio
    
    31-1356967(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)41 S. High Street, Columbus, OH
    
    43287(Address of principal executive offices)
    
    (Zip Code)
 (614) 480-8300
 None
  Noncumulative Exchangeable Preferred Securities, Class C (Liquidation Amount $25.00 each)
  o þ
 o þ
 þ o
 þ
  o o þ
 o þ
  Documents Incorporated By Reference




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##### Table of Contents



HUNTINGTON PREFERRED CAPITAL, INC.
  Part I.Item 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    11Item 1B.
    
    Unresolved Staff Comments
    
    
    17Item 2.
    
    Properties
    
    
    17Item 3.
    
    Legal Proceedings
    
    
    17Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    17Part II.Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
    
    
    17Item 6.
    
    Selected Financial Data
    
    
    18Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    32Item 8.
    
    Financial Statements and Supplementary Data
    
    
    32Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    49Item 9A.
    
    Controls and Procedures
    
    
    49Item 9A(T).
    
    Controls and Procedures
    
    
    49Item 9B.
    
    Other Information
    
    
    49Part III.Item 10.
    
    Directors and Executive Officers and Corporate Governance
    
    
    49Item 11.
    
    Executive Compensation
    
    
    49Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    49Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    49Item 14.
    
    Principal Accounting Fees and Services
    
    
    50Part IV.Item 15.
    
    Exhibits and Financial Statement Schedules
    
    
    50Signatures
    
    
    
    
    51ExhibitsEX-12.1EX-21.1EX-24.1EX-31.1EX-31.2EX-32.1EX-32.2EX-99.1
  2




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Huntington Preferred Capital, Inc.
 Part I
 
 Item 1: Business
 General
  
 3




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Commercial and Commercial Real Estate Loans
    Consumer Loans
  Residential Real Estate Loans
  4




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Geographic Distribution
  Table 1  Total Loan Participation Interests by Geographic Location of Borrower
 (in thousands)
    
    
    
    
    
    
    
    
    
    Percentage byAggregate
    
    AggregateNumber
    
    Principal
    
    PrincipalState
    
    of Loans
    
    Balance
    
    BalanceOhio
    
    
    15,485
    
    
    $
    2,260,527
    
    
    
    55.1
    %Michigan
    
    
    8,218
    
    
    
    1,067,830
    
    
    
    26.1Indiana
    
    
    2,022
    
    
    
    317,327
    
    
    
    7.7Kentucky
    
    
    1,632
    
    
    
    232,117
    
    
    
    5.727,357
    
    
    
    3,877,801
    
    
    
    94.6All other locations
    
    
    298
    
    
    
    219,408
    
    
    
    5.4Total loan participation interests
    
    
    27,655
    
    
    $
    4,097,209
    
    
    
    100.0
    %
 Principal Balances
  Table 2  Total Loan Participation Interests by Principal Balances
 (in thousands)
    
    
    
    
    
    
    
    
    
    Percentage byAggregate
    
    AggregateNumber
    
    Principal
    
    PrincipalSize
    
    of Loans
    
    Balance
    
    BalanceLess than $50,000
    
    
    16,267
    
    
    $
    349,120
    
    
    
    8.5
    %Greater than $50,000
to $100,000
    
    
    5,146
    
    
    
    367,695
    
    
    
    9.0Greater than $100,000
to $250,000
    
    
    3,532
    
    
    
    539,050
    
    
    
    13.2Greater than $250,000
to $500,000
    
    
    1,266
    
    
    
    447,266
    
    
    
    10.9Greater than $500,000
to $1,000,000
    
    
    745
    
    
    
    520,838
    
    
    
    12.7Greater than $1,000,000
to $3,000,000
    
    
    513
    
    
    
    849,763
    
    
    
    20.7Greater than $3,000,000
to $5,000,000
    
    
    114
    
    
    
    437,346
    
    
    
    10.7Greater than $5,000,000
to $10,000,000
    
    
    59
    
    
    
    402,899
    
    
    
    9.8Greater than $10,000,000
    
    
    13
    
    
    
    183,232
    
    
    
    4.5Total loan
participation
interests
    
    
    27,655
    
    
    $
    4,097,209
    
    
    
    100.0
    %
 Dividend Policy and Restrictions
  5




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Table 3  Capital Ratios for the Bank
 Well-
    
    Adequately-Capitalized
    
    Capitalized
    
    December 31,Minimums
    
    Minimums
    
    2006
    
    2005Tier 1 Risk-Based Capital
    
    
    6.00
    %
    
    
    4.00
    %
    
    
    6.47
    %
    
    
    6.82
    %Total Risk-Based Capital
    
    
    10.00
    
    
    
    8.00
    
    
    
    10.44
    
    
    
    10.55Tier 1 Leverage Ratio
    
    
    5.00
    
    
    
    4.00
    
    
    
    5.81
    
    
    
    6.21
 Conflict of Interests and Related Policies
    Other Management Policies and Programs
 General
  6




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Underwriting Standards
   Asset Acquisition and Disposition Policies
  
    
    are performing, meaning they have no more than two payments past due,
    
    are in accruing status,
    
    are not made to related parties of HPCI, Huntington, or the Bank,
    
    are secured by real property such that they are REIT qualifying, and
    
    have not been previously sold, securitized, or charged-off either in whole or in part.
     7




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Credit Risk Management Policies
  Other Policies
  
    
    invest in the securities of other issuers for the purpose of exercising control over such issuers;
    
    underwrite securities of other issuers;
    
    actively trade in loans or other investments;
    
    offer securities in exchange for property; or
    
    make loans to third parties, including, its officers, directors, or other affiliates.
     8




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Employees
   Servicing
      9




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Competition
  Segment Reporting
  Regulatory Matters
   Available Information
  10




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Item 1A: Risk Factors
  HPCI relies on the Banks credit underwriting standards and on-going process of credit
assessment. There can be no assurance that the Banks standards and assessments will protect HPCI
from significant credit losses on loans underlying its participation interests.
  The loans underlying HPCIs participation interests are concentrated in Ohio, Indiana,
Kentucky, and Michigan. Adverse conditions in those states, in particular, could negatively impact
HPCIs result of operations and ability to pay dividends.
  The loans underlying participation interests are subject to local economic conditions that
could negatively affect the value of the collateral securing such loans and/or the results of
HPCIs operations.
  
    
    local and other economic conditions affecting real estate and other collateral values;
    
    the continued financial stability of a borrower;
    
    the borrowers ability to make loan principal and interest payments, which may be
adversely affected by job loss, recession, divorce, illness, or personal bankruptcy;
    
    the tenants ability to make lease payments; and
    
    the ability of a property to attract and retain tenants, which may be affected by
conditions such as an oversupply of space or a reduction in demand for rental space in
the area, the attractiveness of properties to tenants, competition from other available
space, and the ability of the owner to pay leasing commissions, provide adequate
maintenance and insurance, pay tenant improvement costs, and make other tenant
concessions.
  11




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HPCIs concentration in participation interests in commercial real estate loans is subject to
certain risks inherent in the underlying commercial real estate assets.
  A decline in the Banks capital levels may result in HPCIs preferred securities being subject
to a conditional exchange into Bank preferred securities at a time when the Banks financial
condition is deteriorating. Consequently, the likelihood of dividend payments, as well as the
liquidation preference, taxation, voting rights, and liquidity of securities would be negatively
impacted.
  
    
    the Bank becomes undercapitalized;
    
    the OCC, in its sole discretion, anticipates that the Bank will become
undercapitalized in the near term; or
    
    the Bank is placed in conservatorship or receivership.
       12




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Bank regulators may limit HPCIs ability to implement its business plan and may restrict its
ability to pay dividends.
    Dividends are not cumulative; preferred shareholders are not entitled to receive dividends
unless declared by HPCIs board of directors.
  
    
    the amount of distributable funds;
    
    HPCIs financial condition and capital needs;
    
    the impact of current and pending legislation and regulations;
    
    economic conditions;
    
    tax considerations; and
    
    HPCIs continued qualification as a REIT.
  HPCI is dependent, in virtually every phase of its operations, on the diligence and skill of
the officers and employees of the Bank, and its relationship with the Bank may create potential
conflicts of interest.
  13




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HPCIs assets may be used to guarantee certain of the Banks obligations that will have a
preference over the holders of HPCIs preferred securities.
   14




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New, or changes in existing, tax, accounting, and regulatory laws, regulations, rules,
standards, policies, and interpretations could significantly impact HPCIs strategic initiatives,
results of operations, cash flows, financial condition, and ability to pay dividends.
  The extended disruption of Huntingtons vital infrastructure could negatively impact HPCIs
business, results of operations, financial condition, and ability to pay dividends.
  HPCI has no control over changes in interest rates and such changes could negatively impact
its financial condition, results of operations, and ability to pay dividends.
  15




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HPCI could suffer adverse tax consequences if it failed to qualify as a REIT.
     Environmental liabilities associated with real property securing loans underlying HPCIs
participation interests could reduce the fair market value of its participation interests and make
the property more difficult to sell.
  HPCI may redeem the Class C and Class D preferred securities upon the occurrence of certain
special events and holders of such securities may receive a redemption amount that is less than the
then current market price for the securities.
  16




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
    
    a tax event which occurs when HPCI receives an opinion of counsel to the effect
that, as a result of a judicial decision or administrative pronouncement, ruling, or
other action or as a result of certain changes in the tax laws, regulations, or related
interpretations, there is a significant risk that dividends with respect to HPCIs
capital stock will not be fully deductible by HPCI or it will be subject to a
significant amount of additional taxes or governmental charges;
    
    an investment company event which occurs when HPCI receives an opinion of counsel to
the effect that, as a result of certain changes in the applicable laws, regulations, or
related interpretations, there is a significant risk that HPCI will be considered an
investment company under the Investment Company Act of 1940; and
    
    a regulatory capital event which occurs when, as a result of certain changes in the
applicable laws, regulations, or related interpretations, there is a significant risk
that HPCIs Class C preferred securities will no longer constitute Tier 1 capital of
the Bank (other than as a result of limitations on the portion of Tier 1 capital that
may consist of minority interests in subsidiaries of the Bank).
  
 Item 1B: Unresolved Staff Comments
  
 Item 2: Properties
  
 Item 3: Legal Proceedings
  
 Item 4: Submission of Matters to a Vote of Security Holders
  
 Part II
 
 Item 5: Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
    17




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Item 6: Selected Financial Data
  Table 4  Selected Financial Data
 (in thousands)
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002STATEMENTS OF INCOME:Interest and fee income
    
    $
    331,306
    
    
    $
    302,743
    
    
    $
    262,215
    
    
    $
    274,401
    
    
    $
    347,754Reduction in allowance for
credit losses
    
    
    (22,041
    )
    
    
    (19,796
    )
    
    
    (31,591
    )
    
    
    (41,219
    )
    
    
    (161
    )Non-interest income
    
    
    7,525
    
    
    
    9,391
    
    
    
    7,249
    
    
    
    6,901
    
    
    
    6,759Non-interest expense
    
    
    15,322
    
    
    
    17,065
    
    
    
    16,260
    
    
    
    13,886
    
    
    
    13,282Net income
    
    
    344,237
    
    
    
    314,318
    
    
    
    284,542
    
    
    
    308,539
    
    
    
    341,437Dividends declared on preferred securities
    
    
    47,944
    
    
    
    34,634
    
    
    
    20,744
    
    
    
    18,911
    
    
    
    23,814Net income applicable
to common shares
    
    
    296,293
    
    
    
    279,684
    
    
    
    263,798
    
    
    
    289,628
    
    
    
    317,623Dividends declared on common stock
    
    
    296,293
    
    
    
    279,684
    
    
    
    263,798
    
    
    
    289,628
    
    
    
    382,840BALANCE SHEET HIGHLIGHTS:At period end:Net loan participation interests
    
    $
    4,048,506
    
    
    $
    4,454,795
    
    
    $
    4,828,127
    
    
    $
    5,218,536
    
    
    $
    4,893,137All other assets
    
    
    901,230
    
    
    
    899,090
    
    
    
    845,464
    
    
    
    187,442
    
    
    
    623,884Total assets
    
    
    4,949,736
    
    
    
    5,353,885
    
    
    
    5,673,591
    
    
    
    5,405,978
    
    
    
    5,517,021Total shareholders equity
    
    
    4,495,753
    
    
    
    4,649,460
    
    
    
    5,069,776
    
    
    
    5,405,978
    
    
    
    5,516,351Average balances:Net loan participation interests
    
    $
    4,349,214
    
    
    $
    4,664,505
    
    
    $
    5,075,815
    
    
    $
    5,027,857
    
    
    $
    5,098,098Total assets
    
    
    4,816,467
    
    
    
    5,217,640
    
    
    
    5,530,253
    
    
    
    5,647,772
    
    
    
    6,052,136Total shareholders equity
    
    
    4,774,542
    
    
    
    5,197,654
    
    
    
    5,497,479
    
    
    
    5,643,692
    
    
    
    6,044,404KEY RATIOS AND STATISTICS:Yield on interest earning assets
    
    
    6.94
    %
    
    
    5.84
    %
    
    
    4.74
    %
    
    
    4.77
    %
    
    
    5.82
    %Return on average assets
    
    
    7.15
    
    
    
    6.02
    
    
    
    5.15
    
    
    
    5.46
    
    
    
    5.64Return on average equity
    
    
    7.21
    
    
    
    6.05
    
    
    
    5.18
    
    
    
    5.47
    
    
    
    5.65Dividend payout ratio
    
    
    100.00
    
    
    
    100.00
    
    
    
    100.00
    
    
    
    100.00
    
    
    
    121.00Average shareholders equity to
average assets
    
    
    99.13
    
    
    
    99.62
    
    
    
    99.41
    
    
    
    99.93
    
    
    
    99.87Preferred dividend coverage ratio
    
    
    7.18
    x
    
    
    9.08
    x
    
    
    13.72
    x
    
    
    16.32
    x
    
    
    14.34
    x
  18




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Item 7: Managementss Discussion and Analysis of Financial Condition and Results of Operations
 INTRODUCTION
   Forward-looking Statements
    Critical Accounting Policies and Use of Significant Estimates
   19




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Summary Discussion of Results
 2006 versus 2005
     Table 5  Loan Participation Interests (1)
 (in thousands)
    
    
    2006
                            
    2005
                            
    2004
                            
    2003
                            
    2002At December 31,Commercial
    
    $
    31,049
    
    
    
    0.6
    %
    
    $
    46,559
    
    
    
    0.9
    %
    
    $
    106,179
    
    
    
    1.9
    %
    
    $
    147,211
    
    
    
    2.7
    %
    
    $
    344,858
    
    
    
    6.3
    %Commercial real estate
    
    
    3,108,533
    
    
    
    62.8
    
    
    
    3,311,275
    
    
    
    61.8
    
    
    
    3,738,930
    
    
    
    65.9
    
    
    
    4,245,092
    
    
    
    78.5
    
    
    
    3,922,467
    
    
    
    71.1Consumer
    
    
    845,272
    
    
    
    17.1
    
    
    
    997,094
    
    
    
    18.6
    
    
    
    819,250
    
    
    
    14.4
    
    
    
    622,575
    
    
    
    11.5
    
    
    
    612,357
    
    
    
    11.1Residential real estate
    
    
    112,355
    
    
    
    2.3
    
    
    
    157,397
    
    
    
    2.9
    
    
    
    224,914
    
    
    
    4.0
    
    
    
    288,190
    
    
    
    5.3
    
    
    
    153,808
    
    
    
    2.8Total
    
    $
    4,097,209
    
    
    
    82.8
    %
    
    $
    4,512,325
    
    
    
    84.2
    %
    
    $
    4,889,273
    
    
    
    86.2
    %
    
    $
    5,303,068
    
    
    
    98.0
    %
    
    $
    5,033,490
    
    
    
    91.3
    %
 (1)
    
    Percentages represent the percentage of each loan
category to total assets.
    20




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2005 versus 2004
     QUALIFICATION TESTS
  21




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RESULTS OF OPERATIONS
 Interest and Fee Income
   Table 6  Interest and Fee Income
 2006
    
    2005
    
    2004Average
    
    
    
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    
    
    
    Average(in millions)
    
    Balance
    
    Income(1)
    
    Yield
    
    Balance
    
    Income(1)
    
    Yield
    
    Balance
    
    Income(1)
    
    YieldLoan participation interests:Commercial
    
    $
    39.9
    
    
    $
    3.2
    
    
    
    7.93
    %
    
    $
    77.1
    
    
    $
    4.7
    
    
    
    6.05
    %
    
    $
    157.7
    
    
    $
    7.8
    
    
    
    4.97
    %Commercial real estate
    
    
    3,295.2
    
    
    
    238.0
    
    
    
    7.22
    
    
    
    3,566.4
    
    
    
    211.1
    
    
    
    5.92
    
    
    
    4,033.5
    
    
    
    183.5
    
    
    
    4.55Consumer
    
    
    935.4
    
    
    
    63.2
    
    
    
    6.76
    
    
    
    892.1
    
    
    
    61.0
    
    
    
    6.84
    
    
    
    702.6
    
    
    
    51.4
    
    
    
    7.31Residential real estate
    
    
    132.0
    
    
    
    7.9
    
    
    
    5.97
    
    
    
    189.2
    
    
    
    10.3
    
    
    
    5.45
    
    
    
    257.8
    
    
    
    13.5
    
    
    
    5.23Total loan participations
    
    
    4,402.5
    
    
    
    312.3
    
    
    
    7.09
    
    
    
    4,724.8
    
    
    
    287.1
    
    
    
    6.08
    
    
    
    5,151.6
    
    
    
    256.2
    
    
    
    4.97Interest bearing deposits with
The Huntington National Bank
    
    
    366.3
    
    
    
    19.0
    
    
    
    5.12
    
    
    
    457.4
    
    
    
    15.6
    
    
    
    3.43
    
    
    
    376.3
    
    
    
    6.0
    
    
    
    1.60Total
    
    $
    4,768.8
    
    
    $
    331.3
    
    
    
    6.94
    %
    
    $
    5,182.2
    
    
    $
    302.7
    
    
    
    5.84
    %
    
    $
    5,527.9
    
    
    $
    262.2
    
    
    
    4.74
    %
 (1)
    
    Income includes interest and fees.
   22




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Reduction in Allowances for Credit Losses
  Non-Interest Income and Non-Interest Expense
    July 1, 2005
    
    July 1, 2004
    
    January 1, 2004thru
    
    thru
    
    thruDecember 31, 2006
    
    June 30, 2005
    
    June 30, 2004Commercial and commercial real estate
    
    
    0.125
    %
    
    
    0.125
    %
    
    
    0.125
    %Consumer
    
    
    0.650
    %
    
    
    0.750
    %
    
    
    0.320
    %Residential real estate
    
    
    0.267
    %
    
    
    0.267
    %
    
    
    0.299
    %
  Income Taxes
  MARKET RISK
   23




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Table 7  Total Loan Participation Interests by Interest Rates
 December 31, 2006
    
    Fixed Rate
    
    Variable Rate(1)Percentage by
    
    
    
    
    
    
    
    
    
    Percentage byAggregate
    
    Aggregate
    
    
    
    
    
    Aggregate
    
    AggregateNumber
    
    Principal
    
    Principal
    
    Number
    
    Principal
    
    Principal(in thousands)
    
    of Loans
    
    Balance
    
    Balance
    
    of Loans
    
    Balance
    
    Balanceunder 5.00%
    
    
    893
    
    
    $
    62,183
    
    
    
    4.6
    %
    
    
    94
    
    
    $
    35,897
    
    
    
    1.3
    %5.00% to 5.99%
    
    
    4,991
    
    
    
    365,366
    
    
    
    27.1
    
    
    
    428
    
    
    
    103,526
    
    
    
    3.86.00% to 6.99%
    
    
    6,217
    
    
    
    438,679
    
    
    
    32.7
    
    
    
    847
    
    
    
    420,408
    
    
    
    15.37.00% to 7.99%
    
    
    4,076
    
    
    
    284,263
    
    
    
    21.1
    
    
    
    1,994
    
    
    
    1,527,821
    
    
    
    55.68.00% to 8.99%
    
    
    3,340
    
    
    
    128,190
    
    
    
    9.5
    
    
    
    1,315
    
    
    
    601,284
    
    
    
    21.89.00% to 9.99%
    
    
    1,810
    
    
    
    43,432
    
    
    
    3.2
    
    
    
    284
    
    
    
    46,563
    
    
    
    1.710.00% to 10.99%
    
    
    828
    
    
    
    17,529
    
    
    
    1.3
    
    
    
    62
    
    
    
    12,101
    
    
    
    0.411.00% to 11.99%
    
    
    287
    
    
    
    5,376
    
    
    
    0.4
    
    
    
    16
    
    
    
    1,833
    
    
    
    0.112.00% and over
    
    
    167
    
    
    
    1,972
    
    
    
    0.1
    
    
    
    6
    
    
    
    786
    
    
    
    0.0Total
    
    
    22,609
    
    
    $
    1,346,990
    
    
    
    100.0
    %
    
    
    5,046
    
    
    $
    2,750,219
    
    
    
    100.0
    %
 December 31, 2005
    
    Fixed Rate
    
    Variable Rate(1)Percentage by
    
    
    
    
    
    
    
    
    
    Percentage byAggregate
    
    Aggregate
    
    
    
    
    
    Aggregate
    
    AggregateNumber
    
    Principal
    
    Principal
    
    Number
    
    Principal
    
    Principal(in thousands)
    
    of Loans
    
    Balance
    
    Balance
    
    of Loans
    
    Balance
    
    Balanceunder 5.00%
    
    
    1,012
    
    
    $
    75,246
    
    
    
    5.0
    %
    
    
    169
    
    
    $
    64,947
    
    
    
    2.1
    %5.00% to 5.99%
    
    
    5,562
    
    
    
    431,815
    
    
    
    29.0
    
    
    
    936
    
    
    
    426,780
    
    
    
    14.16.00% to 6.99%
    
    
    7,000
    
    
    
    513,784
    
    
    
    34.4
    
    
    
    2,351
    
    
    
    1,688,238
    
    
    
    55.97.00% to 7.99%
    
    
    4,603
    
    
    
    255,189
    
    
    
    17.1
    
    
    
    1,773
    
    
    
    742,617
    
    
    
    24.68.00% to 8.99%
    
    
    3,914
    
    
    
    123,568
    
    
    
    8.3
    
    
    
    525
    
    
    
    84,570
    
    
    
    2.89.00% to 9.99%
    
    
    2,339
    
    
    
    56,476
    
    
    
    3.8
    
    
    
    95
    
    
    
    12,201
    
    
    
    0.410.00% to 10.99%
    
    
    1,084
    
    
    
    23,499
    
    
    
    1.6
    
    
    
    12
    
    
    
    1,658
    
    
    
    0.111.00% to 11.99%
    
    
    384
    
    
    
    7,621
    
    
    
    0.5
    
    
    
    2
    
    
    
    153
    
    
    
    0.012.00% and over
    
    
    618
    
    
    
    3,863
    
    
    
    0.3
    
    
    
    2
    
    
    
    100
    
    
    
    0.0Total
    
    
    26,516
    
    
    $
    1,491,061
    
    
    
    100.0
    %
    
    
    5,865
    
    
    $
    3,021,264
    
    
    
    100.0
    %
 (1)
    
    The variable rate category includes loan participation interests with variable and adjustable rates.
 24




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##### Table of Contents



CREDIT QUALITY
 Credit Risk
      Table
8  Loan Participation Interests Aging
 Percentage byTotal
    
    Aggregate
    
    AggregateNumber
    
    Principal
    
    Principal(in thousands)
    
    of Loans
    
    Balance
    
    BalanceCurrent
    
    
    25,043
    
    
    $
    3,750,869
    
    
    
    91.5
    %1 to 30 days past due
    
    
    1,984
    
    
    
    293,159
    
    
    
    7.231 to 60 days past due
    
    
    301
    
    
    
    25,671
    
    
    
    0.661 to 90 days past due
    
    
    120
    
    
    
    6,209
    
    
    
    0.2over 90 days past due (1)
    
    
    207
    
    
    
    21,301
    
    
    
    0.5Total
    
    
    27,655
    
    
    $
    4,097,209
    
    
    
    100.0
    %
 (1)
    
    Includes non-accrual loans.
 Commercial Credit
   25




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##### Table of Contents



Consumer Credit
   Allowances for Credit Losses (ACL)
     26




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##### Table of Contents



Table 9  Allowances for Credit Loss Activity
 (in thousands)
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002ALL balance, beginning of year
    
    $
    57,530
    
    
    $
    61,146
    
    
    $
    84,532
    
    
    $
    140,353
    
    
    $
    175,690Allowance of loan participations acquired
    
    
    19,404
    
    
    
    25,071
    
    
    
    21,201
    
    
    
    45,397
    
    
    
    37,020Net loan (losses) recoveriesCommercial
    
    
    1,124
    
    
    
    1,247
    
    
    
    1,594
    
    
    
    (20,973
    )
    
    
    (29,686
    )Commercial real estate
    
    
    (4,494
    )
    
    
    (5,175
    )
    
    
    (5,032
    )
    
    
    (13,525
    )
    
    
    (21,599
    )Consumer
    
    
    (3,086
    )
    
    
    (4,362
    )
    
    
    (5,458
    )
    
    
    (22,999
    )
    
    
    (20,911
    )Residential real estate
    
    
    (65
    )
    
    
    (231
    )
    
    
    (335
    )
    
    
    (2,502
    )
    
    
    Total net loan losses
    
    
    (6,521
    )
    
    
    (8,521
    )
    
    
    (9,231
    )
    
    
    (59,999
    )
    
    
    (72,196
    )Reduction in ALL
    
    
    (21,710
    )
    
    
    (19,228
    )
    
    
    (35,356
    )
    
    
    (41,219
    )
    
    
    (161
    )Economic Reserve transfer to AULPC
    
    
    
    
    
    
    (938
    )
    
    
    
    
    
    
    
    
    
    
    ALL balance, end of year
    
    $
    48,703
    
    
    $
    57,530
    
    
    $
    61,146
    
    
    $
    84,532
    
    
    $
    140,353AULPC balance, beginning of year
    
    $
    4,135
    
    
    $
    3,765
    
    
    $
    
    
    
    $
    
    
    
    $
    (Reduction in) provision for AULPC
    
    
    (331
    )
    
    
    (568
    )
    
    
    3,765
    
    
    
    
    
    
    
    Economic Reserve transfer from ALL
    
    
    
    
    
    
    938
    
    
    
    
    
    
    
    
    
    
    
    AULPC balance, end of year
    
    $
    3,804
    
    
    $
    4,135
    
    
    $
    3,765
    
    
    $
    
    
    
    $
    Total Allowances for Credit Losses
    
    $
    52,507
    
    
    $
    61,665
    
    
    $
    64,911
    
    
    $
    84,532
    
    
    $
    140,353ALL as a % of total participation interests
    
    
    1.19
    %
    
    
    1.27
    %
    
    
    1.25
    %
    
    
    1.59
    %
    
    
    2.79
    %ACL as a % of total participation interests
    
    
    1.28
    
    
    
    1.37
    
    
    
    1.33
    
    
    
    1.59
    
    
    
    2.79
 27




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##### Table of Contents



Table 10  Allowance for Credit Losses by Product (1)
 At December 31,(in thousands)
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Commercial
    
    $
    430
    
    
    
    0.8
    %
    
    $
    635
    
    
    
    1.0
    %
    
    $
    9,148
    
    
    
    2.2
    %
    
    $
    25,375
    
    
    
    2.8
    %
    
    $
    75,264
    
    
    
    6.9
    %Commercial real estate
    
    
    42,130
    
    
    
    75.9
    
    
    
    48,303
    
    
    
    73.4
    
    
    
    44,105
    
    
    
    76.4
    
    
    
    47,561
    
    
    
    80.1
    
    
    
    26,605
    
    
    
    77.8Consumer
    
    
    5,621
    
    
    
    20.6
    
    
    
    7,792
    
    
    
    22.1
    
    
    
    6,279
    
    
    
    16.8
    
    
    
    8,096
    
    
    
    11.7
    
    
    
    9,979
    
    
    
    12.2Residential real estate
    
    
    522
    
    
    
    2.7
    
    
    
    800
    
    
    
    3.5
    
    
    
    1,614
    
    
    
    4.6
    
    
    
    3,500
    
    
    
    5.4
    
    
    
    2,883
    
    
    
    3.1Unallocated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,622
    
    
    
    Total ALL
    
    
    48,703
    
    
    
    100.0
    %
    
    
    57,530
    
    
    
    100.0
    %
    
    
    61,146
    
    
    
    100.0
    %
    
    
    84,532
    
    
    
    100.0
    %
    
    
    140,353
    
    
    
    100.0
    %AULPC
    
    
    3,804
    
    
    
    
    
    
    
    4,135
    
    
    
    
    
    
    
    3,765
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    52,507
    
    
    
    100.0
    %
    
    $
    61,665
    
    
    
    100.0
    %
    
    $
    64,911
    
    
    
    100.0
    %
    
    $
    84,532
    
    
    
    100.0
    %
    
    $
    140,353
    
    
    
    100.0
    %
 (1)
    
    Percentages represent the percentage of each loan participation interests
category to total loan participation interests.
 Net Charge-offs
  Table 11  Net Charge-offs (1)
 (In thousands)
    
    

    2006
    
    
    
    
    
    
    
    2005
    
    
    
    
    
    
    
    2004
    
    
    
    
    
    
    
    2003
    
    
    
    
    
    
    
    2002Commercial
    
    $
    (1,124
    )
    
    
    (2.82)
    %
    
    $
    (1,247
    )
    
    
    (1.62
    )%
    
    $
    (1,594
    )
    
    
    (1.01
    )%
    
    $
    20,973
    
    
    
    8.41
    %
    
    $
    29,686
    
    
    
    5.90
    %Commercial real estate
    
    
    4,494
    
    
    
    0.14
    
    
    
    5,175
    
    
    
    0.15
    
    
    
    5,032
    
    
    
    0.12
    
    
    
    13,525
    
    
    
    0.33
    
    
    
    21,599
    
    
    
    0.56Consumer
    
    
    3,086
    
    
    
    0.33
    
    
    
    4,362
    
    
    
    0.49
    
    
    
    5,458
    
    
    
    0.78
    
    
    
    22,999
    
    
    
    4.00
    
    
    
    20,911
    
    
    
    3.00Residential real estate
    
    
    65
    
    
    
    0.05
    
    
    
    231
    
    
    
    0.12
    
    
    
    335
    
    
    
    0.13
    
    
    
    2,502
    
    
    
    0.98
    
    
    
    
    
    
    
    Total Net Charge-offs
    
    $
    6,521
    
    
    
    0.15
    
    
    $
    8,521
    
    
    
    0.18
    
    
    $
    9,231
    
    
    
    0.18
    
    
    $
    59,999
    
    
    
    1.17
    
    
    $
    72,196
    
    
    
    1.37
 
 (1)
    
    Percentages represent the percentage in each loan category to average loan participation interests.
 28




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##### Table of Contents



Non-Performing Assets (NPAs)
   Table 12  Non-Performing Assets
 At December 31,(in thousands)
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Participation interests in non-accrual loansCommercial
    
    $
    687
    
    
    $
    147
    
    
    $
    425
    
    
    $
    5,176
    
    
    $
    57,112Commercial Real Estate
    
    
    19,966
    
    
    
    20,746
    
    
    
    6,990
    
    
    
    12,987
    
    
    
    32,979Consumer (1)
    
    
    3,490
    
    
    
    2,799
    
    
    
    2,692
    
    
    
    
    
    
    
    Residential Real Estate
    
    
    1,159
    
    
    
    2,923
    
    
    
    4,205
    
    
    
    4,157
    
    
    
    6,455Total Non-Performing Assets
    
    $
    25,302
    
    
    $
    26,615
    
    
    $
    14,312
    
    
    $
    22,320
    
    
    $
    96,546NPAs as a % of total participation interests
    
    
    0.62
    %
    
    
    0.59
    %
    
    
    0.29
    %
    
    
    0.42
    %
    
    
    1.92
    %ALL as a % of NPAs
    
    
    192
    
    
    
    216
    
    
    
    427
    
    
    
    379
    
    
    
    145ACL as a % of NPAs
    
    
    208
    
    
    
    232
    
    
    
    454
    
    
    
    379
    
    
    
    145Accruing loans past due 90 days or more
    
    $
    5,392
    
    
    $
    3,188
    
    
    $
    11,686
    
    
    $
    13,362
    
    
    $
    26,060
 
 (1)
    
    In 2004, HPCI adopted a new policy of placing consumer home equity loan participations on non-accrual status when they exceed 180 days
past due. Prior practice was to continue to accrue interest until collection or resolution of the loan participations. Such loan participations were
previously classified as accruing loans past due 90 days or more.
   OFF-BALANCE SHEET ARRANGEMENTS
  29




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
       30




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##### Table of Contents



RESULTS FOR THE FOURTH QUARTER
 Table 13  Quarterly Statements of Income
 2006
    
    
    2005
    
    
    
    4Q06 vs 4Q05(in thousands)
    
    Fourth
    
    
    Third
    
    
    Second
    
    
    First
    
    
    Fourth
    
    
    
    $ Chg
    
    
    % ChgInterest and fee incomeInterest on loan
participation interests:Commercial
    
    $
    742
    
    
    $
    772
    
    
    $
    792
    
    
    $
    846
    
    
    $
    982
    
    
    
    $
    (240
    )
    
    
    (24.4
    )%Commercial real estate
    
    
    60,377
    
    
    
    61,475
    
    
    
    59,841
    
    
    
    55,782
    
    
    
    55,053
    
    
    
    
    5,324
    
    
    
    9.7Consumer
    
    
    14,604
    
    
    
    15,338
    
    
    
    16,067
    
    
    
    16,700
    
    
    
    16,268
    
    
    
    
    (1,664
    )
    
    
    (10.2
    )Residential real estate
    
    
    1,762
    
    
    
    1,880
    
    
    
    2,007
    
    
    
    2,232
    
    
    
    2,341
    
    
    
    
    (579
    )
    
    
    (24.7
    )Total loan participation
interest income
    
    
    77,485
    
    
    
    79,465
    
    
    
    78,707
    
    
    
    75,560
    
    
    
    74,644
    
    
    
    
    2,841
    
    
    
    3.8Fees from loan
participation interests
    
    
    265
    
    
    
    227
    
    
    
    279
    
    
    
    293
    
    
    
    320
    
    
    
    
    (55
    )
    
    
    (17.2
    )Interest on deposits with
The Huntington National
Bank
    
    
    8,115
    
    
    
    6,129
    
    
    
    3,290
    
    
    
    1,491
    
    
    
    7,200
    
    
    
    
    915
    
    
    
    12.7Total interest and fee
income
    
    
    85,865
    
    
    
    85,821
    
    
    
    82,276
    
    
    
    77,344
    
    
    
    82,164
    
    
    
    
    3,701
    
    
    
    4.5Reduction in allowances for
credit losses
    
    
    (4,400
    )
    
    
    (3,255
    )
    
    
    (5,203
    )
    
    
    (9,183
    )
    
    
    (4,409
    )
    
    
    
    9
    
    
    
    0.2Interest income after
reduction in allowances
for credit losses
    
    
    90,265
    
    
    
    89,076
    
    
    
    87,479
    
    
    
    86,527
    
    
    
    86,573
    
    
    
    
    3,692
    
    
    
    4.3Non-interest income:Rental income
    
    
    1,710
    
    
    
    1,591
    
    
    
    1,591
    
    
    
    1,591
    
    
    
    1,590
    
    
    
    
    120
    
    
    
    7.5Collateral fees
    
    
    101
    
    
    
    108
    
    
    
    115
    
    
    
    718
    
    
    
    976
    
    
    
    
    (875
    )
    
    
    (89.7
    )Total non-interest income
    
    
    1,811
    
    
    
    1,699
    
    
    
    1,706
    
    
    
    2,309
    
    
    
    2,566
    
    
    
    
    (755
    )
    
    
    (29.4
    )Non-interest expense:Servicing costs
    
    
    2,521
    
    
    
    2,611
    
    
    
    2,720
    
    
    
    2,783
    
    
    
    2,730
    
    
    
    
    (209
    )
    
    
    (7.7
    )Depreciation
    
    
    947
    
    
    
    984
    
    
    
    999
    
    
    
    1,017
    
    
    
    1,045
    
    
    
    
    (98
    )
    
    
    (9.4
    )(Gain) loss on disposal of
fixed assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31
    )
    
    
    4
    
    
    
    
    (4
    )
    
    
    N.M.Other
    
    
    198
    
    
    
    201
    
    
    
    202
    
    
    
    170
    
    
    
    288
    
    
    
    
    (90
    )
    
    
    (31.3
    )Total non-interest expense
    
    
    3,666
    
    
    
    3,796
    
    
    
    3,921
    
    
    
    3,939
    
    
    
    4,067
    
    
    
    
    (401
    )
    
    
    (9.9
    )Income before provision for
income taxes
    
    
    88,410
    
    
    
    86,979
    
    
    
    85,264
    
    
    
    84,897
    
    
    
    85,072
    
    
    
    
    3,338
    
    
    
    3.9Provision for income taxes
    
    
    386
    
    
    
    332
    
    
    
    310
    
    
    
    285
    
    
    
    251
    
    
    
    
    135
    
    
    
    53.8Net income
    
    $
    88,024
    
    
    $
    86,647
    
    
    $
    84,954
    
    
    $
    84,612
    
    
    $
    84,821
    
    
    
    $
    3,203
    
    
    
    3.8Dividends declared on
preferred securities
    
    
    (12,475
    )
    
    
    (12,681
    )
    
    
    (11,781
    )
    
    
    (11,007
    )
    
    
    (10,050
    )
    
    
    
    (2,425
    )
    
    
    (24.1
    )Net income applicable to
common shares (1)
    
    $
    75,549
    
    
    $
    73,966
    
    
    $
    73,173
    
    
    $
    73,605
    
    
    $
    74,771
    
    
    
    $
    778
    
    
    
    1.0
    %
 (1)
    
    All of HPCIs
common stock is owned by
Huntington, HCF, HPCII, and
Holdings and therefore, net
income per share is not
presented.
    31




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##### 



Item 7A: Quantitative and Qualitative Disclosures about Market Risk
  
 Item 8: Financial Statements and Supplementary Data
   
 PageReport of Management
    
    33Report of Independent Registered Public Accounting Firm
    
    34Consolidated Balance Sheets
    
    36Consolidated Statements of Income
    
    37Consolidated Statement of Changes in Shareholders Equity
    
    38Consolidated Statements of Cash Flows
    
    39Notes to Consolidated Financial Statements
    
    40
  32




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##### Table of Contents



Report of Management
   Report of Managements Assessment of Internal Control Over Financial Reporting
 Internal ControlIntegrated Framework
 By:
    
    -s- Donald R. Kimble
    
    
    
    By:
    
    -s- Thomas P. ReedDonald R. Kimble
    
    
    
    
    
    Thomas P. ReedPresident
    
    
    
    
    
    Vice President(Principal Executive Officer)
    
    
    
    
    
    (Principal Financial and Accounting Officer)
  33




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal
ControlIntegrated Framework
    Internal ControlIntegrated
Framework Internal
ControlIntegrated Framework
  
 34




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Internal ControlIntegrated
Framework
 
 35




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##### Table of Contents



Huntington Preferred Capital, Inc.
Consolidated Balance Sheets
 December 31,
    
    December 31,(in thousands, except share data)
    
    2006
    
    2005AssetsCash and interest bearing deposits with The Huntington National Bank
    
    $
    726,154
    
    
    $
    810,102Due from The Huntington National Bank
    
    
    134,815
    
    
    
    46,321Loan participation interests:Commercial
    
    
    31,049
    
    
    
    46,559Commercial real estate
    
    
    3,108,533
    
    
    
    3,311,275Consumer
    
    
    845,272
    
    
    
    997,094Residential real estate
    
    
    112,355
    
    
    
    157,397Total loan participation interests
    
    
    4,097,209
    
    
    
    4,512,325Allowance for loan losses
    
    
    (48,703
    )
    
    
    (57,530
    )Net loan participation interests
    
    
    4,048,506
    
    
    
    4,454,795Premises and equipment
    
    
    17,711
    
    
    
    21,683Accrued income and other assets
    
    
    22,550
    
    
    
    20,984Total assets
    
    $
    4,949,736
    
    
    $
    5,353,885Liabilities and shareholders equityLiabilitiesAllowance for unfunded loan participation commitments
    
    $
    3,804
    
    
    $
    4,135Dividends and distributions payable
    
    
    450,000
    
    
    
    700,000Other liabilities
    
    
    179
    
    
    
    290Total liabilities
    
    
    453,983
    
    
    
    704,425Shareholders EquityPreferred securities, Class A, 8.000% noncumulative, non-
exchangeable; $1,000 par and liquidation value per share;
1,000 shares authorized, issued and outstanding
    
    
    1,000
    
    
    
    1,000Preferred securities, Class B, variable-rate noncumulative and
conditionally exchangeable; $1,000 par and liquidation
value per share; authorized 500,000 shares; 400,000
shares issued and outstanding
    
    
    400,000
    
    
    
    400,000Preferred securities, Class C, 7.875% noncumulative and
conditionally exchangeable; $25 par and liquidation
value; 2,000,000 shares authorized, issued, and outstanding
    
    
    50,000
    
    
    
    50,000Preferred securities, Class D, variable-rate noncumulative and
conditionally exchangeable; $25 par and liquidation
value; 14,000,000 shares authorized, issued, and outstanding
    
    
    350,000
    
    
    
    350,000Preferred securities, $25 par, 10,000,000 shares
authorized; no shares issued or outstanding
    
    
    
    
    
    
    Common stock  without par value; 14,000,000 shares authorized,
issued and outstanding
    
    
    3,694,753
    
    
    
    3,848,460Retained earnings
    
    
    
    
    
    
    Total shareholders equity
    
    
    4,495,753
    
    
    
    4,649,460Total liabilities and shareholders equity
    
    $
    4,949,736
    
    
    $
    5,353,885
 See notes to consolidated financial statements.
 36




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##### Table of Contents



Huntington Preferred Capital, Inc.
Consolidated Statements of Income
 Year EndedDecember 31,(in thousands)
    
    2006
    
    2005
    
    2004Interest and fee incomeInterest on loan participation interests:Commercial
    
    $
    3,152
    
    
    $
    4,632
    
    
    $
    7,810Commercial real estate
    
    
    237,475
    
    
    
    209,801
    
    
    
    182,047Consumer
    
    
    62,709
    
    
    
    60,345
    
    
    
    50,543Residential real estate
    
    
    7,881
    
    
    
    10,304
    
    
    
    13,474Total loan participation interest income
    
    
    311,217
    
    
    
    285,082
    
    
    
    253,874Fees from loan participation interests
    
    
    1,064
    
    
    
    1,979
    
    
    
    2,337Interest on deposits with The Huntington National Bank
    
    
    19,025
    
    
    
    15,682
    
    
    
    6,004Total interest and fee income
    
    
    331,306
    
    
    
    302,743
    
    
    
    262,215Reduction in allowances for credit losses
    
    
    (22,041
    )
    
    
    (19,796
    )
    
    
    (31,591
    )Interest income after reduction in allowances for credit
losses
    
    
    353,347
    
    
    
    322,539
    
    
    
    293,806Non-interest income:Rental income
    
    
    6,483
    
    
    
    6,362
    
    
    
    6,503Collateral fees
    
    
    1,042
    
    
    
    3,029
    
    
    
    746Total non-interest income
    
    
    7,525
    
    
    
    9,391
    
    
    
    7,249Non-interest expense:Servicing costs
    
    
    10,635
    
    
    
    11,210
    
    
    
    9,923Depreciation and amortization
    
    
    3,947
    
    
    
    4,370
    
    
    
    5,273(Gain) loss on disposal of premises and equipment
    
    
    (31
    )
    
    
    582
    
    
    
    218Other
    
    
    771
    
    
    
    903
    
    
    
    846Total non-interest expense
    
    
    15,322
    
    
    
    17,065
    
    
    
    16,260Income before provision for income taxes
    
    
    345,550
    
    
    
    314,865
    
    
    
    284,795Provision for income taxes
    
    
    1,313
    
    
    
    547
    
    
    
    253Net income
    
    $
    344,237
    
    
    $
    314,318
    
    
    $
    284,542Dividends declared on preferred securities
    
    
    (47,944
    )
    
    
    (34,634
    )
    
    
    (20,744
    )Net income applicable to common shares
    
    $
    296,293
    
    
    $
    279,684
    
    
    $
    263,798
 See notes to consolidated financial statements.
 37




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##### Table of Contents



Huntington Preferred Capital, Inc.  Consolidated Statements of Changes in Shareholders Equity
 Preferred, Class A
    
    Preferred, Class B
    
    Preferred, Class C(in thousands)
    
    Shares
    
    Securities
    
    Shares
    
    Securities
    
    Shares
    
    SecuritiesBalance, January 1, 2004
    
    
    1
    
    
    $
    1,000
    
    
    
    400
    
    
    $
    400,000
    
    
    
    2,000
    
    
    $
    50,000Comprehensive Income:Net incomeTotal comprehensive incomeBalance, December 31, 2004
    
    
    1
    
    
    $
    1,000
    
    
    
    400
    
    
    $
    400,000
    
    
    
    2,000
    
    
    $
    50,000Comprehensive Income:Net incomeTotal comprehensive incomeBalance, December 31, 2005
    
    
    1
    
    
    $
    1,000
    
    
    
    400
    
    
    $
    400,000
    
    
    
    2,000
    
    
    $
    50,000Comprehensive Income:Net incomeTotal comprehensive incomeBalance, December 31, 2006
    
    
    1
    
    
    $
    1,000
    
    
    
    400
    
    
    $
    400,000
    
    
    
    2,000
    
    
    $
    50,000
 Preferred, Class D
    
    Preferred
    
    Common
    
    Retained(in thousands)
    
    Shares
    
    Securities
    
    Shares
    
    Securities
    
    Shares
    
    Stock
    
    Earnings
    
    TotalBalance, January 1, 2004
    
    
    14,000
    
    
    $
    350,000
    
    
    
    
    
    
    $
    
    
    
    
    14,000
    
    
    $
    4,604,978
    
    
    $
    
    
    
    $
    5,405,978Comprehensive Income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    284,542
    
    
    
    284,542Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    284,542Dividends declared on Class A preferred securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (80
    )
    
    
    (80
    )Dividends declared on Class B preferred securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,887
    )
    
    
    (5,887
    )Dividends declared on Class C preferred securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,938
    )
    
    
    (3,938
    )Dividends declared on Class D preferred securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,839
    )
    
    
    (10,839
    )Dividends declared on common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (263,798
    )
    
    
    (263,798
    )Return of capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (336,202
    )
    
    
    
    
    
    
    (336,202
    )Balance, December 31, 2004
    
    
    14,000
    
    
    $
    350,000
    
    
    
    
    
    
    $
    
    
    
    
    14,000
    
    
    $
    4,268,776
    
    
    $
    
    
    
    $
    5,069,776Comprehensive Income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    314,318
    
    
    
    314,318Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    314,318Dividends declared on Class A preferred securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (80
    )
    
    
    (80
    )Dividends declared on Class B preferred securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,296
    )
    
    
    (13,296
    )Dividends declared on Class C preferred securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,938
    )
    
    
    (3,938
    )Dividends declared on Class D preferred securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,320
    )
    
    
    (17,320
    )Dividends declared on common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (279,684
    )
    
    
    (279,684
    )Return of capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (420,316
    )
    
    
    
    
    
    
    (420,316
    )Balance, December 31, 2005
    
    
    14,000
    
    
    $
    350,000
    
    
    
    
    
    
    $
    
    
    
    
    14,000
    
    
    $
    3,848,460
    
    
    $
    
    
    
    $
    4,649,460Comprehensive Income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    344,237
    
    
    
    344,237Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    344,237Dividends declared on Class A preferred securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (80
    )
    
    
    (80
    )Dividends declared on Class B preferred securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,394
    )
    
    
    (20,394
    )Dividends declared on Class C preferred securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,938
    )
    
    
    (3,938
    )Dividends declared on Class D preferred securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,532
    )
    
    
    (23,532
    )Dividends declared on common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (296,293
    )
    
    
    (296,293
    )Return of capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (153,707
    )
    
    
    
    
    
    
    (153,707
    )Balance, December 31, 2006
    
    
    14,000
    
    
    $
    350,000
    
    
    
    
    
    
    $
    
    
    
    
    14,000
    
    
    $
    3,694,753
    
    
    $
    
    
    
    $
    4,495,753
 See notes to consolidated financial statements.
 38




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##### Table of Contents



Huntington Preferred Capital, Inc.  Consolidated Statements of Cash Flows
 Year EndedDecember 31,(in thousands)
    
    2006
    
    2005
    
    2004Operating activitiesNet income
    
    $
    344,237
    
    
    $
    314,318
    
    
    $
    284,542Adjustments to reconcile net income to net
cash provided by operating activities:Reduction of allowances for credit losses
    
    
    (22,041
    )
    
    
    (19,796
    )
    
    
    (31,591
    )Depreciation and amortization
    
    
    3,947
    
    
    
    4,370
    
    
    
    5,273Deferred income tax (benefit) expense
    
    
    (682
    )
    
    
    178
    
    
    
    (1,307
    )(Gain) loss on disposal of premises and equipment
    
    
    (31
    )
    
    
    582
    
    
    
    218Decrease (increase) in due from The Huntington National Bank
    
    
    7
    
    
    
    (24,404
    )
    
    
    13,477(Decrease) increase in other liabilities
    
    
    (111
    )
    
    
    239
    
    
    
    50Other, net
    
    
    538
    
    
    
    (1,150
    )
    
    
    2,936Net cash provided by operating activities
    
    
    325,864
    
    
    
    274,337
    
    
    
    273,598Investing activitiesParticipation interests acquired
    
    
    (2,613,450
    )
    
    
    (2,885,454
    )
    
    
    (4,273,356
    )Sales and repayments of loans underlying
participation interests
    
    
    2,951,526
    
    
    
    3,255,600
    
    
    
    4,696,670Proceeds from the sale of premises and equipment
    
    
    56
    
    
    
    
    
    
    
    Net cash provided by investing activities
    
    
    338,132
    
    
    
    370,146
    
    
    
    423,314Financing activitiesDividends paid on preferred securities
    
    
    (47,944
    )
    
    
    (34,634
    )
    
    
    (20,744
    )Dividends paid on common stock
    
    
    (279,684
    )
    
    
    (263,798
    )
    
    
    Return of capital to common shareholders
    
    
    (420,316
    )
    
    
    (336,202
    )
    
    
    Net cash used for financing activities
    
    
    (747,944
    )
    
    
    (634,634
    )
    
    
    (20,744
    )Change in cash and cash equivalents
    
    
    (83,948
    )
    
    
    9,849
    
    
    
    676,168Cash and cash equivalents at beginning of year
    
    
    810,102
    
    
    
    800,253
    
    
    
    124,085Cash and cash equivalents at end of period
    
    $
    726,154
    
    
    $
    810,102
    
    
    $
    800,253Supplemental information:Income taxes paid
    
    $
    2,077
    
    
    $
    40
    
    
    $
    1,886Dividends and distributions declared, not paid
    
    
    450,000
    
    
    
    700,000
    
    
    
    600,000Change in loan participation activity due from The Huntington National Bank
    
    
    88,501
    
    
    
    21,742
    
    
    
    
 See notes to consolidated financial statements.
 39




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##### Table of Contents



Notes to the Consolidated Financial Statements
 Note 1  Significant Accounting Policies
 Basis of Presentation:
 Business:
 Use of Estimates:
 Due from The Huntington National Bank :
 Loan participation interests:
   40




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##### Table of Contents



Accounting for Nonrefundable
Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Cost of Leases
  Allowances for Credit Losses (ACL):
  Accounting by Creditors for Impairment of a Loan Accounting for Contingencies
   41




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##### Table of Contents



Premises and Equipment:
 Net Income per Share:
 Income Taxes:
 Statement of Cash Flows:
 Note 2  New Accounting Pronouncements
 FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48)
 Financial Accounting Standards Board (FASB) Statement No. 154, Accounting Changes and Error
Corrections  a replacement of APB Opinion No. 20 and FASB Statement No. 3 (Statement No. 154) Accounting
Changes Reporting Accounting Changes in Interim Financial Statements
 Note 3  Loan Participation Interests
  (in thousands)
    
    2006
    
    2005Commercial
    
    $
    31,049
    
    
    $
    46,559Commercial real estate
    
    
    3,108,533
    
    
    
    3,311,275Consumer
    
    
    845,272
    
    
    
    997,094Residential real estate
    
    
    112,355
    
    
    
    157,397Total Loan Participation Interests
    
    $
    4,097,209
    
    
    $
    4,512,325
 42




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##### Table of Contents



Participations in Non-Performing Loans and Past Due Loans
  (in thousands)
    
    2006
    
    2005Commercial
    
    $
    687
    
    
    $
    147Commercial real estate
    
    
    19,966
    
    
    
    20,746Consumer
    
    
    3,490
    
    
    
    2,799Residential real estate
    
    
    1,159
    
    
    
    2,923Total Participations in Non-Accrual Loans
    
    $
    25,302
    
    
    $
    26,615Participations in Accruing Loans Past
Due 90 Days or More
    
    $
    5,393
    
    
    $
    3,188
  Note 4  Allowances for Credit Losses (ACL)
   (in thousands)
    
    2006
    
    2005
    
    2004ALL balance, beginning of year
    
    $
    57,530
    
    
    $
    61,146
    
    
    $
    84,532Allowance of loan participations acquired
    
    
    19,404
    
    
    
    25,071
    
    
    
    21,201Net loan losses
    
    
    (6,521
    )
    
    
    (8,521
    )
    
    
    (9,231
    )Reduction in ALL
    
    
    (21,710
    )
    
    
    (19,228
    )
    
    
    (31,031
    )Transfer to AULPC
    
    
    
    
    
    
    (938
    )
    
    
    (4,325
    )ALL balance, end of year
    
    $
    48,703
    
    
    $
    57,530
    
    
    $
    61,146AULPC balance, beginning of year
    
    $
    4,135
    
    
    $
    3,765
    
    
    $
    Reduction in AULPC
    
    
    (331
    )
    
    
    (568
    )
    
    
    (560
    )Economic reserve transfer from ALL
    
    
    
    
    
    
    938
    
    
    
    4,325AULPC balance, end of year
    
    $
    3,804
    
    
    $
    4,135
    
    
    $
    3,765Total ACL
    
    $
    52,507
    
    
    $
    61,665
    
    
    $
    64,911Recorded Balance of Impaired Loans, at end of year(1):With specific reserves assigned to the loan balances
    
    $
    5,976
    
    
    $
    15,038
    
    
    $
    6,047With no specific reserves assigned to the loan balances
    
    
    6,051
    
    
    
    7,816
    
    
    
    7,169Total
    
    $
    12,027
    
    
    $
    22,854
    
    
    $
    13,216Average Balance of Impaired Loans for the Year (1)
    
    $
    16,131
    
    
    $
    13,863
    
    
    $
    10,074Allowance for Loan Losses on Impaired Loans (1)
    
    
    1,065
    
    
    
    4,802
    
    
    
    3,617
 
 (1)
    
    Includes impaired commercial and commercial real estate loans
with outstanding balances greater than $500,000. A loan is
impaired when it is probable that HPCI will be unable to collect all amounts due according to
the contractual terms of the loan agreement. The amount of interest recognized on impaired
loans while they were considered impaired was less than $0.1 million in 2006 and 2005 and $0.2
million in 2004. 43




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##### Table of Contents



Note 5  Premises and Equipment
  (in thousands)
    
    2006
    
    2005Land and land improvements
    
    $
    340
    
    
    $
    365Buildings
    
    
    533
    
    
    
    533Leasehold improvements
    
    
    101,026
    
    
    
    101,056Total premises and equipment
    
    
    101,899
    
    
    
    101,954Accumulated depreciation and amortization
    
    
    (84,188
    )
    
    
    (80,271
    )Net Premises and Equipment
    
    $
    17,711
    
    
    $
    21,683
  Note 6  Dividends
   i.e.
 i.e.
 44




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##### Table of Contents



(in thousands)
    
    2006
    
    2005
    
    2004Class A preferred securities
    
    $
    80
    
    
    $
    80
    
    
    $
    80Class B preferred securities
    
    
    20,394
    
    
    
    13,296
    
    
    
    5,887Class C preferred securities
    
    
    3,938
    
    
    
    3,938
    
    
    
    3,938Class D preferred securities
    
    
    23,532
    
    
    
    17,320
    
    
    
    10,839Total preferred dividends declared
    
    $
    47,944
    
    
    $
    34,634
    
    
    $
    20,744
   Note 7  Related Party Transactions
    July 1, 2005
    
    July 1, 2004
    
    January 1, 2004thru
    
    thru
    
    thruDecember 31, 2006
    
    June 30, 2005
    
    June 30, 2004Commercial and
commercial real estate
    
    
    0.125
    %
    
    
    0.125
    %
    
    
    0.125
    %Consumer
    
    
    0.650
    %
    
    
    0.750
    %
    
    
    0.320
    %Residential real estate
    
    
    0.267
    %
    
    
    0.267
    %
    
    
    0.2997
    %
   45




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##### Table of Contents



Number ofCommon
    
    
    Number of Preferred SecuritiesShareholder:
    
    Shares
    
    
    Class A
    
    
    Class B
    
    
    Class C
    
    
    Class DHeld by related parties:HPCII
    
    
    4,550,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    HCF
    
    
    6,580,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Holdings
    
    
    2,851,333
    
    
    
    895
    
    
    
    
    
    
    
    
    
    
    
    14,000,000HPC Holdings-II, Inc.
    
    
    
    
    
    
    
    
    
    
    400,000
    
    
    
    
    
    
    
    Huntington
    
    
    18,667
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total held by related parties
    
    
    14,000,000
    
    
    
    895
    
    
    
    400,000
    
    
    
    
    
    
    
    14,000,000Other shareholders
    
    
    
    
    
    
    105
    
    
    
    
    
    
    
    2,000,000
    
    
    
    Total shares outstanding
    
    
    14,000,000
    
    
    
    1,000
    
    
    
    400,000
    
    
    
    2,000,000
    
    
    
    14,000,000
       46




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##### Table of Contents



Note 8  Quarterly Results of Operations ( Unaudited )
  (in thousands of dollars)
    
    Fourth
    
    Third
    
    Second
    
    First2006Interest and fee income
    
    $
    85,865
    
    
    $
    85,821
    
    
    $
    82,276
    
    
    $
    77,344Reduction in allowance for credit losses
    
    
    (4,400
    )
    
    
    (3,255
    )
    
    
    (5,203
    )
    
    
    (9,183
    )Non-interest income
    
    
    1,811
    
    
    
    1,699
    
    
    
    1,706
    
    
    
    2,309Non-interest expense
    
    
    3,666
    
    
    
    3,796
    
    
    
    3,921
    
    
    
    3,939Income before provision for income taxes
    
    
    88,410
    
    
    
    86,979
    
    
    
    85,264
    
    
    
    84,897Provision for income taxes
    
    
    386
    
    
    
    332
    
    
    
    310
    
    
    
    285Net income
    
    
    88,024
    
    
    
    86,647
    
    
    
    84,954
    
    
    
    84,612Dividends declared on preferred securities
    
    
    (12,475
    )
    
    
    (12,681
    )
    
    
    (11,781
    )
    
    
    (11,007
    )Net income applicable to common shares
    
    $
    75,549
    
    
    $
    73,966
    
    
    $
    73,173
    
    
    $
    73,6052005Interest and fee income
    
    $
    82,164
    
    
    $
    77,882
    
    
    $
    73,641
    
    
    $
    69,056Reduction in allowance for credit losses
    
    
    (4,409
    )
    
    
    (8,106
    )
    
    
    (3,840
    )
    
    
    (3,441
    )Non-interest income
    
    
    2,566
    
    
    
    2,497
    
    
    
    2,556
    
    
    
    1,772Non-interest expense
    
    
    4,067
    
    
    
    4,053
    
    
    
    4,558
    
    
    
    4,387Income before provision for income taxes
    
    
    85,072
    
    
    
    84,432
    
    
    
    75,479
    
    
    
    69,882Provision for income taxes
    
    
    251
    
    
    
    173
    
    
    
    25
    
    
    
    98Net income
    
    
    84,821
    
    
    
    84,259
    
    
    
    75,454
    
    
    
    69,784Dividends declared on preferred securities
    
    
    (10,050
    )
    
    
    (9,023
    )
    
    
    (8,256
    )
    
    
    (7,305
    )Net income applicable to common shares
    
    $
    74,771
    
    
    $
    75,236
    
    
    $
    67,198
    
    
    $
    62,479
 Note 9  Fair Value of Financial Instruments
  Cash and interest-bearing deposits, and due from The Huntington National Bank
 Loan participation interests
 Note 10  Commitments and Contingencies
 /
 47




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##### Table of Contents



Note 11  Segment Reporting
  48




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##### Table of Contents



Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A: Controls and Procedures
 Disclosure Controls and Procedures
  Internal Controls Over Financial Reporting
  Changes in Internal Control Over Financial Reporting
  
 Item 9A(T): Controls and Procedures
  
 Item 9B: Other Information
  
 Part III
 
 Item 10: Directors and Executive Officers and Corporate Governance
  
 Item 11: Executive Compensation
  
 Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  
 Item 13: Certain Relationships and Related Transactions, and Director Independence
  49




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##### Table of Contents



Item 14: Principal Accounting Fees and Services
  
 Part IV
 
 Item 15: Exhibits and Financial Statement Schedules
       50




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##### Table of Contents



Signatures
  HUNTINGTON PREFERRED CAPITAL, INC.(Registrant)By:
    
    /s/ Donald R. Kimble
    
    
    
    By:
    
    /s/ Thomas P. ReedDonald R. Kimble
    
    
    
    
    
    Thomas P. ReedPresident and Director
    
    
    
    
    
    Vice President and Director(Principal Executive Officer)
    
    
    
    
    
    (Principal Financial and Accounting Officer)
  Richard A. Cheap *
    
    DirectorRichard A. CheapStephen E. Dutton *
    
    DirectorStephen E. DuttonEdward J. Kane *
    
    DirectorEdward J. KaneRoger E. Kephart *
    
    DirectorRoger E. KephartJames D. Robbins *
    
    DirectorJames D. RobbinsKaren D. Roggenkamp *
    
    DirectorKaren D. RoggenkampRichard I. Witherow *
    
    DirectorRichard I. Witherow/s/ Donald R. KimbleDonald R. Kimble
 
 *
    
    Attorney-in fact for each of the persons indicated. 51




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##### Table of Contents



Exhibit Index
  3.1.
    
    Amended and Restated Articles of Incorporation (previously filed as Exhibit 3(a)(ii) to
Amendment No. 4 to Registration Statement of Form S-11 (File No. 333-61182), filed with the
Securities and Exchange Commission on October 12, 2001, and incorporated herein by reference.)3.2.
    
    Code of Regulations (previously filed as Exhibit 3(b) to the Registrants Registration
Statement of Form S-11 (File No. 333-61182), filed with the Securities and Exchange Commission
on May 17, 2001, and incorporated herein by reference.)4.1.
    
    Specimen of certificate representing Class C preferred securities, previously filed as
Exhibit 4 to the Registrants Amendment No. 1 to Registration Statement of Form S-11 (File No.
333-61182), filed with the Securities and Exchange Commission on May 31, 2001, and
incorporated herein by reference.10.1.
    
    Third Amended and Restated Loan Participation Agreement, dated May 12, 2005, between The
Huntington National Bank and Huntington Preferred Capital Holdings, Inc. (previously filed as
Exhibit 10(a) to Quarterly Report on Form 10-Q for the quarter ended March 31, 2005, and
incorporated herein by reference).10.2.
    
    Third Amended and Restated Loan Subparticipation Agreement, dated May 12, 2005, between
Huntington Preferred Capital Holdings, Inc. and Huntington Preferred Capital, Inc. (previously
filed as Exhibit 10(b) to Quarterly Report on Form 10-Q for the quarter ended March 31, 2005,
and incorporated herein by reference).10.3.
    
    Second Amended and Restated Loan Participation Agreement, dated May 12, 2005, between The
Huntington National Bank and Huntington Preferred Capital, Inc. (previously filed as Exhibit
10(c) to Quarterly Report on Form 10-Q for the quarter ended March 31, 2005, and incorporated
herein by reference).10.4.
    
    Subscription Agreement, dated October 15, 2001, for the Class C preferred securities between
Huntington Preferred Capital, Inc., The Huntington National Bank, and Huntington Preferred
Capital Holdings, Inc. (previously filed as Exhibit 10(f) to Annual Report on Form 10-K for
the year ended December 31, 2001, and incorporated herein by reference).10.5.
    
    Subscription Agreement, dated October 15, 2001, for the Class D preferred securities between
Huntington Preferred Capital, Inc., The Huntington National Bank, and Huntington Preferred
Capital Holdings, Inc. (previously filed as Exhibit 10(g) to Annual Report on Form 10-K for
the year ended December 31, 2001, and incorporated herein by reference).10.6.
    
    Leasehold Improvements Lease dated August 12, 2004 between HPCLI, Inc. and The Huntington
National Bank (previously filed as Exhibit 10(a) to Quarterly Report on Form 10-Q for the
quarter ended June 30, 2004, and incorporated herein by reference).10.7.
    
    Amended and Restated Agreement dated June 1, 2005 between Huntington Preferred Capital Inc.
and Huntington National Bank to govern the terms on which Huntington Preferred Capital Inc.
may pledge certain of its assets as collateral for the Huntington National Banks borrowings
from the Federal Home Loan Bank of Cincinnati under a secured revolving loan facility
(previously filed as Exhibit 99.1 to Form 8-K dated June 1, 2005).10.8.
    
    Limited Waiver of Contract Provision, dated August 11, 2006, with Huntington Preferred
Capital Holdings, Inc., Huntington Preferred Capital, Inc., and The Huntington National Bank
(previously filed as Exhibit 10(a) to Quarterly Report on Form 10-Q for the quarter ended
September 30, 2006, and incorporated herein by reference).12.1
    
    Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.
 52




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##### Table of Contents



14.1
    
    Code of Business Conduct and Ethics dated January 14, 2003 and revised on February 14, 2006
and Financial Code of Ethics for Chief Executive Officer and Senior Financial Officers,
adopted January 18, 2003 and revised on April 19, 2005, as applicable to all of its affiliated
companies, and ratified by HPCIs Board of Directors on March 25, 2004, are available on
Huntington Bancshares Incorporateds website at
http://www.investquest.com/iq/h/hban/main/cg/cg.htm.21.1
    
    List of Subsidiaries.24.1
    
    Power of Attorney.31.1.
    
    Rule 13a-14(a) Certification  Chief Executive Officer.31.2.
    
    Rule 13a-14(a) Certification  Chief Financial Officer.32.1.
    
    Section 1350 Certification  Chief Executive Officer.32.1.
    
    Section 1350 Certification  Chief Financial Officer.99.1.
    
    Consolidated Financial Statements of Huntington Bancshares Incorporated as of December 31,
2006 and 2005 and for the years ended December 31, 2006, 2005, and 2004.
 53