UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C.  20549
 
 FORM
10-Q
 
 QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
 OF THE
SECURITIES EXCHANGE ACT OF 1934
 QUARTERLY
PERIOD ENDED September 30,
2010
 
 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
South High Street, Columbus, Ohio  43287
 
 Registrant's
telephone number (614)
480-8300
 
 Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days.  x
Yes    ̈ No
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
  ̈
Yes    ̈ No
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
 Large
      accelerated filer  ̈
              
              Accelerated
      filer  ̈Non-accelerated
      filer   x (Do not check if
      a smaller reporting company)
              
              Smaller
      reporting company  ̈
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
  ̈Yes   xNo
 
 As of
October 31, 2010, 14,000,000 shares of common stock without par value were
outstanding, all of which were held by affiliates of the
registrant.
  
 
 HUNTINGTON
      PREFERRED CAPTIAL, INC.INDEXPart
      1.
                  FINANCIAL
      INFORMATIONItem
      1.
                  Financial
      Statements (Unaudited)Condensed
      Balance Sheets at September 30, 2010, December 31, 2009, and September 30,
      2009
                  3Condensed
      Statements of Income for the three and nine months ended September 30,
      2010 and 2009
                  4Condensed
      Statements of Changes in Shareholders' Equity for the nine months ended
      September 30, 2010 and 2009
                  5Condensed
      Statements of Cash Flows for the nine months ended September 30, 2010 and
      2009
                  6Notes
      to Unaudited Condensed Financial Statements
                  7Item
      2.
                  Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  14Item
      3.
                  Quantitative
      and Qualitative Disclosures about Market Risk
                  25Item
      4.
                  Controls
      and Procedures
                  26PART
      II.
                  OTHER
      INFORMATIONItem
      6.
                  Exhibits
                  26Signatures
                  
                  27
  2
  Part
1.  FINANCIAL INFORMATION
 
 Item
1.  Financial Statements
  Huntington Preferred Capital, Inc.Condensed Balance Sheets(Unaudited)2010
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    2009(inthousands,exceptsharedata)
                                                                                                                                    
                                                                                                                                    September30,
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    December31,
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    September30,AssetsCash
      and interest bearing deposits with The Huntington National
      Bank
                                                                                                                                    
                                                                                                                                    $
                                                                                                                                    516,639
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    $
                                                                                                                                    715,663
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    $
                                                                                                                                    653,865Due
      from The Huntington National Bank
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    116,578
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    —
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    56,589Loan
      participation interests:Commercial
      real estate
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    2,935,260
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    3,129,026
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    3,073,289Consumer
      and residential real estate
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    611,384
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    744,627
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    790,829Total
      loan participation interests
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    3,546,644
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    3,873,653
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    3,864,118Allowance
      for loan participation losses
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    (147,607
                                                                                                                                    )
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    (156,431
                                                                                                                                    )
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    (97,331
                                                                                                                                    )Net loan participation
      interests
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    3,399,037
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    3,717,222
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    3,766,787Accrued income and other
    assets
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    9,790
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    10,470
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    10,552Total assets
                                                                                                                                    
                                                                                                                                    $
                                                                                                                                    4,042,044
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    $
                                                                                                                                    4,443,355
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    $
                                                                                                                                    4,487,793Liabilities
      and shareholders' equityLiabilitiesAllowance
      for unfunded loan participation commitments
                                                                                                                                    
                                                                                                                                    $
                                                                                                                                    1,919
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    $
                                                                                                                                    1,607
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    $
                                                                                                                                    1,649Dividends
      and distributions payable
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    1,159
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    500,000
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    3,257Due
      to The Huntington National Bank
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    —
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    8,640
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    —Other liabilities
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    65
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    74
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    63Total liabilities
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    3,143
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    510,321
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    4,969Shareholders'
      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
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    1,000
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    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
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    400,000
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    400,000Preferred
      securities, Class C, 7.875% noncumulative and conditionally
      exchangeable; $25 par and liquidation value per share; 2,000,000
      authorized, issued, and outstanding
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    50,000
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    50,000
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    50,000Preferred
      securities, Class D, variable-rate, noncumulative, and conditionally
      exchangeable; $25 par and liquidation value per share; 14,000,000
      shares authorized, issued, and outstanding
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    350,000
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    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
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    3,160,217
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    3,160,217
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    3,660,217Retained earnings (deficit)
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    77,684
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    (28,183
                                                                                                                                    )
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    21,607Total shareholders' equity
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    4,038,901
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    3,933,034
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    4,482,824Total liabilities and shareholders'
      equity
                                                                                                                                    
                                                                                                                                    $
                                                                                                                                    4,042,044
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    $
                                                                                                                                    4,443,355
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    $
                                                                                                                                    4,487,793
 See
notes to unaudited condensed financial statements.
  3
  Huntington Preferred Capital, Inc.Condensed Statements of Income(Unaudited)
                    
                    Three Months Ended
                    
                    
                    Nine Months EndedSeptember 30,
                    
                    
                    September 30,(in thousands)
                    
                    2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Interest
      and fee incomeInterest
      on loan participation interests:Commercial
      real estate
                    
                    $
                    27,173
                    
                    
                    $
                    26,575
                    
                    
                    $
                    80,591
                    
                    
                    $
                    82,972Consumer
      and residential real estate
                    
                    
                    10,418
                    
                    
                    
                    13,392
                    
                    
                    
                    33,018
                    
                    
                    
                    43,146Total
      loan participation interest income
                    
                    
                    37,591
                    
                    
                    
                    39,967
                    
                    
                    
                    113,609
                    
                    
                    
                    126,118Fees
      from loan participation interests
                    
                    
                    276
                    
                    
                    
                    379
                    
                    
                    
                    1,194
                    
                    
                    
                    938Interest on deposits with The Huntington National
      Bank
                    
                    
                    383
                    
                    
                    
                    395
                    
                    
                    
                    814
                    
                    
                    
                    781Total interest and fee
    income
                    
                    
                    38,250
                    
                    
                    
                    40,741
                    
                    
                    
                    115,617
                    
                    
                    
                    127,837Provision (reduction in allowance) for credit
      losses
                    
                    
                    (3,957
                    )
                    
                    
                    27,701
                    
                    
                    
                    (4,532
                    )
                    
                    
                    87,186Net interest income after provision (reduction in
      allowance) for credit losses
                    
                    
                    42,207
                    
                    
                    
                    13,040
                    
                    
                    
                    120,149
                    
                    
                    
                    40,651Noninterest
      income:Rental
      income
                    
                    
                    18
                    
                    
                    
                    17
                    
                    
                    
                    52
                    
                    
                    
                    49Collateral fees
                    
                    
                    511
                    
                    
                    
                    609
                    
                    
                    
                    1,591
                    
                    
                    
                    1,926Total noninterest income
                    
                    
                    529
                    
                    
                    
                    626
                    
                    
                    
                    1,643
                    
                    
                    
                    1,975Noninterest
      expense:Servicing
      costs
                    
                    
                    1,945
                    
                    
                    
                    2,264
                    
                    
                    
                    6,086
                    
                    
                    
                    7,202Other
                    
                    
                    174
                    
                    
                    
                    162
                    
                    
                    
                    517
                    
                    
                    
                    562Total noninterest expense
                    
                    
                    2,119
                    
                    
                    
                    2,426
                    
                    
                    
                    6,603
                    
                    
                    
                    7,764Net income
                    
                    $
                    40,617
                    
                    
                    $
                    11,240
                    
                    
                    $
                    115,189
                    
                    
                    $
                    34,862Dividends declared on preferred
      shares
                    
                    
                    (3,406
                    )
                    
                    
                    (3,507
                    )
                    
                    
                    (9,322
                    )
                    
                    
                    (13,255
                    )Net income applicable to common shares(1)
                    
                    $
                    37,211
                    
                    
                    $
                    7,733
                    
                    
                    $
                    105,867
                    
                    
                    $
                    21,607
 (1)All of HPCI's common stock is owned by
HPCII and Holdings and therefore, net income per share is not
presented.
 
 See notes to unaudited condensed
financial statements.
  4
  Huntington Preferred Capital, Inc.Condensed Statements of Changes in Shareholders' Equity(Unaudited)Preferred, Class A
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      Preferred, Class B
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      Preferred, Class C(in
      thousands)
                                                                                                                                                                                      
                                                                                                                                                                                      Shares
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      Amount
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      Shares
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      Amount
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      Shares
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      AmountNine
      Months Ended September 30, 2009Balance,
      beginning of period
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      1
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      1,000
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      400
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      400,000
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      2,000
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      50,000Comprehensive
      Income:Net
      incomeTotal
      comprehensive incomeBalance,
      end of the period
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      1
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      1,000
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      400
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      400,000
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      2,000
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      50,000Nine
      Months Ended September 30, 2010Balance,
      beginning of period
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      1
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      1,000
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      400
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      400,000
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      2,000
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      50,000Comprehensive
      Income:Net
      incomeTotal
      comprehensive incomeBalance,
      end of the period
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      1
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      1,000
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      400
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      400,000
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      2,000
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      50,000Preferred, Class
      D
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      Preferred
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      Common
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      Retained(in
      thousands)
                                                                                                                                                                                      
                                                                                                                                                                                      Shares
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      Amount
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      Shares
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      Amount
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      Shares
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      Amount
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      Earnings
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      TotalNine
      Months Ended September 30, 2009Balance,
      beginning of period
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      14,000
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      350,000
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      —
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      —
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      14,000
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      3,660,217
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      —
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      4,461,217Comprehensive
      Income:Net
      income
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      34,862
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      34,862Total
      comprehensive income
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      34,862Dividends
      declared on Class A preferred securities
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (80
                                                                                                                                                                                      )
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (80
                                                                                                                                                                                      )Dividends
      declared on Class B preferred securities
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (3,177
                                                                                                                                                                                      )
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (3,177
                                                                                                                                                                                      )Dividends
      declared on Class C preferred securities
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (2,953
                                                                                                                                                                                      )
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (2,953
                                                                                                                                                                                      )Dividends
      declared on Class D preferred securities
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (7,045
                                                                                                                                                                                      )
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (7,045
                                                                                                                                                                                      )Balance,
      end of the period
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      14,000
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      350,000
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      —
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      —
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      14,000
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      3,660,217
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      21,607
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      4,482,824Nine
      Months Ended September 30, 2010:Balance,
      beginning of period
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      14,000
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      350,000
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      —
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      —
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      14,000
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      3,160,217
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      (28,183
                                                                                                                                                                                      )
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      3,933,034Comprehensive
      Income:Net
      income
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      115,189
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      115,189Total
      comprehensive income
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      115,189Dividends
      declared on Class A preferred securities
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (80
                                                                                                                                                                                      )
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (80
                                                                                                                                                                                      )Dividends
      declared on Class B preferred securities
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (1,079
                                                                                                                                                                                      )
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (1,079
                                                                                                                                                                                      )Dividends
      declared on Class C preferred securities
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (2,953
                                                                                                                                                                                      )
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (2,953
                                                                                                                                                                                      )Dividends
      declared on Class D preferred securities
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (5,210
                                                                                                                                                                                      )
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      (5,210
                                                                                                                                                                                      )Balance,
      end of the period
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      14,000
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      350,000
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      —
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      —
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      14,000
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      3,160,217
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      77,684
                                                                                                                                                                                      
                                                                                                                                                                                      
                                                                                                                                                                                      $
                                                                                                                                                                                      4,038,901
  See
notes to unaudited condensed financial statements.
  5
  Huntington Preferred Capital, Inc.Condensed Statements of Cash Flows(Unaudited)
                    
                    Nine Months EndedSeptember 30,(in thousands)
                    
                    2010
                    
                    
                    2009Operating
      activitiesNet
      income
                    
                    $
                    115,189
                    
                    
                    $
                    34,862Adjustments
      to reconcile net income to net cash provided by operating
      activities:Provision
      (reduction in allowance) for credit losses
                    
                    
                    (4,532
                    )
                    
                    
                    87,186Change
      in due to/from The Huntington National Bank
                    
                    
                    827
                    
                    
                    
                    5,083Other,
      net
                    
                    
                    1,542
                    
                    
                    
                    3,562Net cash provided by (used for) operating
      activities
                    
                    
                    113,026
                    
                    
                    
                    130,693Investing
      activitiesParticipation
      interests acquired
                    
                    
                    (1,226,260
                    )
                    
                    
                    (1,151,578
                    )Sales
      and repayments of loans underlying participation interests
                    
                    
                    1,422,373
                    
                    
                    
                    1,616,739Net cash provided by (used for) investing
      activities
                    
                    
                    196,113
                    
                    
                    
                    465,161Financing
      activitiesDividends
      paid on preferred securities
                    
                    
                    (8,163
                    )
                    
                    
                    (9,998
                    )Dividends
      paid on common stock
                    
                    
                    —
                    
                    
                    
                    (224,258
                    )Return
      of capital to common shareholders
                    
                    
                    (500,000
                    )
                    
                    
                    (742
                    )Net cash provided by (used for) financing
      activities
                    
                    
                    (508,163
                    )
                    
                    
                    (234,998
                    )(Decrease)
      increase in cash and cash equivalents
                    
                    
                    (199,024
                    )
                    
                    
                    360,856Cash and cash equivalents at beginning of
      period
                    
                    
                    715,663
                    
                    
                    
                    293,009Cash and cash equivalents at end of
      period
                    
                    $
                    516,639
                    
                    
                    $
                    653,865Supplemental
      disclosures:Dividends
      and distributions declared, not paid
                    
                    $
                    1,159
                    
                    
                    $
                    3,257Non-cash
      change in loan participation activity with The Huntington National
      Bank
                    
                    
                    126,045
                    
                    
                    
                    23,249
 
 See notes
to unaudited condensed financial statements.
  6
  Notes
to Unaudited Condensed Financial Statements
 
 Note
1 - Organization
 
 Huntington
Preferred Capital, Inc. (HPCI or the Company) was organized under Ohio law in
1992 and designated as a real estate investment trust (REIT) in 1998. HPCI’s
principal business objective is to acquire, hold, and manage mortgage assets and
other authorized investments that will generate net income for distribution to
its shareholders. Two related parties own HPCI’s common stock: Huntington
Preferred Capital II, Inc. (HPCII); and Huntington Preferred Capital Holdings,
Inc. (Holdings). On June 14, 2010, Huntington Capital Financing LLC (HCF) merged
into HPCII and the common stock previously owned by HCF is now owned by
HPCII.
 
 HPCII and
Holdings are direct and indirect subsidiaries of The Huntington National Bank
(the Bank), a national banking association organized under the laws of the
United States and headquartered in Columbus, Ohio. The Bank is a wholly owned
subsidiary of Huntington Bancshares Incorporated (Huntington). Huntington is a
multi-state diversified financial holding company organized under Maryland law
and headquartered in Columbus, Ohio. At September 30, 2010, the Bank, on a
consolidated basis with its subsidiaries, accounted for over 99% of Huntington’s
consolidated total assets and essentially all of year-to-date net income. Thus,
for purposes of presenting consolidated financial statements for the Bank,
Management considers information for the Bank and for Huntington to be
substantially the same for these periods.
  Note
2 – Subsequent Event
 
 During
the first quarter of 2010, HPCI’s Board of Directors approved a proposal to
exchange HPCI’s preferred class D shares, currently held by Holdings, for newly
issued preferred class E shares. On October 28, 2010, the exchange occurred and
one new share of class E preferred securities was issued and exchanged for each
ten shares of class D preferred securities. The newly issued 1,400,000 class E
preferred shares have the same terms as the class D preferred securities. The
per share liquidation value of the class E preferred securities is ten times
($250) that of the class D securities. The dividend rate and terms remain the
same. The exchange had no impact on HPCI’s financial results since the
liquidation value remains at $350,000,000.
 
 In
conjunction with applicable accounting standards, all material subsequent events
have been either recognized in the financial statements or disclosed in the
notes to the financial statements.
  Note
3 - Basis of Presentation and New Accounting Pronouncements
 
 The
accompanying unaudited condensed financial statements of HPCI reflect all
adjustments consisting of normal recurring accruals, which are, in the opinion
of Management, necessary for a fair presentation of the financial position,
results of operations, and cash flows for the periods presented. These unaudited
condensed financial statements have been prepared according to the rules and
regulations of the Securities and Exchange Commission (SEC) and, therefore,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States (GAAP) have been omitted. The Notes to the Consolidated
Financial Statements appearing in HPCI’s Annual Report on Form 10-K for the year
ended December 31, 2009 (Form 10-K), which include descriptions of significant
accounting policies, as updated by the information contained in this report,
should be read in conjunction with these interim financial
statements.
  HPCI
elected to be treated as a REIT for federal income tax purposes and intends to
maintain compliance with the provisions of the Internal Revenue Code and,
therefore, is not subject to federal income taxes.
   All of
HPCI’s common stock is owned by affiliates; therefore, net income per common
share information is not presented.
  Cash and
cash equivalents used in the Condensed Statements of Cash Flows is defined as
“Cash and Interest bearing deposits with The Huntington National
Bank.”
  Accounting
Standards Update (ASU) 2010-6 – Fair Value Measurements and Disclosures (Topic
820): Improving Disclosures about Fair Value Measurements. The ASU amends
Subtopic 820-10 with new disclosure requirements and clarification of existing
disclosure requirements. New disclosures required include the amount of
significant transfers in and out of levels 1 and 2 fair value measurements and
the reasons for the transfers. In addition, the reconciliation for level 3
activity will be required on a gross rather than net basis. The ASU provides
additional guidance related to the level of disaggregation in determining
classes of assets and liabilities and disclosures about inputs and valuation
techniques. The amendments are effective for annual or interim reporting periods
beginning after December 15, 2009, except for the requirement to provide the
reconciliation for level 3 activity on a gross basis which will be effective for
fiscal years beginning after December 15, 2010. The adoption of this guidance
had no impact on HPCI’s condensed financial statements.
  7
  Accounting Standards Update (ASU)
2010-20 – Receivables (Topic 310): Disclosures about the Credit Quality of
Financing Receivables and the Allowance for Credit Losses.The ASU will
require more information about the credit quality of the loan portfolio in the
disclosures to financial statements, such as aging information and credit
quality indicators. Both new and existing disclosures must be disaggregated by
portfolio segment or class. The disaggregation of information is based on how a
company develops its allowance for credit losses and how it manages its credit
exposure. The disclosures related to period-end balances are effective for
annual or interim reporting periods ending after December 15, 2010 and the
disclosures of activity that occurs during the reporting period are effective
for annual or interim reporting periods beginning after December 15,
2010.
 
 Note
4 - Lending Concentrations and Participations in Nonperforming Assets and Past
Due Loans
 
 There
were no underlying loans outstanding that would be considered a concentration of
lending in any particular industry, group of industries, or business activity.
Underlying loans were, however, generally collateralized by real estate. Loans
made to borrowers in the five states of Ohio, Michigan, Indiana, Pennsylvania
and Kentucky comprised approximately 94.3%, 93.8%, and 93.8% of the portfolio at
September 30, 2010, December 31, 2009, and September 30, 2009,
respectively.
 
 Participations
in loans on non-accrual status and loans past due 90 days or more and still
accruing interest were as follows:
 
 September 30,
                    
                    
                    December 31,
                    
                    
                    September 30,(in thousands)
                    
                    2010
                    
                    
                    2009
                    
                    
                    2009Commercial
      real estate
                    
                    $
                    87,302
                    
                    
                    $
                    165,184
                    
                    
                    $
                    192,661Consumer and residential real
      estate
                    
                    
                    4,979
                    
                    
                    
                    5,554
                    
                    
                    
                    5,467Total participations in nonperforming
      assets
                    
                    $
                    92,281
                    
                    
                    $
                    170,738
                    
                    
                    $
                    198,128Participations in accruing loans past due 90 days
      or more
                    
                    $
                    4,737
                    
                    
                    $
                    8,631
                    
                    
                    $
                    10,294
 
 Note
5 - Allowance for Credit Losses (ACL)
 
 The
allowance for credit losses (ACL) is comprised of the allowance for loan
participation losses (ALPL) and the allowance for unfunded loan participation
commitments (AULPC). Loan participations are acquired net of related ALPL. As a
result, the related ALPL is transferred to HPCI from the Bank and is reflected
as ALPL acquired, rather than HPCI having to record a provision expense for
ALPL. If credit quality deteriorates more than implied by the ALPL acquired, a
provision to the ALPL is made. If credit quality performance is better than
implied by the ALPL acquired, an ALPL reduction is recorded. As loan
participations mature, refinance, or other such actions occur, any allowance not
absorbed by loan losses is released through the reduction in ALPL.
  The following table reflects activity
in the ACL for the three-month and nine-month periods ended September 30, 2010
and 2009:
  Three Months Ended
                                                            
                                                            
                                                            Nine Months EndedSeptember 30,
                                                            
                                                            
                                                            September 30,(in thousands)
                                                            
                                                            2010
                                                            
                                                            
                                                            2009
                                                            
                                                            
                                                            2010
                                                            
                                                            
                                                            2009ALPL
      balance, beginning of period
                                                            
                                                            $
                                                            144,097
                                                            
                                                            
                                                            $
                                                            95,748
                                                            
                                                            
                                                            $
                                                            156,431
                                                            
                                                            
                                                            $
                                                            65,456ALPL
      for loan participations acquired
                                                            
                                                            
                                                            19,135
                                                            
                                                            
                                                            
                                                            9,331
                                                            
                                                            
                                                            
                                                            44,082
                                                            
                                                            
                                                            
                                                            18,134Net
      loan losses
                                                            
                                                            
                                                            (11,359
                                                            )
                                                            
                                                            
                                                            (36,080
                                                            )
                                                            
                                                            
                                                            (48,062
                                                            )
                                                            
                                                            
                                                            (74,097
                                                            )Provision (reduction in allowance) for
      ALPL
                                                            
                                                            
                                                            (4,266
                                                            )
                                                            
                                                            
                                                            28,332
                                                            
                                                            
                                                            
                                                            (4,844
                                                            )
                                                            
                                                            
                                                            87,838ALPL balance, end of period
                                                            
                                                            
                                                            147,607
                                                            
                                                            
                                                            
                                                            97,331
                                                            
                                                            
                                                            
                                                            147,607
                                                            
                                                            
                                                            
                                                            97,331AULPC
      balance, beginning of period
                                                            
                                                            
                                                            1,610
                                                            
                                                            
                                                            
                                                            2,280
                                                            
                                                            
                                                            
                                                            1,607
                                                            
                                                            
                                                            
                                                            2,301Provision (reduction in allowance) for
      AULPC
                                                            
                                                            
                                                            309
                                                            
                                                            
                                                            
                                                            (631
                                                            )
                                                            
                                                            
                                                            312
                                                            
                                                            
                                                            
                                                            (652
                                                            )AULPC balance, end of
period
                                                            
                                                            $
                                                            1,919
                                                            
                                                            
                                                            $
                                                            1,649
                                                            
                                                            
                                                            $
                                                            1,919
                                                            
                                                            
                                                            $
                                                            1,649Total ACL
                                                            
                                                            $
                                                            149,526
                                                            
                                                            
                                                            $
                                                            98,980
                                                            
                                                            
                                                            $
                                                            149,526
                                                            
                                                            
                                                            $
                                                            98,980
 
 As of
September 30, 2010, December 31, 2009, and September 30, 2009, HPCI’s unfunded
loan commitments totaled $194.5 million, $303.7 million, and $290.2 million,
respectively.
  8
  Note
6 - Preferred Dividends
 
 Holders
of Class A preferred securities, a majority of which are held by Holdings and
the remainder by current and past employees of Huntington and the Bank, are
entitled to receive, if, when, and as declared by the Board of Directors of HPCI
out of funds legally available, dividends at a fixed rate of $80.00 per share
per annum. Dividends on the Class A preferred securities, if declared, are
payable annually in December to holders of record on the record date fixed for
such purpose by the Board of Directors in advance of payment.
  The
holder of the Class B preferred securities, HPC Holdings-II, Inc., a direct
non-bank subsidiary of Huntington, is entitled to receive, if, when, and as
declared by the Board of Directors of HPCI out of funds legally available,
dividends at a variable rate equal to three-month LIBOR published on the first
day of each calendar quarter times par value. Dividends on the Class B preferred
securities, which are declared quarterly, are payable annually and are
non-cumulative. No dividend, except payable in common shares, may be declared or
paid upon Class B preferred securities unless dividend obligations are satisfied
on the Class A, Class C, and Class D preferred securities.
  Holders
of Class C preferred securities are entitled to receive, if, when, and as
declared by the Board of Directors of HPCI out of funds legally available,
dividends at a fixed rate of 7.875% per annum, of the initial liquidation
preference of $25.00 per share, payable quarterly. Dividends accrue in each
quarterly period from the first day of each period, whether or not dividends are
paid with respect to the preceding period. Dividends are not cumulative and if
no dividend is paid on the Class C preferred securities for a quarterly dividend
period, the payment of dividends on HPCI’s common stock and other HPCI-issued
securities ranking junior to the Class C preferred securities (i.e., Class B preferred
securities) will be prohibited for that period and at least the following three
quarterly dividend periods.
  The
holder of Class D preferred securities, Holdings, is entitled to receive, if,
when, and as declared by the Board of Directors of HPCI out of funds legally
available, dividends at a variable rate established at the beginning of each
calendar quarter equal to three-month LIBOR published on the first day of each
calendar quarter, plus 1.625%, times par value, payable quarterly. Dividends
accrue in each quarterly period from the first day of each period, whether or
not dividends are paid with respect to the preceding period. Dividends are not
cumulative and if no dividend is paid on the Class D preferred securities for a
quarterly dividend period, the payment of dividends on HPCI’s common stock and
other HPCI-issued securities ranking junior to the Class D preferred securities
(i.e., Class B
preferred securities) will be prohibited for that period and at least the
following three quarterly dividend periods. See Note 2 regarding the exchange of
Class D preferred securities for the newly created Class E preferred securities
on October 28, 2010.
 
 A summary
of dividends declared by each class of preferred securities follows for the
periods indicated:
  Three Months Ended
                                                      
                                                      
                                                      Nine Months EndedSeptember 30,
                                                      
                                                      
                                                      September 30,(in thousands)
                                                      
                                                      2010
                                                      
                                                      
                                                      2009
                                                      
                                                      
                                                      2010
                                                      
                                                      
                                                      2009Class
      A preferred securities
                                                      
                                                      $
                                                      —
                                                      
                                                      
                                                      $
                                                      —
                                                      
                                                      
                                                      $
                                                      80
                                                      
                                                      
                                                      $
                                                      80Class
      B preferred securities
                                                      
                                                      
                                                      533
                                                      
                                                      
                                                      
                                                      588
                                                      
                                                      
                                                      
                                                      1,079
                                                      
                                                      
                                                      
                                                      3,177Class
      C preferred securities
                                                      
                                                      
                                                      984
                                                      
                                                      
                                                      
                                                      984
                                                      
                                                      
                                                      
                                                      2,953
                                                      
                                                      
                                                      
                                                      2,953Class D preferred
securities
                                                      
                                                      
                                                      1,889
                                                      
                                                      
                                                      
                                                      1,935
                                                      
                                                      
                                                      
                                                      5,210
                                                      
                                                      
                                                      
                                                      7,045Total dividends declared
                                                      
                                                      $
                                                      3,406
                                                      
                                                      
                                                      $
                                                      3,507
                                                      
                                                      
                                                      $
                                                      9,322
                                                      
                                                      
                                                      $
                                                      13,255
 
 Regulatory
approval is required prior to the Bank’s declaration of any dividends in excess
of available retained earnings. The amount of dividends that may be declared
without regulatory approval is further limited to the sum of net income for the
current year and retained net income for the preceding two years, less any
required transfers to surplus or common stock. Based on a regulatory dividend
limitation, the Bank could not have declared and paid a dividend at September
30, 2010, without regulatory approval. As a subsidiary of the Bank, HPCI is also
restricted from declaring or paying dividends on Class A, B, and C preferred
securities without regulatory approval. The Office of the Comptroller of the
Currency (OCC) has approved the payment of HPCI's dividends on its preferred
securities throughout 2009 and 2010. For the foreseeable future, management
intends to request approval for any future dividend; however, there can be no
assurance that the OCC will approve future dividends.
  9
  Note
7 - Related Party Transactions
 
 HPCI is a
party to a Third Amended and Restated Loan Subparticipation Agreement with
Holdings and a Second Amended and Restated Loan Participation Agreement with the
Bank. The Bank is required, under the participation and/or subparticipation
agreements, to service HPCI’s loan portfolio in a manner substantially the same
as for similar work for transactions on its own behalf. The Bank collects and
remits principal and interest payments, maintains perfected collateral
positions, and submits and pursues insurance claims. In addition, the Bank
provides accounting and reporting services to HPCI. The Bank is required to
adhere to HPCI’s policies relating to the relationship between HPCI and the Bank
and to pay all expenses related to the performance of the Bank’s duties under
the participation and subparticipation agreements. All loan participation
interests to date were acquired directly or indirectly from the
Bank.
 
 The Bank
performs the servicing of the commercial real estate, consumer, and residential
real estate loans underlying the participations held by HPCI in accordance with
normal industry practice under the amended participation and subparticipation
agreements. In its capacity as servicer, the Bank collects and holds the loan
payments received on behalf of HPCI until the end of each month. Loan servicing
costs totaled $1.9 million and $2.3 million for the three-month periods ended
September 30, 2010 and 2009, respectively. For the respective nine-month
periods, the costs were $6.1 million and $7.2 million.
 
 In 2010
and 2009, the annual servicing rates the Bank charged with respect to
outstanding principal balances were:
 
 January 1, 2009throughSeptember 30, 2010Commercial
      real estate
                              
                              
                              0.125
                              %Consumer
                              
                              
                              0.650
                              %Residential
      real estate
                              
                              
                              0.267
                              %
  Pursuant
to the existing participation and sub-participation agreements, the amount and
terms of the loan-servicing fee between the Bank and HPCI are determined by
mutual agreement from time-to-time during the terms of the agreements. In lieu
of paying higher servicing costs to the Bank with respect to commercial real
estate loans, HPCI waived its right to receive any origination fees associated
with participation interests in commercial real estate loans. The Bank and HPCI
performed a review of loan servicing fees in 2010, and have agreed to retain
current servicing rates for all loan participation categories, including the
continued waiver by HPCI of its right to origination fees, until such time as
servicing fees are reviewed in 2011.
 
 Huntington’s
and the Bank’s personnel handle day-to-day operations of HPCI such as financial
analysis and reporting, accounting, tax reporting, and other administrative
functions. On a monthly basis, HPCI reimburses the Bank and Huntington for the
cost related to the time spent by employees for performing these functions.
These personnel costs totaled $0.1 million for both of the three-month periods
ended September 30, 2010 and 2009, and are included in other noninterest
expense. For both of the respective nine-month periods, the cost was $0.3
million.
 
 The
following table represents the ownership of HPCI’s outstanding common and
preferred securities as of September 30, 2010:
 
 Number of
                                
                                
                                Number of Preferred SecuritiesShareholder:
                                
                                Common
                                  Shares
                                
                                
                                Class A
                                
                                
                                Class B
                                
                                
                                Class C
                                
                                
                                Class DHeld
      by related parties:HPCII
                                
                                
                                11,130,000
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —Holdings
                                
                                
                                2,870,000
                                
                                
                                
                                895
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                14,000,000HPC Holdings-II, Inc.
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                400,000
                                
                                
                                
                                —
                                
                                
                                
                                —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
 
 As of
September 30, 2010, 10.5% of the Class A preferred securities were owned by
current and past employees of Huntington and its subsidiaries in addition to the
89.5% owned by Holdings. The Class A preferred securities are non-voting. All of
the Class B preferred securities are owned by HPC Holdings-II, Inc., a non-bank
subsidiary of Huntington, and are non-voting. In 2001, the Class C preferred
securities were obtained by Holdings, who sold the securities to the public.
Various board members and executive officers of HPCI have purchased a portion of
the Class C preferred securities. At September 30, 2010, HPCI board members and
executive officers beneficially owned, in the aggregate, a total of 5,871
shares, or 0.294% of the Class C preferred securities. At September 30, 2010,
all of the Class D preferred securities were owned by Holdings.
  10
  Both the
Class C and Class D preferred securities are entitled to one-tenth of one vote
per share on all matters submitted to HPCI shareholders. The Class C and Class D
preferred securities are exchangeable, without shareholder approval or any
action of shareholders, for preferred securities of the Bank with substantially
equivalent terms as to dividends, liquidation preference, and redemption if the
Office of the Comptroller of the Currency (OCC) so directs only if the Bank
becomes, or may in the near term become, undercapitalized or the Bank is placed
in conservatorship or receivership. The Class D preferred securities are
currently redeemable and Class C preferred securities are redeemable at HPCI’s
option on or after December 31, 2021, with prior consent of the OCC. In the
event HPCI redeems its Class C or Class D preferred securities, holders of such
securities will be entitled to receive $25.00 per share plus accrued and unpaid
dividends on such shares. The redemption amount may be significantly different
than the current market price of the Class C or Class D preferred securities.
See Note 2 regarding the exchange of Class D preferred securities for the newly
created Class E preferred securities on October 28, 2010.
  As only
related parties hold HPCI’s common stock, there is no established public trading
market for this class of stock.
 
 HPCI had
a receivable from the Bank of $116.6 million at September 30, 2010, a payable to
the Bank of $8.6 million at December 31, 2009, and a receivable from the Bank of
$56.6 million at September 30, 2009. The balances represent the net settlement
amounts due to, or from, the Bank for the last month of the period’s activity.
Principal and interest payments on loan participations remitted by customers are
due from the Bank, while new loan participation purchases are due to the
Bank.
 
 HPCI has
assets pledged in association with the Bank’s advances from the Federal Home
Loan Bank (FHLB). For further information regarding this, see Note
9.
 
 HPCI
maintains and transacts all of its cash activity through the Bank. Typically,
cash is invested with the Bank in an interest-bearing account. These
interest-bearing balances are invested overnight or may be invested in
Eurodollar deposits with the Bank for a term of not more than 30 days at market
rates.
 
 Note
8 - Fair Values of Assets and Liabilities
 
 Fair
value is defined as the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. Fair value measurements are
classified within one of three levels in a valuation hierarchy based upon the
transparency of inputs used in the valuation of an asset or liability as of the
measurement date. The three levels are defined as follows:
  Level 1 —
inputs to the valuation methodology are quoted prices (unadjusted) for identical
assets or liabilities in active markets.
  Level 2 —
inputs to the valuation methodology include quoted prices for similar assets and
liabilities in active markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the full term of the
financial instrument.
  Level 3 —
inputs to the valuation methodology are unobservable and significant to the fair
value measurement.
  A
financial instrument’s categorization within the valuation hierarchy is based
upon the lowest level of input that is significant to the fair value
measurement.
 
 Assets
and Liabilities Measured at Fair Value on a Nonrecurring Basis
  Certain
assets and liabilities may be required to be measured at fair value on a
nonrecurring basis in periods subsequent to their initial recognition. These
assets and liabilities are not measured at fair value on an ongoing basis;
however, they are subject to fair value adjustments in certain circumstances,
such as when there is evidence of impairment.
 
 Impairment
of Loan Participation Interests
 
 Periodically,
HPCI records nonrecurring adjustments of collateral-dependent loan participation
interests measured for impairment when establishing the allowance for credit
losses. Such amounts are generally based on the fair value of the underlying
collateral supporting the loan. Appraisals are generally obtained to support the
fair value of the collateral and incorporate measures such as recent sales
prices for comparable properties and cost of construction. HPCI considers these
fair values Level 3. In cases where the carrying value exceeds the fair value of
the collateral less cost to sell, an impairment charge is
recognized.
  11
    Fair Value Measurements UsingQuoted Prices
                          
                          
                          Significant
                          
                          
                          SignificantIn Active
                          
                          
                          Other
                          
                          
                          OtherNine Months
                          
                          
                          Markets for
                          
                          
                          Observable
                          
                          
                          Unobservable
                          
                          
                          TotalEnded
                          
                          
                          Identical Assets
                          
                          
                          Inputs
                          
                          
                          Inputs
                          
                          
                          Gains/(in millions)
                          
                          September 30,
                          
                          
                          (Level 1)
                          
                          
                          (Level 2)
                          
                          (Level 3)
                          
                          (Losses)2010Loan
      participation interests
                          
                          $
                          9.3
                          
                          
                          $
                          —
                          
                          
                          $
                          —
                          
                          
                          $
                          9.3
                          
                          
                          $
                          (10.0
                          )2009Loan
      participation interests
                          
                          $
                          77.3
                          
                          
                          $
                          —
                          
                          
                          $
                          —
                          
                          
                          $
                          77.3
                          
                          
                          $
                          (26.4
                          )
 
 There were no changes in the valuation
techniques or related inputs used to measure similar assets in prior
periods.
 
 Fair
Value of Financial Instruments
 
 The
following methods and assumptions were used by HPCI to estimate the fair value
of the classes of financial instruments:
  Cash and
interest-bearing deposits, and due from The Huntington National Bank — The
carrying value approximates fair value based on its highly liquid
nature.
  Loan
participation interests — Underlying variable rate loans that reprice frequently
are based on carrying amounts, as adjusted for estimated credit losses. The fair
values for other loans are estimated using discounted cash flow analyses and
employ interest rates currently being offered for loans with similar terms. The
rates take into account the position of the yield curve, as well as an
adjustment for prepayment risk, operating costs, and profit. This value is also
reduced by an estimate of probable losses and the credit risk associated in the
loan portfolio. As of September 30, 2010, the net carrying amount of $3.5
billion corresponded to a fair value of $2.9 billion. As of September 30, 2009,
the net carrying value of $3.8 billion corresponded to a fair value of $2.8
billion. At September 30, 2010, the valuation of the loan portfolio reflected
discounts that HPCI believed are consistent with transactions occurring in the
market place.
 
 Note
9 - Commitments and Contingencies
 
 The Bank
is eligible to obtain collateralized advances from various federal and
government-sponsored agencies such as the Federal Home Loan Bank. From
time-to-time, HPCI may be asked to act as guarantor of the Bank’s obligations
under such advances and/or pledge all or a portion of
its assets in connection with those advances. Any such guarantee and/or pledge
would rank senior to HPCI’s common and preferred securities upon liquidation.
Accordingly, any federal or government-sponsored agencies that make advances to
the Bank where HPCI has acted as guarantor or has pledged all or a portion of
its assets as collateral will have a liquidation preference over the holders of
HPCI’s securities. Any such guarantee and/or pledge in connection with the
Bank’s advances from the FHLB falls within the definition of Permitted
Indebtedness (as defined in HPCI’s articles of incorporation) and, therefore,
HPCI is not required to obtain the consent of the holders of its common or
preferred securities for any such guarantee and/or pledge.
 
 Currently,
HPCI’s assets have been used to collateralize one such facility. The Bank
has a line of credit from the FHLB, limited to $2.3 billion as of September 30,
2010, based on the Bank’s holdings of FHLB stock. As of this same date, the
Bank had borrowings of $43.8 million under this facility. This was down
from borrowings of $172.1 million at December 31, 2009.
  HPCI has
entered into an Amended and Restated Agreement with the Bank with respect to the
pledge of HPCI’s assets to collateralize the Bank’s borrowings from the FHLB.
The agreement provides that the Bank will not place at risk HPCI’s assets in
excess of an aggregate dollar amount or aggregate percentage of such assets
established from time-to-time by HPCI’s board of directors, including a majority
of HPCI’s independent directors. The pledge limit was established by HPCI’s
board at 25% of total assets, or approximately $1.0 billion as of September 30,
2010. This pledge limit may be changed in the future by the board of directors,
including a majority of HPCI’s independent directors. The amount of HPCI’s
participation interests pledged was $0.5 billion at September 30, 2010. In 2010,
the loans pledged consisted of 1-4 family residential mortgage loans. The
agreement also provides that the Bank will pay HPCI a monthly fee based upon the
total loans pledged by HPCI. The Bank paid HPCI a total of $0.5 million and $0.6
million for the three months ended September 30, 2010 and 2009, respectively, as
compensation for making such assets available to the Bank. The amounts paid to
HPCI for the first nine months of 2010 and 2009 were $1.6 million and $1.9
million, respectively. The fee represented thirty-five basis points per year on
total pledged loans.
  12
  Under the
terms of the participation and subparticipation agreements, HPCI is obligated to
make funds or credit available to the Bank, either directly or indirectly
through Holdings, so that the Bank may extend credit or pay letters of credit
issued for those accounts for any of HPCI’s loan participation interests, to the
extent provided in the loan agreements underlying HPCI’s participation
interests. As established by HPCI’s board, these unfunded loan commitments
may not exceed 25% of total assets. As of September 30, 2010, December 31,
2009, and September 30, 2009, HPCI’s unfunded loan commitments totaled $194.5
million, $303.7 million, and $290.2 million, respectively.
 
 Note
10 - Segment Reporting
 
 HPCI’s
operations consist of acquiring, holding, and managing its participation
interests. Accordingly, HPCI only operates in one segment. HPCI has no external
customers and transacts all of its business with the Bank and its
affiliates.
  13
  Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
 
 INTRODUCTION
 
 Huntington
Preferred Capital, Inc. (HPCI or the Company) is an Ohio corporation operating
as a real estate investment trust (REIT) for federal income tax purposes. HPCI’s
principal business objective is to acquire, hold, and manage mortgage assets and
other authorized investments that will generate net income for distribution to
its shareholders.
  HPCI is a
party to a Third Amended and Restated Loan Subparticipation Agreement with
Huntington Preferred Capital Holdings, Inc. (Holdings) and a Second Amended and
Restated Loan Participation Agreement with The Huntington National Bank (the
Bank). The Bank is required, under the participation and/or subparticipation
agreements, to service HPCI’s loan portfolio in a manner substantially the same
as for similar work for transactions on its own behalf. The Bank collects and
remits principal and interest payments, maintains perfected collateral
positions, and submits and pursues insurance claims. In addition, the Bank
provides to HPCI accounting and reporting services as required. The Bank is
required to adhere to HPCI’s policies relating to the relationship between HPCI
and the Bank and to pay all expenses related to the performance of the Bank’s
duties under the participation and subparticipation agreements. All of these
participation interests to date were acquired directly or indirectly from the
Bank.
  The
following discussion and analysis provides information the Company believes is
necessary for understanding the financial condition, changes in financial
condition, results of operations, and cash flows and should be read in
conjunction with the financial statements, notes, and other information
contained in this report. The Management’s Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) appearing in HPCI’s Annual Report
on Form 10-K for the year ended December 31, 2009 (Form 10-K) should be read in
conjunction with this interim MD&A.
 
 Forward-looking
Statements
 
 This
report, including this MD&A, contains forward-looking statements about HPCI.
These include descriptions of products or services, plans, or objectives of
Management for future operations, and forecasts of revenues, earnings, cash
flows, or other measures of economic performance. Forward-looking statements can
be identified by the fact that they do not relate strictly to historical or
current facts.
  By their
nature, forward-looking statements are subject to numerous assumptions, risks,
and uncertainties. A number of factors could cause actual conditions, events, or
results to differ significantly from those described in the forward-looking
statements. These factors include, but are not limited to, those set forth under
the heading “Risk Factors” included in Item 1A of HPCI’s Form 10-K and other
factors described in this report and from time to time in other filings with the
Securities and Exchange Commission (SEC).
 
 Management
encourages readers of this report to understand forward-looking statements to be
strategic objectives rather than absolute forecasts of future performance.
Forward-looking statements speak only as of the date they are made. HPCI assumes
no obligation to update forward-looking statements to reflect circumstances or
events that occur after the date the forward-looking statements were made or to
reflect the occurrence of unanticipated events.
 
 Risk
Factors
 
 HPCI is
subject to a number of risks that may adversely affect its financial condition
or results of operation, many of which are outside of the Company’s direct
control, though efforts are made to manage those risks while optimizing returns.
Credit risk related to retail properties and single family homebuilders is of
particular concern in the current economy. See “Credit Risk’ section of this
report. Additionally, more information on risk is set forth under the heading
“Risk Factors” included in Item 1A of HPCI’s Form 10-K, and subsequent filings
with the SEC.
  Critical
Accounting Policies
  HPCI’s
financial statements were prepared in accordance with accounting principles
generally accepted in the United States (GAAP). The preparation of financial
statements in conformity with GAAP requires the Company to establish critical
accounting policies and make accounting estimates, assumptions, and judgments
that affect amounts recorded and reported in our financial statements. Note 1 to
HPCI’s consolidated financial statements included in its Form 10-K lists
significant accounting policies used in the development and presentation of its
financial statements. This MD&A, the significant accounting policies, and
other financial statement disclosures, identify and address key variables and
other qualitative and quantitative factors that are necessary for an
understanding and evaluation of HPCI, its financial position, results of
operations, and cash flows.
  14
  Use
of Significant Estimates
  The
preparation of financial statements in conformity with GAAP requires Management
to establish critical accounting policies and make accounting estimates,
assumptions, and judgments that affect amounts recorded and reported in the
Company’s financial statements. An accounting estimate requires assumptions
about uncertain matters that could have a material effect on the financial
statements if a different amount within a range of estimates were used or if
estimates changed from period to period. Readers of this interim report should
understand that estimates are made under facts and circumstances at a point in
time and changes in those facts and circumstances could produce actual results
that differ from when those estimates were made. HPCI’s Management has
identified the most significant accounting estimates and their related
application in its Form 10-K.
  Allowance for Credit Losses
(ACL)
  The
allowance for credit losses (ACL) is comprised of the allowance for loan
participation losses (ALPL) and the allowance for unfunded loan participation
commitments (AULPC). The amount of the ACL was determined by judgments regarding
the quality of each individual loan portfolio and loan commitments. All
known relevant internal and external factors that affected loan collectability
were considered, including analysis of historical charge-off experience,
migration patterns, changes in economic conditions, and changes in loan
collateral values. Such factors are subject to regular review and may
change to reflect updated performance trends and expectations, particularly in
times of severe stress. It is HPCI’s policy to rely on the Bank’s detailed
analysis as of the end of each quarter to estimate the required level of the
ALPL and AULPC. The Bank’s methodology to determine the adequacy of the ALPL
relies on a number of analytical tools and benchmarks. No single statistic or
measurement, in itself, determines the adequacy of the allowance. HPCI believes
the Bank’s process for determining the ACL considers all of the potential
factors that could result in credit losses. However, the process includes
judgmental and quantitative elements that may be subject to significant
change. There is no certainty that the ACL will be adequate over time to
cover credit losses in the portfolio because of continued adverse changes in the
economy, market conditions, or events adversely affecting specific customers,
industries or markets. To the extent actual outcomes differ from our
estimates, the credit quality of our customer base materially decreases, the
risk profile of a market, industry, or group of customers changes materially, or
if the ACL is determined to not be adequate, additional provision for credit
losses could be required, which could adversely affect our business, financial
condition, liquidity, capital, and results of operations in future
periods.
  QUALIFICATION
TESTS
 
 Qualification
as a REIT involves application of specific provisions of the Internal Revenue
Code relating to various asset tests. A REIT must satisfy six asset tests
quarterly: (1) 75% of the value of the REIT's total assets must consist of real
estate assets, cash and cash items, and government securities; (2) not more than
25% of the value of the REIT's total assets may consist of securities, other
than those includible under the 75% test; (3) not more than 5% of the value of
its total assets may consist of securities of any one issuer, other than those
securities includible under the 75% test or securities of taxable REIT
subsidiaries; (4) not more than 10% of the outstanding voting power of any one
issuer may be held, other than those securities includible under the 75% test or
securities of taxable REIT subsidiaries; (5) not more than 10% of the total
value of the outstanding securities of any one issuer may be held, other than
those securities includible under the 75% test or securities of taxable REIT
subsidiaries; and (6) a REIT cannot own securities in one or more taxable REIT
subsidiaries which comprise more than 20% of its total assets. At September 30,
2010, HPCI met all of the quarterly asset tests.
  Also, a
REIT must annually satisfy two gross income tests: (1) 75% of its gross income
must be from qualifying income closely connected with real estate activities;
and (2) 95% of its gross income must be derived from sources qualifying for the
75% test plus dividends, interest, and gains from the sale of securities. In
addition, a REIT must distribute 90% of the REIT’s taxable income for the
taxable year, excluding any net capital gains, to maintain its non-taxable
status for federal income tax purposes. For tax year 2009, HPCI met all annual
income and distribution tests.
  HPCI
operates in a manner that will not cause it to be deemed an investment company
under the Investment Company Act. The Investment Company Act exempts from
registration as an investment company an entity that is primarily engaged in the
business of "purchasing or otherwise acquiring mortgages and other liens on and
interests in real estate" (Qualifying Interests). Under positions taken by the
SEC staff in no-action letters, in order to qualify for this exemption, HPCI
must invest at least 55% of its assets in Qualifying Interests and an additional
25% of its assets in real estate-related assets, although this percentage may be
reduced to the extent that more than 55% of its assets are invested in
Qualifying Interests. The assets in which HPCI may invest under the Internal
Revenue Code therefore may be further limited by the provisions of the
Investment Company Act and positions taken by the SEC staff. At September 30,
2010, HPCI was exempt from registration as an investment company under the
Investment Company Act and intends to operate its business in a manner that will
maintain this exemption.
  15
  RESULTS
OF OPERATIONS
 
 HPCI’s
income is primarily derived from its participation in loans acquired from the
Bank and Holdings. Income varies based on the level of these assets and their
respective interest rates. The cash flows from these assets are used to satisfy
HPCI’s preferred dividend obligations. The preferred securities are considered
equity and, therefore, the dividends are not reflected as interest
expense.
 
 The
following table details the results of operations for the last five quarters.
The increase in net income for the third quarter of 2010, compared with same
period of 2009, was primarily the result a reduction in the allowance for credit
losses compared with a provision for credit losses in the prior year quarter,
partially offset by lower interest and fee income.
 
 Table 1 - Quarterly Statements of Income
 
 2010
                                                  
                                                  
                                                  2009
                                                  
                                                  
                                                  3Q10 vs. 3Q09(in thousands)
                                                  
                                                  Third
                                                  
                                                  
                                                  Second
                                                  
                                                  
                                                  First
                                                  
                                                  
                                                  Fourth
                                                  
                                                  
                                                  Third
                                                  
                                                  
                                                  $ chg
                                                  
                                                  
                                                  %ChgInterest
      and fee incomeInterest
      on loan participation interests:Commercial
      real estate
                                                  
                                                  $
                                                  27,173
                                                  
                                                  
                                                  $
                                                  26,857
                                                  
                                                  
                                                  $
                                                  26,561
                                                  
                                                  
                                                  $
                                                  26,321
                                                  
                                                  
                                                  $
                                                  26,575
                                                  
                                                  
                                                  $
                                                  598
                                                  
                                                  
                                                  
                                                  2.25
                                                  %Consumer and residential real
      estate
                                                  
                                                  
                                                  10,418
                                                  
                                                  
                                                  
                                                  10,994
                                                  
                                                  
                                                  
                                                  11,606
                                                  
                                                  
                                                  
                                                  12,576
                                                  
                                                  
                                                  
                                                  13,392
                                                  
                                                  
                                                  
                                                  (2,974
                                                  )
                                                  
                                                  
                                                  (22.21
                                                  )Total
      loan participation interest income
                                                  
                                                  
                                                  37,591
                                                  
                                                  
                                                  
                                                  37,851
                                                  
                                                  
                                                  
                                                  38,167
                                                  
                                                  
                                                  
                                                  38,897
                                                  
                                                  
                                                  
                                                  39,967
                                                  
                                                  
                                                  
                                                  (2,376
                                                  )
                                                  
                                                  
                                                  (5.94
                                                  )Fees
      from loan participation interests
                                                  
                                                  
                                                  276
                                                  
                                                  
                                                  
                                                  427
                                                  
                                                  
                                                  
                                                  491
                                                  
                                                  
                                                  
                                                  297
                                                  
                                                  
                                                  
                                                  379
                                                  
                                                  
                                                  
                                                  (103
                                                  )
                                                  
                                                  
                                                  (27.18
                                                  )Interest on deposits with The
      Bank
                                                  
                                                  
                                                  383
                                                  
                                                  
                                                  
                                                  272
                                                  
                                                  
                                                  
                                                  159
                                                  
                                                  
                                                  
                                                  454
                                                  
                                                  
                                                  
                                                  395
                                                  
                                                  
                                                  
                                                  (12
                                                  )
                                                  
                                                  
                                                  (3.04
                                                  )Total
      interest and fee income
                                                  
                                                  
                                                  38,250
                                                  
                                                  
                                                  
                                                  38,550
                                                  
                                                  
                                                  
                                                  38,817
                                                  
                                                  
                                                  
                                                  39,648
                                                  
                                                  
                                                  
                                                  40,741
                                                  
                                                  
                                                  
                                                  (2,491
                                                  )
                                                  
                                                  
                                                  (6.11
                                                  )Provision (reduction
      in allowance)
      for credit losses
                                                  
                                                  
                                                  (3,957
                                                  )
                                                  
                                                  
                                                  (1,182
                                                  )
                                                  
                                                  
                                                  607
                                                  
                                                  
                                                  
                                                  84,740
                                                  
                                                  
                                                  
                                                  27,701
                                                  
                                                  
                                                  
                                                  (31,658
                                                  )
                                                  
                                                  N.M.Interest income
      after provision (reduction in allowance)
      for credit losses
                                                  
                                                  
                                                  42,207
                                                  
                                                  
                                                  
                                                  39,732
                                                  
                                                  
                                                  
                                                  38,210
                                                  
                                                  
                                                  
                                                  (45,092
                                                  )
                                                  
                                                  
                                                  13,040
                                                  
                                                  
                                                  
                                                  29,167
                                                  
                                                  
                                                  N.M.Noninterest
      income:Rental
      income
                                                  
                                                  
                                                  18
                                                  
                                                  
                                                  
                                                  17
                                                  
                                                  
                                                  
                                                  17
                                                  
                                                  
                                                  
                                                  16
                                                  
                                                  
                                                  
                                                  17
                                                  
                                                  
                                                  
                                                  1
                                                  
                                                  
                                                  
                                                  5.88Collateral
      fees
                                                  
                                                  
                                                  511
                                                  
                                                  
                                                  
                                                  524
                                                  
                                                  
                                                  
                                                  556
                                                  
                                                  
                                                  
                                                  578
                                                  
                                                  
                                                  
                                                  609
                                                  
                                                  
                                                  
                                                  (98
                                                  )
                                                  
                                                  
                                                  (16.09
                                                  )Total noninterest
      income
                                                  
                                                  
                                                  529
                                                  
                                                  
                                                  
                                                  541
                                                  
                                                  
                                                  
                                                  573
                                                  
                                                  
                                                  
                                                  594
                                                  
                                                  
                                                  
                                                  626
                                                  
                                                  
                                                  
                                                  (97
                                                  )
                                                  
                                                  
                                                  (15.50
                                                  )Noninterest
      expense:Servicing
      costs
                                                  
                                                  
                                                  1,945
                                                  
                                                  
                                                  
                                                  2,024
                                                  
                                                  
                                                  
                                                  2,117
                                                  
                                                  
                                                  
                                                  2,180
                                                  
                                                  
                                                  
                                                  2,264
                                                  
                                                  
                                                  
                                                  (319
                                                  )
                                                  
                                                  
                                                  (14.09
                                                  )Other
                                                  
                                                  
                                                  174
                                                  
                                                  
                                                  
                                                  180
                                                  
                                                  
                                                  
                                                  163
                                                  
                                                  
                                                  
                                                  172
                                                  
                                                  
                                                  
                                                  162
                                                  
                                                  
                                                  
                                                  12
                                                  
                                                  
                                                  
                                                  7.41Total noninterest
      expense
                                                  
                                                  
                                                  2,119
                                                  
                                                  
                                                  
                                                  2,204
                                                  
                                                  
                                                  
                                                  2,280
                                                  
                                                  
                                                  
                                                  2,352
                                                  
                                                  
                                                  
                                                  2,426
                                                  
                                                  
                                                  
                                                  (307
                                                  )
                                                  
                                                  
                                                  (12.65
                                                  )Net income
      (loss)
                                                  
                                                  $
                                                  40,617
                                                  
                                                  
                                                  $
                                                  38,069
                                                  
                                                  
                                                  $
                                                  36,503
                                                  
                                                  
                                                  $
                                                  (46,850
                                                  )
                                                  
                                                  $
                                                  11,240
                                                  
                                                  
                                                  $
                                                  29,377
                                                  
                                                  
                                                  N.M.
                                                  %Dividends declared on preferred
      shares
                                                  
                                                  
                                                  (3,406
                                                  )
                                                  
                                                  
                                                  (2,953
                                                  )
                                                  
                                                  
                                                  (2,963
                                                  )
                                                  
                                                  
                                                  (2,940
                                                  )
                                                  
                                                  
                                                  (3,507
                                                  )
                                                  
                                                  
                                                  101
                                                  
                                                  
                                                  
                                                  (2.88
                                                  )Net income (loss)
      applicable to common shares(1)
                                                  
                                                  $
                                                  37,211
                                                  
                                                  
                                                  $
                                                  35,116
                                                  
                                                  
                                                  $
                                                  33,540
                                                  
                                                  
                                                  $
                                                  (49,790
                                                  )
                                                  
                                                  $
                                                  7,733
                                                  
                                                  
                                                  $
                                                  29,478
                                                  
                                                  
                                                  N.M.
                                                  %
 (1)All of
HPCI's common stock is owned by HPCII and Holdings and, therefore, net income
per share is not presented
 
 N.M. —
Not a meaningful value.
  The
following table details the results of operations for the year to date periods
ending September 30, 2010 and 2009. The increase in net income for the first
nine-months of 2010, compared to the same period of 2009, was primarily the
result of much lower provision for credit losses, partially offset by lower
interest income.
  16
 
 Table 2 - Selected Year to Date
Income Statement Data
  Nine Months Ended September 30,
                                                                                                        
                                                                                                        
                                                                                                        Change(in thousands)
                                                                                                        
                                                                                                        2010
                                                                                                        
                                                                                                        
                                                                                                        2009
                                                                                                        
                                                                                                        
                                                                                                        Amount
                                                                                                        
                                                                                                        
                                                                                                        PercentInterest
      and fee incomeInterest
      on loan participation interests:Commercial
      real estate
                                                                                                        
                                                                                                        $
                                                                                                        80,591
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        82,972
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        (2,381
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        (2.9
                                                                                                        )%Consumer and residential real
      estate
                                                                                                        
                                                                                                        
                                                                                                        33,018
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        43,146
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (10,128
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        (23.5
                                                                                                        )Total
      loan participation interest income
                                                                                                        
                                                                                                        
                                                                                                        113,609
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        126,118
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (12,509
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        (9.9
                                                                                                        )Fees
      from loan participation interests
                                                                                                        
                                                                                                        
                                                                                                        1,194
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        938
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        256
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        27.3Interest
      on deposits with The Bank
                                                                                                        
                                                                                                        
                                                                                                        814
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        781
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        33
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        4.2Total interest and fee
    income
                                                                                                        
                                                                                                        
                                                                                                        115,617
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        127,837
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (12,220
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        (9.6
                                                                                                        )Provision (reduction in allowance) for credit
      losses
                                                                                                        
                                                                                                        
                                                                                                        (4,532
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        87,186
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (91,718
                                                                                                        )
                                                                                                        
                                                                                                        N.M.Interest income after provision (reduction in
      allowance) for credit losses
                                                                                                        
                                                                                                        
                                                                                                        120,149
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        40,651
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        79,498
                                                                                                        
                                                                                                        
                                                                                                        N.M.Noninterest
      income:Rental
      income
                                                                                                        
                                                                                                        
                                                                                                        52
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        49
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        3
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        6.1Collateral fees
                                                                                                        
                                                                                                        
                                                                                                        1,591
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        1,926
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (335
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        (17.4
                                                                                                        )Total noninterest income
                                                                                                        
                                                                                                        
                                                                                                        1,643
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        1,975
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (332
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        (16.8
                                                                                                        )Noninterest
      expense:Servicing
      costs
                                                                                                        
                                                                                                        
                                                                                                        6,086
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        7,202
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (1,116
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        (15.5
                                                                                                        )Other
                                                                                                        
                                                                                                        
                                                                                                        517
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        562
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (45
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        (8.0
                                                                                                        )Total noninterest expense
                                                                                                        
                                                                                                        
                                                                                                        6,603
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        7,764
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (1,161
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        (15.0
                                                                                                        )Net income
                                                                                                        
                                                                                                        $
                                                                                                        115,189
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        34,862
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        80,327
                                                                                                        
                                                                                                        
                                                                                                        N.M.
      %Dividends declared on preferred
      shares
                                                                                                        
                                                                                                        
                                                                                                        (9,322
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        (13,255
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        3,933
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (29.7
                                                                                                        )Net income applicable to common shares(1)
                                                                                                        
                                                                                                        $
                                                                                                        105,867
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        21,607
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        84,260
                                                                                                        
                                                                                                        
                                                                                                        N.M.
                                                                                                        %
 N.M., not
a meaningful value.
 (1)All of
HPCI's common stock is owned by HPCII and Holdings and therefore, net income per
share is not presented
  Interest and Fee
Income
 
 HPCI’s
primary source of revenue is interest and fee income on its participation
interests in loans. At September 30, 2010and 2009, HPCI did not
have any interest-bearing liabilities or related interest expense. Interest
income is impacted by changes in the levels of interest rates and earning
assets. The yield on earning assets is the percentage of interest income to
average earning assets.
 
 The
tables below show HPCI’s average balances, interest and fee income, and yields
for the three-month and nine-month periods ended September 30, 2010 and
2009:
 
 Table
3 - Quarterly Interest and Fee Income
 
 Three Months Ended September 30,2010
                              
                              
                              2009(dollar amounts in millions)
                              
                              Average
                                Balance
                              
                              
                              Income(1)
                              
                              
                              Yield
                              
                              
                              Average
                                Balance
                              
                              
                              Income(1)
                              
                              
                              YieldLoan
      participation interests:Commercial
      real estate
                              
                              $
                              2,982.7
                              
                              
                              $
                              27.4
                              
                              
                              
                              3.64
                              %
                              
                              $
                              3,116.7
                              
                              
                              $
                              26.9
                              
                              
                              
                              3.42
                              %Consumer and residential real
      estate
                              
                              
                              638.5
                              
                              
                              
                              10.5
                              
                              
                              
                              6.51
                              
                              
                              
                              814.3
                              
                              
                              
                              13.4
                              
                              
                              
                              6.56Total
      loan participations
                              
                              
                              3,621.2
                              
                              
                              
                              37.9
                              
                              
                              
                              4.15
                              
                              
                              
                              3,931.0
                              
                              
                              
                              40.3
                              
                              
                              
                              4.07Interest bearing deposits in the
      Bank
                              
                              
                              500.2
                              
                              
                              
                              0.4
                              
                              
                              
                              0.30
                              
                              
                              
                              618.2
                              
                              
                              
                              0.4
                              
                              
                              
                              0.25Total
                              
                              $
                              4,121.4
                              
                              
                              $
                              38.3
                              
                              
                              
                              3.68
                              %
                              
                              $
                              4,549.2
                              
                              
                              $
                              40.7
                              
                              
                              
                              3.55
                              %
 (1)Income
includes interest and fees
  17
  Table
4 - Year-To-Date Interest and Fee Income
 
 Nine Months Ended September 30,2010
                                
                                
                                2009(dollar amounts in millions)
                                
                                Average
                                  Balance
                                
                                
                                Income(1)
                                
                                
                                Yield
                                
                                
                                Average
                                  Balance
                                
                                
                                Income(1)
                                
                                
                                YieldLoan
      participation interests:Commercial
      real estate
                                
                                $
                                3,029.3
                                
                                
                                $
                                81.6
                                
                                
                                
                                3.60
                                %
                                
                                $
                                3,230.5
                                
                                
                                $
                                83.6
                                
                                
                                
                                3.46
                                %Consumer and residential real
      estate
                                
                                
                                687.2
                                
                                
                                
                                33.2
                                
                                
                                
                                6.46
                                
                                
                                
                                874.8
                                
                                
                                
                                43.4
                                
                                
                                
                                6.64Total
      loan participations
                                
                                
                                3,716.5
                                
                                
                                
                                114.8
                                
                                
                                
                                4.13
                                
                                
                                
                                4,105.3
                                
                                
                                
                                127.0
                                
                                
                                
                                4.14Interest bearing deposits in the
      Bank
                                
                                
                                385.8
                                
                                
                                
                                0.8
                                
                                
                                
                                0.28
                                
                                
                                
                                416.4
                                
                                
                                
                                0.8
                                
                                
                                
                                0.25Total
                                
                                $
                                4,102.3
                                
                                
                                $
                                115.6
                                
                                
                                
                                3.77
                                %
                                
                                $
                                4,521.7
                                
                                
                                $
                                127.8
                                
                                
                                
                                3.78
                                %
 (1)Income
includes interest and fees
  Interest
and fee income was $38.3 million for the three-months ended September 30, 2010
compared with $40.7 million for the year ago quarter. As shown in Table 3, the
decrease in interest and fee income was the result of lower overall loan
balances, offset by a slight increase in rates. For the three-months ended
September 30, 2010 and 2009, the yield increased 13 basis points to 3.68%, while
average earning asset balances decreased $427.8 million, or 9.4%. For the
nine-months ended September 30, 2010 and 2009, interest and fee income was
$115.6 million and $127.8 million, respectively. As shown in Table 4, the
decrease in interest and fee income was the result of lower earning asset
balances. At September 30, 2010, December 31, 2009, and September 30, 2009,
approximately 74%, 72%, and 71%, respectively, of the portfolio was comprised of
variable interest rate loan participations. The table above includes interest
received on participations in loans that are on a non-accrual status in the
individual portfolios.
  Provision (reduction in
allowance) for credit losses
 
 The
provision (reduction in allowance) for credit losses is the charge (credit) to
earnings necessary to maintain the ACL at a level adequate to absorb
Management’s estimate of inherent probable losses in the loan portfolio. Loan
participations are acquired net of related allowance for loan participation
losses (ALPL). As a result, this ALPL is transferred to HPCI from the Bank and
is reflected as ALPL acquired, rather than HPCI having to record a provision
expense for ALPL. If credit quality deteriorates more than implied by the ALPL
acquired, a provision to the ALPL is made. If credit quality performance is
better than implied by the ALPL acquired, an ALPL reduction is recorded. As loan
participations mature, refinance, or other such actions occur, any allowance not
absorbed by loan losses is released through the reduction in ALPL. Such
adjustments for the quarter ended September 30, 2010 resulted in a reduction in
allowance for credit losses of $4.0 million compared to a provision for credit
losses of $27.7 million for the year-ago quarter. For the nine months ended
September 30, 2010, the reduction in allowance for credit losses was $4.5
million, compared with a provision for credit losses of $87.2 million in the
same period of the prior year. The decrease in provision during 2010 was
primarily related to the moderate improvement in HPCI’s delinquency levels, and
reduced levels of nonperforming assets. See additional discussion in Allowance for Credit Losses
(ACL).
  Noninterest Income and
Noninterest Expense
 
 Noninterest
income included fees from the Bank for use of HPCI’s assets as collateral for
the Bank’s advances from the Federal Home Loan Bank (FHLB). These fees
totaled $0.5 million and $0.6 million for the three-months ended September 30,
2010 and 2009, respectively. For the nine months ended September 30, 2010 and
2009, noninterest income was $1.6 million and $1.9 million, respectively.(See Note 8to the unaudited condensed financial
statements for more information regarding use of HPCI’s assets as collateral for
the Bank’s advances from the FHLB.)
 
 Noninterest
expense for the 2010 third quarter was $2.1 million compared with $2.4 million
for the same period last year. For the nine months ended September 30, 2010 and
2009, noninterest expense was $6.6 million and $7.8 million, respectively. The
predominant component of HPCI’s noninterest expense is the fee paid to the Bank
for servicing the loans underlying the participation interests. For the 2010
third quarter, servicing costs amounted to $1.9 million, compared with $2.3
million for the comparable quarter of the prior year. The servicing costs for
the nine months ended September 30, 2010 and 2009 totaled $6.1 million
and $7.2 million, respectively. The annual servicing rates the Bank charged with
respect to outstanding principal balances in 2010 and
2009 were:
  18
  January 1, 2009throughSeptember 30, 2010Commercial
      real estate
                          
                          
                          0.125
                          %Consumer
                          
                          
                          0.650
                          %Residential
      real estate
                          
                          
                          0.267
                          %
  Pursuant
to the existing participation and subparticipation agreements, the amount and
terms of the loan-servicing fee between the Bank and HPCI are determined by
mutual agreement from time to time during the terms of the agreements. In lieu
of paying higher servicing costs to the Bank with respect to commercial real
estate loans, HPCI waived its right to receive any origination fees associated
with participation interests in commercial real estate loans. The Bank and HPCI
performed a review of loan servicing fees in 2010, and agreed to retain current
servicing rates for all loan participation categories, including the continued
waiver by HPCI of its right to origination fees, until such time as servicing
fees are reviewed in 2011.
  Provision for Income
Taxes
  HPCI has
elected to be treated as a REIT for Federal income tax purposes and intends to
maintain compliance with the provisions of the Internal Revenue Code and,
therefore, is not subject to federal income taxes.
  CREDIT
EXPOSURE RISK
 
 HPCI’s
largest credit exposure was commercial real estate loan participation interests,
which totaled $2.9 billion and represented 83% of total loan participation
interests at September 30, 2010, compared with 80% at September 30, 2009. Total
consumer and residential real estate loan participation interests were $0.6
billion and represented 17% of total loan participations at September 30, 2010,
compared with 20% at September 30, 2009. These portfolios are discussed in
greater detail below in the “Commercial Real Estate Credit” and “Consumer and
Residential Real Estate Credit” sections of this report.
 
 Credit
Risk
  Credit
risk is the risk of loss due to adverse changes in a borrower’s ability to meet
its financial obligations under agreed upon terms. Credit risk is mitigated
through a combination of credit policies and processes and portfolio
diversification. These include loan origination/underwriting criteria, portfolio
monitoring processes, and effective problem asset management.
 
 HPCI’s
exposure to credit risk is managed by personnel of the Bank through this credit
risk management process. Based upon an assessment of the credit risk inherent in
HPCI’s portfolio of loan participation interests, an ALPL is transferred from
the Bank to HPCI on loans underlying the participations at the time the
participations are acquired.
  The
maximum level of credit exposure to individual commercial borrowers is limited
by policy guidelines based on the default probabilities associated with the
credit facilities extended to each borrower or related group of borrowers. All
authority to grant commitments is delegated through the Bank’s independent
credit administration function, and is monitored and regularly updated in a
centralized database.
 
 Concentration
risk is managed with limits on loan type, geographic and industry
diversification, country limits, and loan quality factors. The checks and
balances in the credit process and the independence of the credit administration
and risk management functions are designed to minimize problems and to
facilitate the early recognition of problems when they do occur.
 
 The
following table provides aging information for the loans underlying HPCI’s loan
participations at September 30, 2010, December 31, 2009, and September 30,
2009.
  19
  Table
5 - Loan Participation Interest Aging(1)
  September 30, 2010
                                                      
                                                      
                                                      December 31, 2009
                                                      
                                                      
                                                      September 30, 2009(dollar amounts in
                                                        thousands)
                                                      
                                                      Total
                                                        Number of
                                                        Loans
                                                      
                                                      
                                                      Aggregate
                                                        Principal
                                                        Balance
                                                      
                                                      
                                                      Percentage by
                                                        Aggregate
                                                        Principal
                                                        Balance
                                                      
                                                      
                                                      Total
                                                        Number of
                                                        Loans
                                                      
                                                      
                                                      Aggregate
                                                        Principal
                                                        Balance
                                                      
                                                      
                                                      Percentage by
                                                        Aggregate
                                                        Principal
                                                        Balance
                                                      
                                                      
                                                      Total
                                                        Number of
                                                        Loans
                                                      
                                                      
                                                      Aggregate
                                                        Principal
                                                        Balance
                                                      
                                                      
                                                      Percentage by
                                                        Aggregate
                                                        Principal
                                                        BalanceCurrent
                                                      
                                                      
                                                      16,795
                                                      
                                                      
                                                      $
                                                      3,283,855
                                                      
                                                      
                                                      
                                                      92.6
                                                      %
                                                      
                                                      
                                                      19,206
                                                      
                                                      
                                                      $
                                                      3,506,912
                                                      
                                                      
                                                      
                                                      90.5
                                                      %
                                                      
                                                      
                                                      21,035
                                                      
                                                      
                                                      $
                                                      3,442,707
                                                      
                                                      
                                                      
                                                      89.1
                                                      %1 to
      30 days past due
                                                      
                                                      
                                                      1,121
                                                      
                                                      
                                                      
                                                      135,784
                                                      
                                                      
                                                      
                                                      3.8
                                                      
                                                      
                                                      
                                                      1,343
                                                      
                                                      
                                                      
                                                      201,739
                                                      
                                                      
                                                      
                                                      5.2
                                                      
                                                      
                                                      
                                                      1,541
                                                      
                                                      
                                                      
                                                      211,753
                                                      
                                                      
                                                      
                                                      5.531
      to 60 days past due
                                                      
                                                      
                                                      233
                                                      
                                                      
                                                      
                                                      58,181
                                                      
                                                      
                                                      
                                                      1.6
                                                      
                                                      
                                                      
                                                      291
                                                      
                                                      
                                                      
                                                      43,760
                                                      
                                                      
                                                      
                                                      1.1
                                                      
                                                      
                                                      
                                                      253
                                                      
                                                      
                                                      
                                                      83,817
                                                      
                                                      
                                                      
                                                      2.261
      to 90 days past due
                                                      
                                                      
                                                      113
                                                      
                                                      
                                                      
                                                      9,528
                                                      
                                                      
                                                      
                                                      0.3
                                                      
                                                      
                                                      
                                                      135
                                                      
                                                      
                                                      
                                                      17,612
                                                      
                                                      
                                                      
                                                      0.5
                                                      
                                                      
                                                      
                                                      151
                                                      
                                                      
                                                      
                                                      34,159
                                                      
                                                      
                                                      
                                                      0.9over
      90 days past due
                                                      
                                                      
                                                      307
                                                      
                                                      
                                                      
                                                      59,296
                                                      
                                                      
                                                      
                                                      1.7
                                                      
                                                      
                                                      
                                                      397
                                                      
                                                      
                                                      
                                                      103,630
                                                      
                                                      
                                                      
                                                      2.7
                                                      
                                                      
                                                      
                                                      341
                                                      
                                                      
                                                      
                                                      91,682
                                                      
                                                      
                                                      
                                                      2.4Total
                                                      
                                                      
                                                      18,569
                                                      
                                                      
                                                      $
                                                      3,546,644
                                                      
                                                      
                                                      
                                                      100
                                                      %
                                                      
                                                      
                                                      21,372
                                                      
                                                      
                                                      $
                                                      3,873,653
                                                      
                                                      
                                                      
                                                      100
                                                      %
                                                      
                                                      
                                                      23,321
                                                      
                                                      
                                                      $
                                                      3,864,118
                                                      
                                                      
                                                      
                                                      100
                                                      %
 (1)Includes
non-accrual loans.
  Commercial
Real Estate Credit
 
 Commercial
real estate credit approvals are made by the Bank and are based on, among other
factors, the financial strength of the borrower, assessment of the borrower’s
management, industry sector trends, type of exposure, transaction structure, and
the general economic outlook.
  In
commercial lending, ongoing credit management is dependent on the type and
nature of the loan. Loans within commercial lending include both owner-occupied
and non-owner occupied loans secured by real estate. In general, significant
credit exposures are monitored quarterly. Internal risk ratings are revised and
updated with each periodic monitoring event. There is also extensive macro
portfolio management analysis on an ongoing basis. Huntington continually
reviews and adjusts credit criteria based on actual experience, which may result
in further changes to such criteria, in future periods.
  Commercial
real estate loan participation interests outstanding by property type and
location at September 30, 2010 were as follows:
 
 Table 6- Commercial Real Estate Loans
by Property Type and Property Location
  September 30, 2010(dollar amounts in thousands)
                                                                  
                                                                  Ohio
                                                                  
                                                                  Michigan
                                                                  
                                                                  Indiana
                                                                  
                                                                  Pennsylvania
                                                                  
                                                                  Kentucky
                                                                  
                                                                  Other
                                                                  
                                                                  TotalAmount
                                                                  
                                                                  %Industrial
      and warehouse
                                                                  
                                                                  $
                                                                  377,721
                                                                  
                                                                  $
                                                                  172,673
                                                                  
                                                                  $
                                                                  37,790
                                                                  
                                                                  $
                                                                  10,899
                                                                  
                                                                  $
                                                                  14,717
                                                                  
                                                                  $
                                                                  20,542
                                                                  
                                                                  $
                                                                  634,342
                                                                  
                                                                  
                                                                  21.6
                                                                  %Retail
      properties
                                                                  
                                                                  
                                                                  351,181
                                                                  
                                                                  
                                                                  100,111
                                                                  
                                                                  
                                                                  47,266
                                                                  
                                                                  
                                                                  39,323
                                                                  
                                                                  
                                                                  19,661
                                                                  
                                                                  
                                                                  59,392
                                                                  
                                                                  
                                                                  616,934
                                                                  
                                                                  
                                                                  21.0Office
                                                                  
                                                                  
                                                                  332,659
                                                                  
                                                                  
                                                                  90,001
                                                                  
                                                                  
                                                                  31,370
                                                                  
                                                                  
                                                                  31,857
                                                                  
                                                                  
                                                                  7,357
                                                                  
                                                                  
                                                                  27,118
                                                                  
                                                                  
                                                                  520,362
                                                                  
                                                                  
                                                                  17.7Raw
      land and other land uses
                                                                  
                                                                  
                                                                  182,803
                                                                  
                                                                  
                                                                  76,656
                                                                  
                                                                  
                                                                  17,229
                                                                  
                                                                  
                                                                  7,497
                                                                  
                                                                  
                                                                  15,092
                                                                  
                                                                  
                                                                  9,198
                                                                  
                                                                  
                                                                  308,475
                                                                  
                                                                  
                                                                  10.5Health
      care
                                                                  
                                                                  
                                                                  167,375
                                                                  
                                                                  
                                                                  84,355
                                                                  
                                                                  
                                                                  1,419
                                                                  
                                                                  
                                                                  19,692
                                                                  
                                                                  
                                                                  154
                                                                  
                                                                  
                                                                  14,498
                                                                  
                                                                  
                                                                  287,493
                                                                  
                                                                  
                                                                  9.8Multi
      family
                                                                  
                                                                  
                                                                  142,073
                                                                  
                                                                  
                                                                  7,079
                                                                  
                                                                  
                                                                  36,531
                                                                  
                                                                  
                                                                  13,001
                                                                  
                                                                  
                                                                  22,559
                                                                  
                                                                  
                                                                  9,926
                                                                  
                                                                  
                                                                  231,169
                                                                  
                                                                  
                                                                  7.9Single
      family home builders
                                                                  
                                                                  
                                                                  109,011
                                                                  
                                                                  
                                                                  43,512
                                                                  
                                                                  
                                                                  11,789
                                                                  
                                                                  
                                                                  10,208
                                                                  
                                                                  
                                                                  1,616
                                                                  
                                                                  
                                                                  1,116
                                                                  
                                                                  
                                                                  177,252
                                                                  
                                                                  
                                                                  6.0Other
                                                                  
                                                                  
                                                                  64,123
                                                                  
                                                                  
                                                                  36,183
                                                                  
                                                                  
                                                                  4,976
                                                                  
                                                                  
                                                                  6,357
                                                                  
                                                                  
                                                                  1,021
                                                                  
                                                                  
                                                                  46,573
                                                                  
                                                                  
                                                                  159,233
                                                                  
                                                                  
                                                                  5.5Total
                                                                  
                                                                  $
                                                                  1,726,946
                                                                  
                                                                  $
                                                                  610,570
                                                                  
                                                                  $
                                                                  188,370
                                                                  
                                                                  $
                                                                  138,834
                                                                  
                                                                  $
                                                                  82,177
                                                                  
                                                                  $
                                                                  188,363
                                                                  
                                                                  $
                                                                  2,935,260
                                                                  
                                                                  
                                                                  100
                                                                  %% of
      total portfolio
                                                                  
                                                                  
                                                                  59
                                                                  %
                                                                  
                                                                  21
                                                                  %
                                                                  
                                                                  6
                                                                  %
                                                                  
                                                                  5
                                                                  %
                                                                  
                                                                  3
                                                                  %
                                                                  
                                                                  6
                                                                  %
                                                                  
                                                                  100
                                                                  %
 
 HPCI’s
commercial real estate loan participation interests are diversified by customer,
as well as throughout the Bank’s lending area of Ohio, Michigan, Indiana,
Kentucky, and Pennsylvania. However, the following components are
noteworthy.
 
 Retail
properties
 
 HPCI’s
portfolio of commercial real estate loans secured by retail properties totaled
$0.6 billion, or approximately 21% of total commercial real estate loans, and
had an ALPL associated with these loans of $32.7 million at September 30, 2010.
Credit approval in this loan segment is generally dependant on pre-leasing
requirements, and net operating income from the project must cover interest
expense by specified percentages when the loan is fully funded.
  20
  The
weakness of the economic environment in the Bank’s geographic regions
significantly impacted the projects that secure the loans in this portfolio
segment. Increased unemployment levels compared with prior years, and the
expectation that these levels will remain elevated for the foreseeable future,
are expected to adversely affect the borrowers’ ability to repay these loans.
The Bank has increased the level of credit risk management analysis that is
applied to this portfolio. The Bank also performed a detailed analysis of the
retail property loans in much greater detail by combining property type,
geographic location, tenants, and other data, to assess and manage credit
concentration risks.
 
 Single
family homebuilders
 
 HPCI’s
portfolio of commercial real estate loans secured by builders of single family
homes totaled $0.2 billion or approximately 6% of total commercial real estate
loans, and had an ALPL associated with these loans of $12.0 million at September
30, 2010.
  The
housing market across the Bank’s geographic footprint remained stressed,
reflecting relatively lower sales activity, declining prices, and excess
inventories of houses to be sold, particularly impacting borrowers in the East
Michigan and northern Ohio regions. Further, a portion of the loans extended to
borrowers located within the Bank’s geographic regions was to finance projects
outside of its geographic regions. Based on portfolio management processes,
including charge-off activity, over the past 30 months, we believe that we have
substantially addressed the credit issues in this portfolio. We do not
anticipate any future significant credit impact from this portfolio
segment.
 
 Consumer
and Residential Real Estate Credit
  Extensions
of consumer credit by the Bank are based on, among other factors, the financial
strength of the borrower, type of exposure, transaction structure, and the
general economic outlook. Consumer credit decisions are generally made in a
centralized environment utilizing decision models. Each credit extension is
assigned a specific probability-of-default and loss-in-event-of-default. The
probability-of-default is generally a function of the borrower’s credit bureau
score, while the loss-in-event-of-default is related to the type of collateral
and the loan-to-value ratio associated with the credit extension.
  In
consumer lending, credit risk is managed from a loan type and vintage
performance analysis. All portfolio segments are continuously monitored for
changes in delinquency trends and other asset quality indicators. The Bank makes
extensive use of portfolio assessment models to continuously monitor the quality
of the portfolio and identify under-performing segments. This information is
then incorporated into future origination strategies. The Bank’s independent
risk management group has a consumer process review component to ensure the
effectiveness and efficiency of the consumer credit processes.
 
 Nonperforming Assets
(NPAs)
 
 NPAs
consist of participation interests in underlying loans that are no longer
accruing interest. Underlying commercial real estate loans are placed on
non-accrual status and stop accruing interest when collection of principal or
interest is in doubt or generally when the underlying loan is 90-days past due.
Underlying consumer and residential real estate loans are generally placed on
non-accrual status when they became 180 days past due. When interest accruals
are suspended, accrued interest income is reversed with current year accruals
charged to earnings and prior year amounts generally charged off as a credit
loss.
  The
following table shows NPAs at the end of the most recent five
quarters:
  Table
7 - Quarterly Nonperforming Assets (NPAs)
  2010
                                                                  
                                                                  
                                                                  2009(dollaramountsinthousands)
                                                                  
                                                                  September30,
                                                                  
                                                                  
                                                                  June30,
                                                                  
                                                                  
                                                                  March31,
                                                                  
                                                                  
                                                                  December31,
                                                                  
                                                                  
                                                                  September30,Participation
      interest in non-accrual loansCommercial
      real estate
                                                                  
                                                                  $
                                                                  87,302
                                                                  
                                                                  
                                                                  $
                                                                  123,205
                                                                  
                                                                  
                                                                  $
                                                                  149,997
                                                                  
                                                                  
                                                                  $
                                                                  165,184
                                                                  
                                                                  
                                                                  $
                                                                  192,661Consumer and residential real
      estate
                                                                  
                                                                  
                                                                  4,979
                                                                  
                                                                  
                                                                  
                                                                  5,263
                                                                  
                                                                  
                                                                  
                                                                  5,916
                                                                  
                                                                  
                                                                  
                                                                  5,554
                                                                  
                                                                  
                                                                  
                                                                  5,467Total nonperforming assets
      (NPAs)
                                                                  
                                                                  $
                                                                  92,281
                                                                  
                                                                  
                                                                  $
                                                                  128,468
                                                                  
                                                                  
                                                                  $
                                                                  155,913
                                                                  
                                                                  
                                                                  $
                                                                  170,738
                                                                  
                                                                  
                                                                  $
                                                                  198,128Participations in accruing Loans Past Due 90 Days
      or More
                                                                  
                                                                  $
                                                                  4,737
                                                                  
                                                                  
                                                                  $
                                                                  6,504
                                                                  
                                                                  
                                                                  $
                                                                  4,326
                                                                  
                                                                  
                                                                  $
                                                                  8,631
                                                                  
                                                                  
                                                                  $
                                                                  10,294NPAs
      as a % of total participation interests
                                                                  
                                                                  
                                                                  2.60
                                                                  %
                                                                  
                                                                  
                                                                  3.52
                                                                  %
                                                                  
                                                                  
                                                                  4.15
                                                                  %
                                                                  
                                                                  
                                                                  4.41
                                                                  %
                                                                  
                                                                  
                                                                  5.13
                                                                  %ALPL
      as a % of NPAs
                                                                  
                                                                  
                                                                  160
                                                                  
                                                                  
                                                                  
                                                                  112
                                                                  
                                                                  
                                                                  
                                                                  102
                                                                  
                                                                  
                                                                  
                                                                  92
                                                                  
                                                                  
                                                                  
                                                                  49ACL
      as a % of NPAs
                                                                  
                                                                  
                                                                  162
                                                                  
                                                                  
                                                                  
                                                                  113
                                                                  
                                                                  
                                                                  
                                                                  103
                                                                  
                                                                  
                                                                  
                                                                  93
                                                                  
                                                                  
                                                                  
                                                                  50
  21
 
 Total
NPAs decreased to $92.3 million at September 30, 2010, from $170.7 million at
December 31, 2009, and from $198.1 million at September 30, 2009, representing
2.60%, 4.41%, and 5.13% of total loan participation interests, respectively. The
decrease in 2010, was principally related to the commercial real estate loan
participations and was spread across the different property types of that
portfolio.
  The
following table presents a coverage ratio analysis at the end of the most recent
five quarters:
  Table 8 - Quarterly ALPL / Loan
Participation Coverage Ratio Analysis
  2010
                                                                                  
                                                                                  
                                                                                  2009(dollar amounts in millions)
                                                                                  
                                                                                  Third
                                                                                  
                                                                                  
                                                                                  Second
                                                                                  
                                                                                  
                                                                                  First
                                                                                  
                                                                                  
                                                                                  Fourth
                                                                                  
                                                                                  
                                                                                  ThirdLoan
      participation interests ending balances:Accruing
                                                                                  
                                                                                  $
                                                                                  3,454,363
                                                                                  
                                                                                  
                                                                                  $
                                                                                  3,516,660
                                                                                  
                                                                                  
                                                                                  $
                                                                                  3,598,796
                                                                                  
                                                                                  
                                                                                  $
                                                                                  3,702,915
                                                                                  
                                                                                  
                                                                                  $
                                                                                  3,665,990Impaired
      evaluated on a pool basis
                                                                                  
                                                                                  
                                                                                  31,006
                                                                                  
                                                                                  
                                                                                  
                                                                                  32,910
                                                                                  
                                                                                  
                                                                                  
                                                                                  36,365
                                                                                  
                                                                                  
                                                                                  
                                                                                  40,040
                                                                                  
                                                                                  
                                                                                  
                                                                                  40,838Impaired evaluated under ASC310(1)
                                                                                  
                                                                                  
                                                                                  61,275
                                                                                  
                                                                                  
                                                                                  
                                                                                  95,558
                                                                                  
                                                                                  
                                                                                  
                                                                                  119,548
                                                                                  
                                                                                  
                                                                                  
                                                                                  130,698
                                                                                  
                                                                                  
                                                                                  
                                                                                  157,290Total non-accrual
                                                                                  
                                                                                  
                                                                                  92,281
                                                                                  
                                                                                  
                                                                                  
                                                                                  128,468
                                                                                  
                                                                                  
                                                                                  
                                                                                  155,913
                                                                                  
                                                                                  
                                                                                  
                                                                                  170,738
                                                                                  
                                                                                  
                                                                                  
                                                                                  198,128Total loan participation
      interests
                                                                                  
                                                                                  $
                                                                                  3,546,644
                                                                                  
                                                                                  
                                                                                  $
                                                                                  3,645,128
                                                                                  
                                                                                  
                                                                                  $
                                                                                  3,754,709
                                                                                  
                                                                                  
                                                                                  $
                                                                                  3,873,653
                                                                                  
                                                                                  
                                                                                  $
                                                                                  3,864,118Loan
      participation interests (ALPL):Accruing
                                                                                  
                                                                                  $
                                                                                  114,089
                                                                                  
                                                                                  
                                                                                  $
                                                                                  114,753
                                                                                  
                                                                                  
                                                                                  $
                                                                                  122,824
                                                                                  
                                                                                  
                                                                                  $
                                                                                  127,405
                                                                                  
                                                                                  
                                                                                  $
                                                                                  69,449ALPL
      associated with impaired evaluated on a pool basis
                                                                                  
                                                                                  
                                                                                  8,645
                                                                                  
                                                                                  
                                                                                  
                                                                                  8,600
                                                                                  
                                                                                  
                                                                                  
                                                                                  9,689
                                                                                  
                                                                                  
                                                                                  
                                                                                  10,270
                                                                                  
                                                                                  
                                                                                  
                                                                                  3,109Impaired evaluated under ASC310(1)
                                                                                  
                                                                                  
                                                                                  24,873
                                                                                  
                                                                                  
                                                                                  
                                                                                  20,744
                                                                                  
                                                                                  
                                                                                  
                                                                                  26,450
                                                                                  
                                                                                  
                                                                                  
                                                                                  18,756
                                                                                  
                                                                                  
                                                                                  
                                                                                  24,773Total non-accrual
                                                                                  
                                                                                  
                                                                                  33,518
                                                                                  
                                                                                  
                                                                                  
                                                                                  29,344
                                                                                  
                                                                                  
                                                                                  
                                                                                  36,139
                                                                                  
                                                                                  
                                                                                  
                                                                                  29,026
                                                                                  
                                                                                  
                                                                                  
                                                                                  27,882Total ALPL
                                                                                  
                                                                                  $
                                                                                  147,607
                                                                                  
                                                                                  
                                                                                  $
                                                                                  144,097
                                                                                  
                                                                                  
                                                                                  $
                                                                                  158,963
                                                                                  
                                                                                  
                                                                                  $
                                                                                  156,431
                                                                                  
                                                                                  
                                                                                  $
                                                                                  97,331ALPL
      as a % of loan participation interests:Accruing
                                                                                  
                                                                                  
                                                                                  3.30
                                                                                  %
                                                                                  
                                                                                  
                                                                                  3.26
                                                                                  %
                                                                                  
                                                                                  
                                                                                  3.41
                                                                                  %
                                                                                  
                                                                                  
                                                                                  3.44
                                                                                  %
                                                                                  
                                                                                  
                                                                                  1.89
                                                                                  %Impaired
      evaluated on a pool basis
                                                                                  
                                                                                  
                                                                                  27.88
                                                                                  
                                                                                  
                                                                                  
                                                                                  26.13
                                                                                  
                                                                                  
                                                                                  
                                                                                  26.64
                                                                                  
                                                                                  
                                                                                  
                                                                                  25.65
                                                                                  
                                                                                  
                                                                                  
                                                                                  7.61Impaired evaluated under ASC310(1)
                                                                                  
                                                                                  
                                                                                  40.59
                                                                                  
                                                                                  
                                                                                  
                                                                                  21.71
                                                                                  
                                                                                  
                                                                                  
                                                                                  22.13
                                                                                  
                                                                                  
                                                                                  
                                                                                  14.35
                                                                                  
                                                                                  
                                                                                  
                                                                                  15.75Total non-accrual
                                                                                  
                                                                                  
                                                                                  36.32
                                                                                  
                                                                                  
                                                                                  
                                                                                  22.84
                                                                                  
                                                                                  
                                                                                  
                                                                                  23.18
                                                                                  
                                                                                  
                                                                                  
                                                                                  17.00
                                                                                  
                                                                                  
                                                                                  
                                                                                  14.07Total loan participation
      interests
                                                                                  
                                                                                  
                                                                                  4.16
                                                                                  %
                                                                                  
                                                                                  
                                                                                  3.95
                                                                                  %
                                                                                  
                                                                                  
                                                                                  4.23
                                                                                  %
                                                                                  
                                                                                  
                                                                                  4.04
                                                                                  %
                                                                                  
                                                                                  
                                                                                  2.52
                                                                                  %
 (1)Accounting
Standards Codification Topic 310, "Receivables"
  Under the
participation and subparticipation agreements, the Bank may, in accordance with
HPCI’s guidelines, dispose of any underlying loan that has an internal credit
grade of substandard or lower, is placed in a nonperforming status, or is
renegotiated due to the financial deterioration of the borrower. The Bank may,
in accordance with HPCI’s guidelines, institute foreclosure proceedings,
exercise any power of sale contained in any mortgage or deed of trust, obtain a
deed in lieu of foreclosure, or otherwise acquire title to a property underlying
a mortgage loan by operation of law or otherwise in accordance with the terms of
the participation and subparticipation agreements. Prior to completion of
foreclosure or liquidation, the participation is sold to the Bank at fair market
value. The Bank then incurs all costs associated with repossession and
foreclosure.
  For a
further discussion of “Credit Quality,” see HPCI’s Form 10-K for the year ended
December 31, 2009.
  Allowance
for Credit Losses (ACL)
  The
allowance for credit losses (ACL) is comprised of the allowance for loan
participation losses (ALPL) and the allowance for unfunded loan participation
commitments (AULPC). Loan participations are acquired net of related ALPL. As a
result, this ALPL is transferred to HPCI from the Bank and is reflected as ALPL
acquired, rather than HPCI having to record a provision expense for ALPL. If
credit quality deteriorates more than implied by the ALPL acquired, a provision
to the ALPL is made. If credit quality performance is better than implied by the
ALPL acquired, an ALPL reduction is recorded. As loan participations mature,
refinance, or other such actions occur, any allowance not absorbed by loan
losses is released through the reduction in ALPL.
 
 The
following table shows the activity in HPCI’s ALPL and AULPC for the last five
quarters ended September 30, 2010 and for the nine months ended September 30,
2010 and 2009:
  22
  Table 9 - Allowance for Credit Loss
Activity
  2010
                                                                                                  
                                                                                                  
                                                                                                  2009(dollar amounts in thousands)
                                                                                                  
                                                                                                  Third
                                                                                                  
                                                                                                  
                                                                                                  Second
                                                                                                  
                                                                                                  
                                                                                                  First
                                                                                                  
                                                                                                  
                                                                                                  Fourth
                                                                                                  
                                                                                                  
                                                                                                  ThirdALPL
      balance, beginning of period
                                                                                                  
                                                                                                  $
                                                                                                  144,097
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  158,963
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  156,431
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  97,331
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  95,748Allowance
      of loan participations acquired
                                                                                                  
                                                                                                  
                                                                                                  19,135
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  11,058
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  13,888
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  15,498
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  9,331Net
      loan lossesCommercial
      real estate
                                                                                                  
                                                                                                  
                                                                                                  (8,822
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (22,141
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (7,360
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (37,480
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (32,138
                                                                                                  )Consumer and residential real
      estate
                                                                                                  
                                                                                                  
                                                                                                  (2,537
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (2,553
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (4,648
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (3,700
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (3,942
                                                                                                  )Total
      net loan losses
                                                                                                  
                                                                                                  
                                                                                                  (11,359
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (24,694
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (12,008
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (41,180
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (36,080
                                                                                                  )Provision for (reduction in)
      ALPL
                                                                                                  
                                                                                                  
                                                                                                  (4,266
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (1,230
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  652
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  84,782
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  28,332ALPL balance, end of period
                                                                                                  
                                                                                                  $
                                                                                                  147,607
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  144,097
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  158,963
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  156,431
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  97,331AULPC
      balance, beginning of period
                                                                                                  
                                                                                                  $
                                                                                                  1,610
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  1,562
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  1,607
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  1,649
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  2,280Provision for (reduction in)
      AULPC
                                                                                                  
                                                                                                  
                                                                                                  309
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  48
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (45
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (42
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (631
                                                                                                  )AULPC balance, end of
period
                                                                                                  
                                                                                                  $
                                                                                                  1,919
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  1,610
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  1,562
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  1,607
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  1,649Total allowance for credit losses, end of
      period
                                                                                                  
                                                                                                  $
                                                                                                  149,526
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  145,707
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  160,525
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  158,038
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  98,980ALPL
      as a % of total participation interests
                                                                                                  
                                                                                                  
                                                                                                  4.16
                                                                                                  %
                                                                                                  
                                                                                                  
                                                                                                  3.95
                                                                                                  %
                                                                                                  
                                                                                                  
                                                                                                  4.23
                                                                                                  %
                                                                                                  
                                                                                                  
                                                                                                  4.04
                                                                                                  %
                                                                                                  
                                                                                                  
                                                                                                  2.52
                                                                                                  %ACL
      as a % of total participation interests
                                                                                                  
                                                                                                  
                                                                                                  4.22
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  4.00
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  4.28
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  4.08
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2.56
 
 Nine Months Ended September 30,(in thousands)
                          
                          2010
                          
                          
                          2009ALPL
      balance, beginning of period
                          
                          $
                          156,431
                          
                          
                          $
                          65,456Allowance
      for loan participations acquired
                          
                          
                          44,082
                          
                          
                          
                          18,134Net
      loan lossesCommercial
      real estate
                          
                          
                          (38,323
                          )
                          
                          
                          (65,781
                          )Consumer
      and residential real estate
                          
                          
                          (9,739
                          )
                          
                          
                          (8,316
                          )Total net loan losses
                          
                          
                          (48,062
                          )
                          
                          
                          (74,097
                          )Provision for (reduction in)
      ALPL
                          
                          
                          (4,844
                          )
                          
                          
                          87,838ALPL balance, end of period
                          
                          $
                          147,607
                          
                          
                          $
                          97,331AULPC
      balance, beginning of period
                          
                          $
                          1,607
                          
                          
                          $
                          2,301Provision for (reduction in)
      AULPC
                          
                          
                          312
                          
                          
                          
                          (652
                          )AULPC balance, end of
period
                          
                          $
                          1,919
                          
                          
                          $
                          1,649Total allowance for credit
      losses
                          
                          $
                          149,526
                          
                          
                          $
                          98,980
 
 The
decrease in allowance and provision during 2010 was primarily related to
moderate reduction of HPCI‘s delinquency levels, as well as reduced levels of
nonperforming assets. In Management’s judgment, both the ALPL and the AULPC were
adequate at September 30, 2010, to cover credit losses inherent in the loan
participation portfolio and portfolio of loan participation
commitments.
 
 Although
credit quality asset metrics and trends, including those mentioned above, have
improved during the first nine-month period of 2010, the economic environment in
our markets remains weak and uncertain as reflected by continued weak
residential values, continued weakness in industrial employment in northern Ohio
and southeast Michigan, and the significant subjectivity involved in commercial
real estate valuations for properties located in areas with limited sale or
refinance activities. Residential real estate values continued to be impacted by
high unemployment, increased foreclosure activity, and the elimination of
home-buyer tax credits. In the near-term, we believe these factors will result
in continued stress in our portfolios secured by residential real estate and an
elevated level of NCOs compared to historic levels. Further, concerns continue
to exist regarding the economic conditions in both national and international
markets, the state of financial and credit markets, the unemployment rate, the
impact of the Federal Reserve monetary policy, and continued uncertainty
regarding federal, state, and local government budget deficits. We do not
anticipate any meaningful change in the overall economy in the near-term. All of
these factors are impacting consumer confidence, as well as business investments
and acquisitions. Given the combination of these factors, we believe that our
ALPL and AULPC coverage levels are appropriate.
 
 Additional
information regarding asset quality appears in the "Credit Quality" section of
the Form 10-K.
  23
  MARKET
RISK
 
 The
predominate market risk to which HPCI is exposed is the risk of loss due to a
decline in interest rates. If there is a decline in market interest rates,
HPCI may experience a reduction in interest income from its loan participation
interests and a corresponding decrease in funds available to be distributed to
shareholders. When rates rise, HPCI is exposed to declines in the economic
value of equity since approximately 26% of its loan participation portfolio at
September 30, 2010 was fixed rate.
  Huntington
conducts its monthly interest rate risk management on a centralized basis and
does not manage HPCI’s interest rate risk separately. Two broad approaches
to modeling interest rate risk are employed: income simulation and economic
value analysis. An income simulation analysis was used to measure the
sensitivity of forecasted interest income to changes in market rates over a
one-year horizon. The economic value analysis was conducted by subjecting
the period-end balance sheet to changes in interest rates and measuring the
impact of the changes in the value of the assets. The models used for these
measurements assume, among other things, no new loan participation
volume.
 
 Using the
income simulation model for HPCI as of September 30, 2010, interest income for
the next 12-month period would be expected to increase by $15.4 million, or
14.2%, based on a gradual 200 basis point increase in rates above the forward
rates implied in the yield curve. Interest income would be expected to decline
$6.2 million, or 5.7%, in the event of a gradual 200 basis point decline in
rates from the forward rates implied in the yield curve. The gradual 200 basis
point decline in market rates over the next 12-month period assumes market
interest rates would reach a bottom and not fall below historical
levels.
 
 Using the
economic value analysis model for HPCI as of September 30, 2010, the fair value
of loan participation interests over the next 12 month period would be expected
to increase $8.5 million, or 0.2%, based on an immediate 200 basis point decline
in rates above the forward rates implied in the yield curve. Many of HPCI’s
variable rate loans are based on LIBOR interest rates. Because the gradual 200
basis point decline in market rates over the next 12 month period assumes market
interest rates would not fall below 0%, the fair value would be expected to
decline only $44.9 million, or 1.1%.
 
 OFF-BALANCE
SHEET ARRANGEMENTS
 
 Under the
terms of the participation and subparticipation agreements, HPCI is obligated to
make funds or credit available to the Bank, either directly or indirectly
through Holdings so that the Bank may extend credit or pay letters of credit
issued for those accounts for any of HPCI’s loan participation interests, to the
extent provided in the loan agreements underlying HPCI’s participation
interests. At September 30, 2010, December 31, 2009, and September 30, 2009,
HPCI’s unfunded commitments totaled $194.5 million, $303.7 million, and $290.2
million, respectively. It is expected that the existing cash balances and cash
flows generated by the existing portfolio will be sufficient to meet these
obligations.
 
 LIQUIDITY
AND CAPITAL RESOURCES
  The
objective of HPCI’s liquidity management is to ensure the availability of
sufficient cash flows to fund its existing loan participation commitments, to
acquire additional participation interests, and to pay operating expenses and
dividends. Unfunded commitments and additional participation interests in loans
are funded with the proceeds from repayment of principal balances by individual
borrowers, utilization of existing cash and cash equivalent funds, and, if
necessary, new capital contributions. Payment of operating expenses and
dividends will be funded through cash generated by operations.
 
 In
managing liquidity, HPCI takes into account forecasted principal and interest
payments on loan participations as well as various legal limitations placed on a
REIT. To the extent that additional funding is required, HPCI may raise such
funds through retention of cash flow, debt financings, additional equity
offerings, or a combination of these methods. However, any cash flow retention
must be consistent with the provisions of the Internal Revenue Code requiring
the distribution by a REIT of at least 90% of its REIT taxable income, excluding
capital gains, and must take into account taxes that would be imposed on
undistributed income.
 
 At
September 30, 2010, December 31, 2009, and September 30, 2009, HPCI maintained
cash and interest bearing balances with the Bank totaling $516.6 million, $715.7
million, and $653.9 million, respectively. HPCI maintains and transacts all of
its cash activity with the Bank and may invest available funds in Eurodollar
deposits with the Bank for a term of not more than 30 days at market
rates.
 
 At
September 30, 2010, HPCI had no material liabilities or contractual obligations,
other than unfunded loan commitments of $194.4 million, with a weighted average
remaining maturity of 1.2 years. In addition to anticipated cash flows, as noted
above, HPCI has cash and interest bearing balances with the bank totaling $516.6
million to supplement the funding of these liabilities and contractual
commitments.
  24
  As of
September 30, 2010, and December 31, 2009, shareholders’ equity was $4.0 billion
and $3.9 billion, respectively. Shareholders’ equity as of September 30, 2009,
was $4.5 billion.
  Regulatory
approval is required prior to the Bank’s declaration of any dividends in excess
of available retained earnings. The amount of dividends that may be declared
without regulatory approval is further limited to the sum of net income for the
current year and retained net income for the preceding two years, less any
required transfers to surplus or common stock. Based on a regulatory dividend
limitation, the Bank could not have declared and paid a dividend at September
30, 2010, without regulatory approval. As a subsidiary of the Bank, HPCI is also
restricted from declaring or paying dividends without regulatory approval. The
OCC has approved the payment of HPCI's dividends on its preferred securities
throughout 2009 and 2010. For the foreseeable future, management intends to
request approval for any future dividends; however, there can be no assurance
that the OCC will approve future dividends.
  Regulatory
capital ratios are the primary metrics used by regulators in assessing the
“safety and soundness” of banks. At September 30, 2010, the Bank met all capital
adequacy requirements and had regulatory capital ratios in excess of the levels
established for “well-capitalized” institutions. The capital ratios for
Huntington and the Bank at the end of the most recent five quarters are as
follows:
  Table 10- Regulatory Capital
Ratios
 
 2010
                                    
                                    
                                    2009September 30,
                                    
                                    
                                    June 30,
                                    
                                    
                                    March 31,
                                    
                                    
                                    December 31,
                                    
                                    
                                    September 30,Tier
      1 leverage ratio (5.00% "well-capitalized")Huntington
                                    
                                    
                                    10.54
                                    %
                                    
                                    
                                    10.45
                                    %
                                    
                                    
                                    10.05
                                    %
                                    
                                    
                                    10.09
                                    %
                                    
                                    
                                    11.30
                                    %Bank
                                    
                                    
                                    6.85
                                    
                                    
                                    
                                    6.54
                                    
                                    
                                    
                                    5.99
                                    
                                    
                                    
                                    5.59
                                    
                                    
                                    
                                    6.48Tier
      1 risk-based capital ratio (6.00% "well-capitalized")Huntington
                                    
                                    
                                    12.82
                                    
                                    
                                    
                                    12.51
                                    
                                    
                                    
                                    11.97
                                    
                                    
                                    
                                    12.03
                                    
                                    
                                    
                                    13.04Bank
                                    
                                    
                                    8.28
                                    
                                    
                                    
                                    7.80
                                    
                                    
                                    
                                    7.11
                                    
                                    
                                    
                                    6.66
                                    
                                    
                                    
                                    7.46Total
      risk-based capital ratio (10.00% "well-capitalized")Huntington
                                    
                                    
                                    15.08
                                    
                                    
                                    
                                    14.79
                                    
                                    
                                    
                                    14.28
                                    
                                    
                                    
                                    14.41
                                    
                                    
                                    
                                    16.23Bank
                                    
                                    
                                    12.69
                                    
                                    
                                    
                                    12.23
                                    
                                    
                                    
                                    11.53
                                    
                                    
                                    
                                    11.08
                                    
                                    
                                    
                                    11.75
 
 At
September 30, 2010, Huntington had $569.9 million of outstanding
trust-preferred-securities that, if disallowed by the Dodd-Frank Wall Street
Reform and Consumer Protection Act, would reduce regulatory Tier 1 risk-based
capital ratio by approximately 133 basis points. Even with this reduction, the
capital ratios would remain above “well-capitalized” levels. There is a 3-year
phase-in period beginning on January 1, 2013, that Management believes will
provide sufficient time to evaluate and address the impacts of this new
legislation on Huntington's capital structure. Accordingly, Huntington does not
anticipate this potential change would have a significant impact to it's
business.
 
 During
the 2010 third quarter, the Basel Committee on Banking Supervision revised the
Capital Accord (Basel III), which narrows the definition of capital and
increases capital requirements for specific exposures. The new capital
requirements will be phased-in over six years beginning in 2013. If these
revisions were adopted currently, it is estimated to have a negligible impact on
the regulatory capital ratios based on the current understanding of the
revisions to capital qualification. Clarification from the banking regulators
may be needed on their interpretation of Basel III and any additional
requirements to the stated thresholds.
  During
2008, Huntington received $1.4 billion of equity capital by issuing to the U.S.
Department of Treasury 1.4 million shares of its Series B Preferred Stock as a
result of its participation in the Troubled Asset Relief Program (TARP)
voluntary Capital Purchase Plan (CPP). During the 2008 fourth quarter and the
2009 fourth quarter, Huntington contributed $500 million and $400 million,
respectively, of capital received to the Bank in the form of subordinated debt
qualified as Tier 2 capital. During the 2009 second and third quarters,
Huntington also contributed a total of $500 million of Tier 1 capital to the
Bank. Huntington has also contributed $375.5 million to the bank as Tier 1
capital thus far in 2010. These actions had a positive impact on the Bank’s
capital ratios.
 
 Participation
in the CPP requires companies to adopt certain standards and conditions on
executive compensation, restrictions on the payment of dividends and the
repurchase of common stock. HPCI does not believe these standards and conditions
adopted by Huntington will have a significant impact on HPCI’s financial
condition or results of operations.
 
 Item
3. Quantitative and Qualitative Disclosures about Market Risk
  Quantitative
and qualitative disclosures for the current period can be found in the Market
Risk section of this report, which includes changes in market risk exposures
from disclosures presented in HPCI's Form 10-K.
  25
  Item
4. Controls and Procedures
 
 HPCI
maintains disclosure controls and procedures designed to ensure that the
information disclosed in its filings with the Securities and Exchange Commission
is recorded, processed, summarized, and reported appropriately and on a timely
basis. HPCI's management, with the participation of its President (principal
executive officer) and the Vice President (principal financial officer),
evaluated the effectiveness of HPCI’s disclosure controls and procedures (as
such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as
of the end of the period covered by this report. Based upon such
evaluation, HPCI's President and Vice President have concluded that, as of the
end of such period, HPCI's disclosure controls and procedures are
effective.
 
 There
have not been any changes in HPCI’s internal control over financial reporting
(as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) during the quarter ended September 30, 2010, to which this report relates,
that have materially affected, or are reasonably likely to materially affect,
HPCI's internal control over financial reporting.
 
 PART
II.  OTHER INFORMATION
 
 In
accordance with the instructions to Part II, the other specified items in this
part have been omitted because they are not applicable or the information has
been previously reported.
 
 Item
6.      Exhibits
  This
report incorporates by reference the documents listed below that HPCI has
previously filed with the SEC. The SEC allows incorporation by reference in this
document. The information incorporated by reference is considered to be a part
of this document, except for any information that is superseded by information
that is included directly in this document.
  This
information may be read and copied at the Public Reference Room of the SEC at
100 F Street, N.E., Washington, D.C. 20549. The SEC also maintains an Internet
web site that contains reports, proxy statements, and other information about
issuers, like HPCI, who file electronically with the SEC. The address of the
site is http://www.sec.gov. The
reports and other information filed by HPCI with the SEC are also available at
Huntington’s Internet web site. The address of the site is http://www.huntington.com.
Except as specifically incorporated by reference into this Quarterly Report on
Form 10-Q, information on those web sites is not part of this report. Reports,
proxy statements, and other information about HPCI can also be inspected at the
offices of the NASDAQ National Market at 33 Whitehall Street, New York, New
York.
 
 (a)
 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.31.1.
                      
                      Rule
      13a – 14(a) Certification – President (chief executive
      officer).31.2.
                      
                      Rule
      13a – 14(a) Certification – Vice President (chief financial
      officer).32.1.
                      
                      Section
      1350 Certification – President (chief executive
  officer).32.2.
                      
                      Section
      1350 Certification – Vice President (chief financial
    officer).99.1.Unaudited
      Condensed Consolidated Financial Statements of Huntington Bancshares
      Incorporated as of and for the three month and nine month periods ended
      September 30, 2010 and
2009.
  26
  SIGNATURES
 
 Pursuant to the requirements of Section
13 or 15(d) 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, on the 12th day of November, 2010.
 
 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)
  27